Chenault announces in-state gas line bill

Alaska House Speaker Mike Chenault says he’ll seek new authority, pre-certification and waived fees for in-state pipeline project

Stefan Milkowski

For Petroleum News

Alaska House Speaker Mike Chenault, whose 2010 legislation House Bill 369 created the current in-state natural gas pipeline effort, has announced follow-up plans meant to clear any potential roadblocks for the project.

“It might be the only viable option we have,” Chenault said at a press conference Nov. 4 in Anchorage.

Flanked by fellow supporters of an in-state line, Chenault praised the “tremendous” work of the Alaska Gasline Development Corp. — the Alaska Housing Finance Corp. subsidiary created under HB 369 — and said he wanted to facilitate work going forward.

Chenault presented several ideas for legislation: give AGDC the authority to determine an ownership structure for the line and enter into agreements with private companies; allow AGDC to “support expansion” of in-state gas demand; waive the requirement for a certificate from the Regulatory Commission of Alaska; allow the pipeline to operate as a contract carrier; and waive state right-of-way lease fees.

Three other in-state gas bills sponsored by Chenault await action in the Senate: HB 189, allowing confidentiality agreements with private parties and removing the Alaska Natural Gas Development Authority from an in-state gas line team led by AGDC; HB 203, creating an in-state gas line fund; and HB 215, limiting legal challenges to right-of-way lease decisions.

Chenault is also the sponsor of HB 142, meant to force the administration to prove a gas line under the Alaska Gasline Inducement Act, or AGIA, is still economic.

In an interview with Petroleum News on Nov. 5, Chenault explained his support for an in-state line and discussed plans for the upcoming session.

Petroleum News: Last week you talked about filing legislation related to the AGDC pipeline. Why is legislation necessary, and what do you hope to achieve?

Chenault: We want to keep momentum moving forward. The AGDC team has some recommendations they would like to see, so we’re looking at how we can implement those into a piece of legislation to keep from having any roadblocks come up and keep that project moving forward.

Petroleum News: Some of the things you’re proposing AGDC asked for and others go beyond. Where did you get ideas for the legislation?

Chenault: Just from conversations with them and other legislators. As we look at trying to move a gas pipeline project forward we feel these are some of the things we need to look at, investigate them, and if they make good sense, then see if we can put them in a piece of legislation and move it forward.

Petroleum News: One of the things on AGDC’s wish list was stabilized property taxes. Why didn’t you include that one?

Chenault: We don’t have enough information on that yet. My staff and I have talked about state taxes and right-of-way taxes, simply because without taxes that brings the tariff price down. And if that tariff price is down, that makes gas to Alaskan consumers cheaper.

Petroleum News: Is ownership structure a consideration?

Chenault: Part of it is that. We don’t know what this project is going to look like at the end of the day. I hope that it is privately owned, that they can put together a good enough package that industry comes in and says, ‘We’ll move forward with this project.’

Petroleum News: If the line is a contract carrier line, how will you ensure that companies exploring on the North Slope will have access to it?

Chenault: They’ll have access to the pipeline. You don’t ever want to build a line that’s half-full, because if you do, the tariffs go up — somebody’s going to pay for that unused space. If you reach a point where the line’s full, you can always add more space by compression or looping the line and making it bigger.

Petroleum News: Why do you think a smaller pipeline, which presumably will have higher tariffs than a large-scale pipeline, will have any more success attracting shippers than (AGIA licensee) TransCanada has?

Chenault: Well, I think TransCanada’s market was to middle America, and with the finding of shale gas, we see that the chances of that happening are fairly small. They’ve continually talked about the all-Alaska line, but we haven’t seen much movement on that in the last year or two anyway.

The small pipeline, while we know the tariffs will be higher, that may be a pipeline you will have people bid on to take gas to the Cook Inlet for LNG, let’s say. Or we have the Donlin Creek mine that’s looking at importing LNG for a power source. You’re going to need some anchor tenants to buy that gas from any producer.

Petroleum News: So the fact that it’s less gas overall means there might be more in-state customers willing to pay more for it?

Chenault: Well, it may be sized right. And we don’t know that. We don’t know what the size will look like until they (hold) an open season, see who all and how much gas people may want to bid.

Petroleum News: You said your legislation wouldn’t prevent the kind of alignment the Gov. Sean Parnell is talking about for a pipeline to Valdez.

Chenault: I think most of us have said it’s going to take alignment by the producers, the State of Alaska, and a pipeline corporation to actually build the line that’s going to make economic sense for Alaska.

