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Federal agencies moving pipeline issues FERC, departments of Energy, Interior, tell Alaska legislators North Slope gas line issues moving forward in Washington Kristen Nelson Petroleum News Editor-in-Chief
The amount of money Congress would have to appropriate for a federal loan guarantee would be in the 2-10 percent range and a joint pipeline office would be set up to oversee operation of an Alaska gas pipeline after construction, Alaska legislators were told by federal officials.
That was some of what the Alaska Legislature’s Budget and Audit Committee heard May 11 from representatives of three federal agencies working Alaska gas project issues — the departments of Energy and Interior and the Federal Energy Regulatory Commission.
Mark Maddox, the principal deputy assistant secretary for Fossil Energy at DOE, currently the designated coordinator of federal activities for the Alaska gas pipeline project, said DOE began federal agency preparations on pipeline matters soon after the president signed the federal enabling legislation in October.
“We intend to be ready to respond to a project proposal as soon as the basic arrangements are completed here in Alaska,” he said. An interagency working group has been meeting for six months and there is a draft memorandum of understanding and coordination clarifying federal agency responsibilities now under legal review.
An Alaska Natural Gas Projects office has been created at DOE within the office of fossil energy and funded with $900,000, Maddox said, with additional funding being sought for an increase in activities in fiscal year 2006. A permanent coordinator would be a presidential nominee, he said, subject to Senate confirmation.
“If no project is proposed in the next 11 months, it will be the duty of the temporary federal coordinator to initiate a study of alternatives, including federal ownership and operation of a pipeline,” Maddox said. “And no one involved wants federal ownership, including the current temporary coordinator, myself.”
Rep. Ralph Samuels, R-Anchorage, vice-chair of the committee, asked how a federal loan guarantee would work. Maddox said an additional appropriation would be needed for the federal loan guarantee, but not $18 billion because “the loan originator will not be the United States government,” but commercial or private sector financing. The amount of appropriation needed would depend on a number of factors, “probably the biggest being the creditworthiness of whoever is the borrowing party — that defines risk.” As much as 10 percent of the loan might be required for a reserve fund in the event of default, but “if you have a strong borrower you could potentially see that risk reduced” and 2 percent might be appropriate for a reserve. FERC lead under 2004 act Robert Cupina, deputy director of FERC’s office of energy projects, said FERC is the lead agency for an environmental impact statement under the 2004 Alaska Natural Gas Pipeline Act. Under the Alaska Natural Gas Transportation Act of 1976 the secretary of Energy would determine the lead agency, and “the secretary’s decision may be influenced by whether Interior has an environmental document under way in connection with an extension of the federal right of way permit.”
FERC is in the rehearing stage of its open season rulemaking and Cupina said rehearing of significant FERC orders “is not unusual, in fact it’s a prerequisite before any party can take a commission order to court.” The rule’s effective date is May 19, and Cupina said the commission indicated in April that it intended to take action soon on the merits of the rehearing petitions.
“At FERC we’re also meeting frequently with prospective project sponsors,” he said. The commission’s environmental staff has been to Alaska, flown the route and met with stakeholders, he said.
And the commission continues to “encourage project sponsors to make a single filing (for a gas pipeline project) to avoid the time-consuming duplicative processing and inefficient use of resources.” Interior working right of way issues Drue Pearce, senior advisor to the secretary of Interior for Alaska affairs, told legislators Interior plays two roles in an Alaska gas project: it may be the lead agency on the right of way, “depending upon which of the laws the application comes in under,” but no matter which, she said, the Bureau of Land Management will have oversight a year after construction is complete, just as it does with the trans-Alaska oil pipeline.
“We would envision a joint pipeline office sort of management and structure” similar to the JPO for the oil pipeline, she said, “and BLM would be the lead agency.”
Interior also has a role as landowner with a responsibility to maximize the value of resources. While the initial 35 trillion cubic feet of natural gas for the pipeline will come from leases on state lands, another 15 tcf is needed to meet the 50 tcf requirement for the 30 years of the project, and that gas is expected to “come, for the most part — if not all — from federal leases and from federal discoveries” either offshore in the outer continental shelf areas managed by the Minerals Management Service, “in the National Petroleum Reserve, which is BLM’s, or perhaps in ANWR,” Pearce said.
BLM has taken the lead in development of a business plan outlining responsibilities of individual agencies, and the Alaska Department of Natural Resources “has indicated an interest in participating with Interior in development of a joint business plan,” the beginnings of joint activity with the state. Questions on port authority Senate President Ben Stevens, R-Anchorage, asked Cupina if FERC jurisdiction over the old Yukon Pacific liquefied natural gas project, permits now optioned by the Alaska Gasline Port Authority, would change since the gas was no longer destined for export. Would the new project be under FERC jurisdiction now because the gas is going to domestic markets?
Cupina said the pipeline was exempted from FERC jurisdiction in the Yukon Pacific decision, but the terminal was under FERC jurisdiction as an export facility. Cupina said “if the gas is destined for the Lower 48, even via tanker … whether it’s in interstate commerce vs. foreign commerce would have to be revisited” and “could very well include the pipeline becoming an interstate pipeline if in fact that’s interstate commerce.”
Stevens asked about the planned route for the gas: to Mexico as LNG and then back into the United States as gas.
“I don’t know any precedent for that,” Cupina said. “If it goes to a foreign country then arguably it’s an export facility, but the rest of that journey of the gas going back into the U.S. is not something that we’ve seen before.”
Stevens asked DOE’s Maddox if a project sending LNG to Mexico with gas coming back into the United States would qualify under the federal loan guarantee.
“I think that if FERC would say this was an export facility then we would have troubles recognizing it as a domestic facility. My first impression is you couldn’t make one argument on one end of the street and then run down to the other end of the street and make a separate argument,” Maddox said. Federal duty to produce different between agencies Rep. Mike Hawker, R-Anchorage, asked Pearce if federal leases included a duty to produce.
Pearce said the terms of BLM and MMS leases are different.
In the National Petroleum Reserve-Alaska the federal leases have a 10-year term and leases require production to be extended. “We have not investigated the limits yet of our authority in a situation where oil is being produced but not gas and we actually have attorneys looking at that question now,” she said.
MMS leases for the federal OCS are similar to the state’s leases. MMS regulations “don’t separate gas from other resources — oil or condensate. So development is evaluated based on recoverable hydrocarbons.” MMS requires development plans that show how each hydrocarbon will be developed, Pearce said. How many applications? Sen. Gene Therriault, R-North Pole, the committee chairman, said the Legislature isn’t “sure whether under the stranded gas act, we’ll get one proposal from the governor or competing proposals.” He asked Cupina how FERC would handle competing proposals.
Cupina said that while FERC is “encouraging parties to converge at some point and submit one application” it sometimes gets competing applications. It happened with pipelines going to California in the late ‘80s and ‘90s, he said, and is happening with LNG proposals now. The commission has processed all of the applications, he said, and let the market decide which will be built.
Therriault asked if that would apply to an Alaska project, and Cupina said that while it’s been the commission’s “most recent policy to let the market decide,” there are unique aspects to an Alaska project and he didn’t want his comments to be taken as applying to an Alaska project. He said he was just talking about what the commission has done in the past.
Therriault asked Pearce if Interior would pick between proposals for a right of way. She said the department has an obligation to process all right of way applications it receives, although it also hopes for “convergence” because of the huge resources needed to grant a right of way. Although Interior uses reimbursable agreements, it’s still “costly for both us and applicants and other agencies.”
But Interior would not prioritize applications and will deal with all those that come through the door.
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