|
Governor wants answers Chief of staff tells Alaska gas authority to do a lot more homework Larry Persily Petroleum News Juneau Correspondent
Alaska Gov. Frank Murkowski’s chief of staff has told the Alaska Natural Gas Development Authority it needs to answer a lot more questions before going any further with its effort to link the state’s natural gas future with Sempra Energy’s plan to build a liquefied natural gas receiving terminal on Mexico’s Baja Peninsula.
A special legislative session on Alaska’s potential role in the West Coast LNG market is premature until the authority has answers to almost two dozen questions, Chief of Staff Jim Clark said in a six-page letter Sept. 15 to authority chairman Andy Warwick.
The questions include: How much Alaska gas is Sempra willing to buy, at what price, for what term, and who takes the price risk of market volatility? Has Sempra provided anything in writing to the authority?
What price would be needed for the state to turn a profit? How would the authority finance a state-owned pipeline, liquefaction terminal and LNG tankers? How would it cover construction cost overruns? What is the risk of committing to a price with Sempra before the state knows the actual construction costs of its project? How could the state commit to supply 1 billion cubic feet of gas per day to Sempra when its royalty share of North Slope production is far short of that volume?
Scheduling a key question And how could the state supply LNG when Sempra opens its terminal in 2007, realizing that the authority could not likely design, finance and build a gas treatment plant on the North Slope, an 800-mile pipeline to Valdez and a fleet of LNG tankers in the next four years?
Clark also asked: Is it wise for the state to spend money on a smaller LNG project before it knows if the major North Slope producers will use their own money to build a larger project to move gas by pipeline to mid-America? Does it make sense to target the smaller West Coast market rather than bring Alaska natural gas into the much larger mid-America market?
Congress is expected to decide by early October if it is willing to approve federal tax incentives for construction of the $20 billion line to link Alaska’s North Slope with the North America pipeline grid. Authority has some answers The state gas authority, created by Alaska voters last fall, already has answers to some of the questions. Its chief executive officer, Harold Heinze, has said the authority could buy LNG from other suppliers on the spot market to meet its contractual obligations to Sempra until Alaska gas comes online. Meanwhile, the state could ask Congress for a waiver from the federal law requiring the use of U.S. vessels to carry the LNG until domestic shipyards could build a fleet of six or seven ships.
Heinze also believes there is enough gas on the slope to supply both an LNG project and a line through Alberta to the Lower 48 states. As for who would take the risk that low market prices could cut into profits, or worse, Greg Bartholomew of Sempra said the company would not take all the price risk. The director of strategic planning for the San Diego-based energy company said, “The state would be accepting some risk.”
Clark says no to more funding The chief of staff also said the authority does not need the $2.5 million it has requested in additional state funding for planning and preliminary design work for an LNG project. Board members should be able to provide an initial assessment of the risks and benefits of joining up with Sempra without spending the money, Clark said. State agencies could assist in the work, he said.
“We are calling on the business acumen of the board members … asking them to assess the risks of the Sempra proposal to Alaska’s treasury as if their own interests were involved,” the chief of staff said.
“A timely report from the authority is needed now because the Alaska legislative leadership is being called upon … to convene a special session to consider Sempra’s proposal,” Clark said.
The authority should have a response ready for the governor before the end of the month, said Heinze, adding he interprets the governor’s request as, “Tell me what’s in your gut, you’re good business people.”
Next board meeting Sept. 22 The board is scheduled to meet Monday, Sept. 22, in Anchorage, with Clark’s letter expected to fill much of the discussion. “What they’re going to get is our best opinion,” Heinze said.
Once the governor receives some answers and meets with the gas authority board, he will call in legislators to discuss the issue, Clark said. “Thus, there is little justification to subject the state to the expense of a special session before we receive the board’s evaluation.”
The authority has been in a rush the past month to line up funding and support for Alaska to negotiate an LNG sales contract with Sempra for fear that the company will not wait much longer as it has other potential suppliers ready to meet its needs. The company will sign a supply contract before the end of the year, Bartholomew said.
Sempra expects to open its LNG receiving terminal on Mexico’s Baja Peninsula in early 2007, piping the gas to Southern California. The company is talking with five or six potential suppliers, though Bartholomew declined to name them.
“We would like Alaska to be as earnest as others,” he said, listing Indonesia, Australia and Bolivia as among the possible sources for LNG to the West Coast.
Sempra wants answer soon Bartholomew told Alaska legislators Sept. 10 the state had about two weeks to decide if it wants to get serious about putting together a proposal for Sempra. He said Sept. 16 the company is sticking with its timetable.
“I don’t want to get involved in Alaska politics,” he said.
“It seems like people’s preference is the big pipe to Chicago,” Bartholomew said. He dismissed skeptics who say the West Coast market is too small to handle 1 bcf per day or more of LNG without a price drop from oversupply. “We’ve done our own simulations, and the West Coast can easily take a bcf per day.”
LNG supplies would displace gas flowing into the West Coast from Canada, the Southwest and Rocky Mountain states, Bartholomew said, with that gas moving to the Midwest and other markets instead. Declining production from California wells is another reason the West Coast needs more gas, he said.
Board wants political support Warwick, chairman of the state gas authority’s board, said Alaska does not need a special legislative session to preserve its place as a potential supplier to Sempra. Instead, the authority needs only a commitment from the state’s political leaders to back the board in its push to develop and negotiate an economically feasible LNG project.
Sempra could be Alaska’s only LNG option for the next 10 or 15 years, Warwick said. All of the other potential developers of West Coast terminals have their own supplies of natural gas around the world and don’t need Alaska’s gas, he said.
| 