Petroleum News: Why does the state need to invest hundreds of millions of dollars up front if the goal is to have a market-driven project?

Chenault: The market will probably figure it out. The state can do its part of providing gas to the citizens of Alaska by front-loading the costs to get to an open season, so that a lot of those numbers are put together where people actually know what their costs will be.

Petroleum News: Would your legislation put up any hurdles for an AGIA pipeline?

Chenault: No. It’s not our intent to do that. Hopefully if the (AGIA) project is not economical and is not going forward, those in charge of it figure that out and try to work with the state to figure out a way to monetize and get Alaska’s gas to market, whether it’s through Canada or some port on the coast.

Petroleum News: TransCanada has said it’s time for the state to start negotiating fiscal terms for gas.

Chenault: There’s a number of us that feel the same way. In order to get to any completed pipeline project, we’re going to have to have some gas certainty. Now what that looks like, for how long, we don’t know right now.

Petroleum News: Whose responsibility is it to start that discussion?

Chenault: It’s the administration’s, and the Legislature’s. Some of us are looking at doing exactly that.

Chenault: I think it’s still an option out there. We would like to work with the administration and others involved and try to come to an agreement on it. But it’s still there, we’re still interested in it, and if that project is indeed not going to go forward, there’s concern by a number of us as to why we should be spending that money.

Petroleum News: Any thought of trying to get around the 500 million cubic foot per day limit in AGIA for other pipelines?

Chenault: Well, that’s the reason the line is sized at 500 mcf a day, because current law is the AGIA law. If the AGIA process did go away, or if there were stipulations made in it, we could look at the possibility of a bigger line.

Petroleum News: Any plans to try to change AGIA?

Chenault: The governor’s having conversations with some of the big producers, and I’m sure the administration is talking with TransCanada on the AGIA process. My hope is that they come to some agreement to make some changes. It’ll take a piece of legislation to make those changes, but it could be introduced by the governor or another legislator.

Petroleum News: Your proposed legislation would put a lot of trust in AGDC. What has AGDC done to warrant that trust?

Chenault: I think they’ve done exactly what they were asked to do in HB 369. They came back with a plan that could move gas off the North Slope. We’ve got a lot of confidence in (AGDC President) Dan Fauske and the team he’s put together. If you look at Dan’s record and things he’s been involved with — very successful.

Petroleum News: Would your bill authorize them to actually build a pipeline?

Chenault: It doesn’t actually authorize them. They would still have to come back to the state and the Legislature.

Petroleum News: Last month Fauske said it would take about $400 million in state funds to put the project out to bid. Are you willing to spend that amount?

Chenault: Last year we put $200 million in the capital budget. We set it aside for just that purpose. We have a piece of legislation in the Senate now and hopefully we can pass that next year. We’re probably looking at another $35 million next year, plus the $200 million. I think that gets us fairly close to the amount they would need to get to an open season.

Petroleum News: Is there support in the Legislature for that?

Chenault: I think there is. There’s a number of Alaskans that are tired of waiting for gas to be shipped off the North Slope. There’s concern about having an energy supply not only for Cook Inlet but (also Fairbanks). It’s a travesty that the second-largest city in the state is on coal, wood, and oil. We need to do something to help Fairbanks out.

Escopeta just yesterday announced they think they made a big find in the Cook Inlet — about 3.5 trillion cubic feet of gas. And if they have, that’s great. That would alleviate a lot of the short-term gas shortage issues here in the Cook Inlet if they could get it developed.

So there’s some hope out there that we don’t run out of gas, but we still need to look at options that would develop our resources and put Alaskans to work.

Petroleum News: So even if there’s a big find that’s capable of supplying the Anchorage area, we still need a pipeline?

Chenault: I think we do. I really think we still need a pipeline. And if the gas find is big enough, maybe we build that pipeline to Fairbanks.

Petroleum News: What do you think of the governor’s idea of going to Valdez?

Chenault: If that’s the line that makes economic sense, then that’s the direction we should go.

Petroleum News: How about the governor’s oil tax bill. What do you think will happen this session?

Chenault: I don’t know. I guess my hope is that the Senate sends something back to the House. It may just deal with progressivity. It may deal with some other things, maybe the tax credits in the bill.

My hope is we don’t just sit here and flounder watching other areas in the U.S. have a big oil boom and not much money being invested in Alaska as far as putting oil back into the TAPS line.

We do have some exploration going on by smaller companies up on the North Slope, but a lot of that is driven by the tax credits. And if they found oil, it would be years away before they could put that into TAPS.