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Senate committee hears in-state gas pipeline plan

Posted: August 17, 2011 - 8:25am

A state Senate committee Monday began three days of informational hearings on a new natural gas pipeline plan for Anchorage and Fairbanks, but the plan faced skeptical legislators and the Parnell administration has yet to offer support.

The Alaska Legislature, during the last session, asked Dan Fauske, executive director of the Alaska Housing Finance Corp., an independent state government agency, to review small-diameter pipeline plans.

Fauske had earlier said his initial review indicated that a small gas pipeline, likely 24-inch diameter, could provide natural gas to the Railbelt at prices competitive with current energy options, provided some conditions are met.

The plan he outlined for the Alaska Stand Alone Pipeline would require an initial state subsidy for early stage development, but most of the $7.5 billion cost would be financed with state borrowing and then paid back with pipeline revenues.

Monday, he told the Senate Resources Committee a key condition would be finding an industrial customer, such as a liquefied natural gas export plant, which could use much of the pipeline’s capacity and provide the needed economies of scale.

Without an industrial anchor tenant to use about 250 million cubic feet per day of gas, pipeline costs get much higher, Fauske warned.

Among the concerns raised Monday by legislators was the possibility a smaller pipeline, often called a bullet line, would harm other state efforts to provide natural gas to the state’s population centers.

Those include a large diameter pipeline, probably 48-inch, being developed by TransCanada under the Alaska Gasline Inducement Act, for the state. At the same time, Alaska provides extensive tax incentives for Cook Inlet to try to bolster lagging production there.

Those efforts have begun to show promise, legislators said.

The AGIA process was begun by the Legislature during the administration of former Gov. Sarah Palin, but has long been under attack by legislators who failed to block its adoption and the issuance of the AGIA license to TransCanada.

Department of Natural Resources Commissioner Dan Sullivan was unequivocal that Alaska would continue to support AGIA, saying it was absolutely critical to maintain the state’s contractual commitments.

Sullivan said if the state failed to do so “we would get a black eye in terms of our credibility for any future project we took on.”

Fauske acknowledged the least expensive natural gas for the Railbelt would come as an offshoot of a successful large AGIA line.

An additional concern among legislators was that committing to a bullet line now could head off new Cook Inlet natural gas discoveries at a time when new drilling activity and newly found resources may eliminate the need for a small-diameter line, said Sen. Bill Wielechowski, D-Anchorage.

He worried that bringing in 500 million cubic feet per day of additional natural gas to Anchorage would end new exploration in Cook Inlet, at a time when the U.S. Geological Survey recently said it thinks there could be enough undiscovered natural gas there to last Anchorage for decades.

“I don’t think it is in the state’s interest, from a policy perspective, to do something that disincentivizes new exploration,” Wielechowski said.

Deputy DNR Commissioner Joe Balish said the Parnell administration was not opposed to the Fauske plan, but “it’s not specific enough for us to get our arms around.”

The administration is still trying to determine how it will work with other efforts.

Sullivan said that the administration shared Alaskans’ “sense of urgency, and let’s be honest, sense of frustration,” that things did not appear to be moving faster on providing more natural gas for Anchorage, and as well as natural gas for Fairbanks.

A small line, he warned, would help the state with another of its goals, bringing Alaska’s huge North Slope natural gas reserves to market and spurring new North Slope exploration.

“We also believe a sense of urgency should not force us to make strategic mistakes,” he said.

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