HB 132 to limit ASAP in House Resources

Bill would limit work AGDC could do on in-state line unless Alaska LNG project loses partner, fails to go to FEED or stalls out

Kristen Nelson

Petroleum News

The House Resources Committee has begun consideration of House Bill 132 which would limit work the Alaska Gasline Development Corp. could do on a project in competition with the Alaska LNG project. The committee adopted a committee substitute March 11 and had public comment scheduled for March 13 and 14.

House Speaker Mike Chenault, R-Nikiski, presented the bill to the committee March 6, said it affirms the policy direction for AGDC set by the Legislature when it created AGDC and when the Legislature set the terms of AGDC’s involvement in the Alaska LNG project in 2014.

The bill is in response to Gov. Bill Walker’s decision in February to expand the scope of an in-state line, expanding it for export as well as delivery of natural gas to residents. Since the state began to focus on its role in AKLNG, a project which would deliver natural gas in-state but be primarily focused on liquefied natural gas for export, the in-state line has been worked as a backup plan in the event AKLNG failed to move forward.

Chenault said AKLNG is most likely to deliver the most returns for the state, and HB 132 ensures that AGDC does not pursue other projects in completion with AKLNG until certain conditions have been met. There are three possibilities: the date the state or another party withdraws from the project; “the date that the state and other parties enter into contractual agreements to undertake front-end engineering and design” for the project - changed in the committee substitute from the original bill which had the date the parties agree to move to FEED; or July 1, 2017.

Other changes in the committee substitute include addition of an immediate effective date and expansion of the prohibition of AGDC participation to include not just a project in which a majority of the gas is intended to be exported, but also a project in which a majority of the gas is intended for export by AGDC or by another party.

Written consent for gas marketing

The bill also requires written consent of a gas owner before gas can be marketed to a third party.

Rep. Mike Hawker, R-Anchorage, one of the bill’s sponsors, told the committee the dialogue behind the legislation is whether it is advisable for the state to establish a state-sanctioned competing project through AGDC. The difference, he said, is between a competing project and a backstop.

An in-state project as a backstop is the status quo today, Hawker said, and the bill proposes to preserve the status quo for a period of time.

Hawker said the governor has indicated that the producers would be the competition for natural gas sales, but he said it is his understanding that through the AKLNG application to the U.S. Department of Energy that North Slope natural gas has been committed to AKLNG. He asked if DOE would allow the state to permit two LNG export project simultaneously.

He also said that it is his understanding that while the state has a one-quarter interest in AKLNG - represented by TransCanada in the gas treatment plant and the pipeline and by AGDC in the liquefaction plant - the governor’s proposal would have the liquefaction facility owned by a third party. He said it was his understanding that the LNG facility is where low-value gas is converted into high-value LNG, and questioned why the state would give up the component of the project which makes the most money.