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In-state bullet line gets questions Senate Resources Committee members wonder if new Cook Inlet natural gas estimates could make line to Southcentral unnecessary Kristen Nelson Petroleum News
The State of Alaska is currently putting money into two gas pipeline projects — a large line from the North Slope to major markets (with spur lines within Alaska) and a smaller line from the North Slope to Interior and Southcentral markets.
The Alaska Senate Resources Committee met in Anchorage Aug. 15-17 to hear updates, starting with Dan Fauske, president of the Alaska Gasline Development Corp., established by the Legislature last year to determine if an in-state line was economic and to have it operational by the end of 2015. (See TransCanada update on page 1 of this issue.)
Available Cook Inlet gas was of considerable interest to legislators, following a recent Buccaneer onshore discovery, the arrival of a jack-up rig to drill for Escopeta and the release of a U.S. Geological Survey estimate of undiscovered resources.
Rep. Peggy Wilson asked what the effect would be of a big Cook Inlet discovery.
Joe Dubler, AGDC vice president and CFO, said the largest impact would be on the amount of liquefied natural gas Enstar would have to import between now and 2019.
Sen. Bill Wielechowski asked if AGDC’s work was done before the latest USGS estimates of undiscovered resources, a mean of 19 trillion cubic feet.
Lieza Wilcox, AGDC commercial analyst, said it was.
Undiscovered resources Brenda Pierce, USGS resources manager, told the committee Aug. 16 that the estimates are for technically recoverable resources, with today’s technology and industry practices, and cover only onshore Cook Inlet and state waters, not the outer continental shelf.
The range of undiscovered natural gas is 5 tcf (at a 95 percent confidence level) to 39.7 tcf (at a 5 percent confidence level). This compares, she said, to cumulative production of natural gas in Cook Inlet of some 7.8 tcf.
This does not include known reserves, Pierce said.
Those estimates are not all accessible — large areas are not open for drilling — and they do not indicate what volume of the technically recoverable would be economically viable, she said.
Pierce said USGS works closely with the Alaska Division of Oil and Gas and the Division of Geological and Geophysical Surveys to understand the rocks, but when it comes to running the numbers, USGS does that by itself.
Resources co-Chair Joe Paskvan noted that the 5 tcf at the 95 percent confidence level, combined with estimated reserves of 1.8 tcf, a total of 6.8 tcf, is in the range of the 7.8 tcf already produced.
Pierce said she thinks there’s real potential in the Cook Inlet basin, but co-Chair Tom Wagoner noted that “until somebody proves it’s economic we can’t count on any of this.”
Concerns about demand Sen. Bert Stedman was concerned about the assumption that there would be export demand, and said he would like to see more assured markets. If the state had $8 billion to spend, is this what we’d spend it on? He asked: Is this the only alternative for power for the Railbelt?
Fauske noted that AGDC only had a year to do the work, and said not all questions can be answered in a year. He also noted that a lot of information, such as the USGS estimate, came in at the end.
But, he said, if there was a large find in Cook Inlet, natural gas could be sent north to Fairbanks.
Wagoner said that while the study takes account of the Watana dam project, there is no mention of the geothermal potential Ormat is working on or Cook Inlet Region Inc.’s coal gas project.
Wilcox described the liquefied natural gas alternative AGDC looked at, with estimated costs at $14 to $19 per million Btu. She said they didn’t include all energy options, but that LNG was the most available to fulfill the entire energy demand of the area.
Tariff issue Paskvan was concerned about the difference between an estimated tariff to Southcentral, $5.63 before gas and local distribution costs of $2 each, and $6.45 to Fairbanks.
Mike Elenbaas, a manager at Black and Veatch, said tariff modeling was based on allocating costs to consumers receiving benefit. Fairbanks pays a lower cost because of the gas going to Anchorage, he said.
Paskvan shot back that there is a lower tariff to Anchorage because of Fairbanks demand, but that Fairbanks bears the cost of a $255 million straddle plant, necessary because the line as modeled carries natural gas liquids and they have to be extracted where a spur line goes to Fairbanks. Ultimate NGL extraction would be at a plant in Southcentral.
Elenbaas said the overall tariff is lower because of NGL content in the gas.
The tariff modeling was based on what would be most defensible in front of regulators, Wilcox said. The cost causer being the cost payer is a principle the Regulatory Commission of Alaska has followed, she said.
Other offtake points could also require straddle plants, she said, calling a “postage stamp” rate — the same rate for all — less defensible.
Paskvan said he was concerned that Fairbanks subsidizes Anchorage and asked about moving NGL through the oil line; he said there had been discussions of injecting NGL south of Pump Station 1 to solve vaporization issues.
Benefit of state ownership Fauske said a big drop in the tariff, $1 to $1.20, occurs if the state owns the line, because financing would be 100 percent debt and the state has a triple-A rating while most builder-owner-operators have B-plus-plus ratings.
As to who finances, Stedman said the state has typically put in half on hydro projects, and asked how legislators should set fairness across the state.
Fauske said his initial concern had been that the state would have to put up cash, while this proposal is for revenue bonds. It’s a policy decision, he said, noting that for equity across the state propane and LNG are possible.
All issues need to be explored, Fauske said, and the product has to beat imported LNG and propane already available.
Where the money goes Larry Persily, federal coordinator for Alaska Natural Gas Transportation Projects, told the committee Aug. 17 that an in-state line would have many of the same problems as a main line, just on a smaller scale, including a need for fiscal terms.
He said Alaskans need to stop thinking about the big line and an in-state line as competitors and think about how to combine them.
Persily restated remarks he’s made in the past, telling legislators that if the state is going to spend billions for higher-cost natural gas than the state would get from a big line, it needs to consider putting that money into the big line. An in-state line built as a spur line just from Fairbanks to Southcentral is much more affordable, he said.
Persily said he was concerned about the Alaska public, which appears to believe the big pipeline won’t happen and is turning to other less attractive options.
Getting gas to Southcentral drove the in-state gas pipeline project, but with the revised project schedule from AGDC now shows first gas in late 2018.
Persily advised against letting Cook Inlet drive the decision, because, he said, you can’t get the gas there in time.
Fairbanks load issue Harold Heinze, CEO of the Alaska Natural Gas Development Authority, said he questioned the Fairbanks volumes attributed to the line, some 60 million cubic feet a day, based on the recent announcement that Golden Valley Electric Association and Flint Hills were looking at trucking LNG from the North Slope.
He said it would be hard for the bullet line to compete with that. He noted that 500 million cubic feet a day requires an anchor tenant, 250 million has been discussed as the baseline, but said that could drop to 167 million cubic feet a day with LNG trucked to Fairbanks, substantially raising the tariff, with Alaska consumers paying that cost.
Wagoner asked why the GVEA-Flint Hills proposal would benefit Fairbanks beyond those entities and Heinze said the Fairbanks gas market is primarily GVEA and Flint Hills, actually located in North Pole, and close to the next biggest users, the military. If needed, he said, it would be easy enough to make LNG deliveries at some point in downtown Fairbanks.
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