Fauske: separate AGDC getting under way

Entity charged with in-state gas pipeline getting organized, hiring more contractors, working toward open season ending early 2015

Kristen Nelson

Petroleum News

In presentations to the Alaska Oil & Gas Congress and the Mayor’s Energy Task Force Sept. 17 and 18 in Anchorage, Dan Fauske, president of the Alaska Gasline Development Corp., provided updates on work to date by the entity, created as an independent public corporation of the state in House Bill 4, signed by Gov. Sean Parnell May 21.

With multiyear funding provided by the Legislature and a board named by the governor, AGDC is moving ahead to completing an open season in the first quarter of 2015. The goal for ASAP, Alaska’s In-State Gas Pipeline, is first gas to Fairbanks in 2019 and gas to Southcentral in 2020. A successful open season would be a requirement to move forward to project sanction in the first quarter of 2016, the period covered by the $400 million in state funding.

AGDC was an outgrowth of HB 369, passed in 2010. The goal of that legislation was combining existing in-state gas projects to develop an in-state natural gas pipeline plan for delivery to the Legislature by July 1, 2011. The plan was defined in statute as getting North Slope natural gas to Alaskans at the lowest possible cost. AGDC, originally a subsidiary of Alaska Housing Finance Corp., became a separate entity under HB 4; it is housed in the Alaska Department of Commerce, Community and Economic Development.

AGDC, AGIA commitments

The governor has asked for alignment between the large project, the Alaska Pipeline Project or APP, and ASAP.

Fauske said Sept. 17 that with the ability AGDC now has under HB 4 to sign confidentiality agreements it is in active discussions with APP, following the governor’s direction to work toward alignment. If APP goes ahead, he said, ASAP would provide a spur line to Southcentral.

Fauske said if the big line doesn’t go forward, the state with AGDC is in a position to do something on its own. Asked after his presentation to the Mayor’s Energy Task Force what is different about this attempt to move gas from the North Slope compared to earlier efforts, he said what’s changed is recognition of the high cost of doing nothing and the potential that Alaska’s major cities will collapse from lack of fuel. Oil is about revenue, Fauske said, but gas is about security.

New organizational structure

CH2MHill has been selected as the program management contractor, he said, and Sussex out of Boston will be working with AGDC on the open season.

2013 major work activities are focused on advancing facilities and pipeline engineering, open season and construction planning and regulatory engagement. Summer field work included 444 geotechnical boreholes from the Yukon River to Point Mackenzie, geohazard investigation, stream crossing surveys, air monitoring, terrain unit mapping, cultural resource surveys and routing surveys.

Fauske noted that there is an effort not to duplicate work done by APP, and AGDC is doing air monitoring from Livengood south while TransCanada is doing Livengood north.

ASAP requires a special permit from PHMSA, the U.S. Department of Transportation’s Pipeline and Hazardous Materials Safety Administration. Fauske said this is a troubling area since Congress has given PHMSA “vast power and authority.” Some of what the agency requires could be overkill, he said, and the cost of that permit could be significant.

Schedule changers

Asked if Alaska Oil and Gas Conservation Commission determination of how much gas can be sold could hold up the project, Fauske said AGDC has met with the commission and got no indication an allowable gas offtake would be beyond the scope of the 500 million cubic feet per day maximum for ASAP. He said an approach to AOGCC for an order on gas offtake would probably occur after an open season.

Asked what else could hold up the project, Fauske said if the referendum to revoke the new oil tax law, Senate Bill 21, were to pass, “this gas line’s toast.” Without fiscal certainty there won’t be a gas line, he said.

Call for reality

Larry Persily, federal coordinator for Alaska Natural Gas Transportation Projects, addressed that question Sept. 17 at the Alaska Oil & Gas Congress in Anchorage.

Among three options — the producer line, now focused on liquefied natural gas exports; the smaller state-sponsored line; and the port authority LNG project — which is the most realistic outcome?

Persily said this was his opinion on which of the three was most probable “on the assumption that we have to assume one of the three is going to get built. None of the above is not an option,” he said, likening it to the challenge of a bookie who has to pick the most probable winner “even though both teams have weaknesses.”

Persily said he thinks the odds lie with the producer line based on “money, markets and merit.”

Real money is needed to pull off a multibillion dollar project, he said, cash for a down payment and money to cover cost overruns.

The companies in the producer project — BP, ConocoPhillips, ExxonMobil and TransCanada — have combined assets of more than $700 billion, he said.

“If they decide that a gas line looks good to them, they can afford it.”

But all four have to decide they want to build it, he said. They have to decide that on the same schedule; they have to decide how to divide up ownership; and they need to sign up buyers.

Buyers will require real prices and firm delivery dates. The market for LNG is competitive, he said, and Alaskans have to realize “you can’t sell it for whatever you want — there’s a lot of other suppliers out there.”

Economies of scale can get the price down to something competitive in Asia, but the companies and the state “need to negotiate a fiscal deal that the public will accept.”

The Alaska Gasline Development Corp., the state entity planning an in-state gas line, would have an important role to play delivering gas for use in Alaska, he said, but warned that “populist politics could also ruin the odds of the Alaska project. If you tell people what they want to hear long enough they start believing it even if it’s not true,” he said, calling for “more reality” and the need for Alaskans “to understand the world as it is.”

—Kristen Nelson