Gas pipeline, NPR-A in energy bill

Draft legislation contains items designed to accelerate leasing in petroleum reserve

Larry Persily

Petroleum News Juneau Correspondent

While continuing with its nonstop lobbying to open the Arctic National Wildlife Refuge to oil and gas exploration, the state of Alaska isn’t downplaying the natural gas pipeline and several other issues in the energy bill before a House-Senate conference committee.

ANWR and the controversial natural gas commodity price-support provision are called Tier I items, meaning they are not being handled by staff and are under the sole purview of House and Senate members themselves, said John Katz, director of Alaska’s Washington, D.C., office.

And it’s the Tier I items, which include possible fixes to the nation’s electrical distribution problems, that the committee is holding for last. Members hope to finish drafting the energy bill before they leave town Oct. 3 for a 10-day Columbus Day holiday break.

The state has done well to convince a majority of committee members to include in the legislation a multibillion-dollar federal loan guarantee, accelerated depreciation for tax savings and other financial incentives for a North Slope natural gas project, Katz said. That leaves only the issue of whether Congress is willing to pledge federal funds to help gas producers if commodity prices slip below $1.35 per thousand cubic feet at the wellhead.

The intent of the package is to ease the financial risk on North Slope producers looking to build a $20 billion pipeline project for moving North Slope gas into Canada and to the North America distribution grid.

Opposition continues from Lower 48 producers that fear a price drop if a load of Alaska gas flows into the market; from Canadian producers and government officials who complain of unfair subsidies; and from fiscal purists in Congress who do not believe the federal treasury should support commodity prices for private companies.

In addition to ANWR and the gasline provisions, the draft energy bill also includes:

Incentives for NPR-A

Because the state would share NPR-A lease revenues 50-50 with the federal government, any royalty reduction incentives would cut into state revenues, too.

Alaska Gov. Frank Murkowski has said he supports the provision.

Although oil has been discovered in NPR-A and more exploration is planned, no oil or gas is being produced from any of the leases.

Another provision in the bill— which is still a work in progress until presented to the full conference committee for adoption — would allow the Interior secretary to extend leases in NPR-A in 10-year increments to encourage companies to move ahead with development of marginal fields.

Other provisions would allow leaseholders to form operating agreements to jointly run fields, and language calling on the federal government to consult with the state and Alaska Native corporations about oil and gas leases in areas where the corporations may also have other mineral interests.

Loan for Healy coal plant

The likely buyer of power from the plant, Golden Valley Electric Association in Fairbanks, claims the plant does not meet its performance specifications and needs a major retrofit to operate under more conventional coal-burning technology. The state development authority disputes that claim, but acknowledges some work is needed to get the plant on line.

The plant cost almost $250 million, with almost half of the money coming from the federal treasury. The Legislature kicked in $25 million in state funds, and AIDEA sold $85 million in bonds — a debt that is pays down each year from its other income and reserves.

Sen. Murkowski said she requested the $125 million loan as necessary to bring the plant into operation.