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Administration backs pipeline, does not support gas authority on LNG
Larry Persily Petroleum News Juneau Correspondent
Although the Murkowski administration does not support the Alaska Natural Gas Development Authority�s hurried funding request to the Legislature, and although it is frustrated with the board�s enthusiasm for a liquefied natural gas project, state of Alaska officials recognize the authority is the product of a citizens� initiative.
The governor cannot dictate to the authority, only recommend, said Steve Porter, deputy commissioner at the Department of Revenue and the administration�s liaison to the authority.
�It is frustrating,� said John Manly, press secretary for Gov. Frank Murkowski.
Because the authority was created by voter initiative, it�s on its own �parallel track� to the administration�s pipeline efforts, Manly said, rather than the same track.
The initiative, approved by an almost 2-to-1 margin last November, established the authority to work for one year and then present the Legislature with a project plan to possibly build, own and operate an LNG project to market Alaska�s natural gas.
State pushing for gas pipeline Manly said the administration has told Harold Heinze, the authority�s chief executive officer, that it wants to put its efforts into winning congressional approval of federal tax incentives for a gas pipeline and, if victorious, push the North Slope producers to build the $20 billion project.
Heinze acknowledged he finds himself �outside the plan� when it comes to the administration�s efforts to promote a gas pipeline instead of an LNG project.
Porter testified at the Alaska Senate Resources Committee on Sept. 10 that the administration believes the best way to maximize the value of known North Slope gas reserves is to build a pipeline to move 4.5 billion cubic of feet per day of gas to Alberta and then into the North America pipeline grid.
LNG could come later, he said, after more reserves are proven.
Authority sees LNG as its job The authority, however, believes its job is to promote, build and operate a shorter pipeline from the North Slope to Valdez, where a fleet of LNG tankers would transport 2 billion cubic feet of liquefied gas per day to the U.S. West Coast. Heinze estimates the price tag at about $12 billion.
Heinze told lawmakers the authority�s project would bring more value to the state by making more gas available for in-state uses. And though he believes in the LNG project, he said he also is supportive of the administration�s efforts to win congressional support for the pipeline project. �I hope they get every break possible from the federal government.�
The authority does not see its efforts detracting from the administration�s pipeline push, Heinze said.
The administration sees it much differently. �There aren�t enough known reserves to let both projects move ahead concurrently,� Porter told legislators at the Anchorage hearing, which was called by Senate Resources Chairman Scott Ogan, R-Palmer, and also attended by five members of the House Resources Committee.
�We believe the best opportunity and the best plan is to market 4.5 bcf,� Porter said, explaining that not only would it move twice the gas as the smaller LNG project but would do so with a higher wellhead value � meaning more tax and royalty revenue to the state. Alaskans are frustrated Legislators, including Rep. Cheryll Heinze, R-Anchorage, wife of Harold Heinze, told Porter of their frustration that the producers have yet to build an Alaska natural gas project. �The Alaska people are thin on patience,� Rep. Heinze said.
�I want to build something,� Ogan said.
If Congress fails to pass sufficient tax incentives for the pipeline, and if the producers decide against investing $20 billion in the project, then the administration would look again at an LNG project, Porter said.
�He�s got the cart before the horse,� Manly said of Heinze�s rush to plan and engineer an LNG project. �He seems to think this is his moment in the sun.�
The administration also believes the authority�s rushed $2.5 million funding request for engineering and a business plan is premature. The authority, which voted last month to ask for the money, originally wanted $3 million, explaining it needed the money early this fall to stay on schedule.
Porter told legislators the authority could make better use of its efforts if it worked toward determining the economic feasibility of in-state uses for the gas, such as spur lines to Southcentral or eventually to Valdez for a smaller LNG project. Investigating financing options would be another way the authority could assist the administration�s work, he said.
Assisting and researching isn�t exactly what the voters were told the state gas authority would do. �We are not a facilitator. We are a doer,� Heinze told legislators.
Heinze: �I�m stubborn.� Sen. Georgianna Lincoln, D-Rampart, told Heinze it sounded to her like the administration was backing off a bit in its support for the authority. Heinze responded he refuses to be dictated to by the timing of events in Washington, D.C. �I guess I�m just a stubborn Alaskan.�
He acknowledged, however, that timing could be a problem if an LNG purchaser wants Alaska gas before a project is built. If the authority had a contract to supply gas, but no LNG to deliver, Heinze said, it could buy LNG on the open market and sell it to honor its commitment until an Alaska project is ready.
�All I want is a $2.5 million grubstake,� he said. �What I�m asking all of you to do is bet $2.5 million and I think you�ll feel better at the end of the day.�
Porter had told Heinze earlier this month that lawmakers cannot appropriate money while out of session, and the administration would prefer the authority wait until the Legislature convenes in January to ask for more money. Lawmakers in May appropriated $150,000 for the authority�s first year of operation. The board was named and started work about two months ago.
Original request was $3 million The sponsor of the initiative that created the authority had asked lawmakers this past session for $3 million for the first year of operations. The governor later named the initiative sponsor, Scott Heyworth, to the authority�s seven-member board. Heyworth had dropped out of the Democratic primary race for lieutenant governor to support Murkowski in his gubernatorial campaign.
The Sept. 10 Resources Committee meeting wasn�t only about turning Alaska�s natural gas into cash. Yukon Pacific Corp., which was unsuccessful in its 20-year effort to build an Alaska LNG project, still holds permits for the project, and it sounds like the company is looking to sell them.
�We have permits,� Ward Whitmore of Yukon Pacific told legislators. �We would like to monetize our permits.�
He said the company views itself as a resource to help the state gas authority.
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