Gas board tours plants

Posted: Tuesday, March 16, 2004

Soldotna Mayor Dave Carey needed few words Monday to express to a meeting of the Alaska Natural Gas Development Authority board of directors in Kenai why bringing North Slope natural gas to Southcentral Alaska is so important to the economy.

"Jobs. Jobs are critical," he said.

Carey, a Skyview High School teacher, said a lack of good jobs was leading many young people 18 to 25 years of age to leave the peninsula in search of employment. Ensuring a steady supply of gas to Cook Inlet industries could bring those jobs back home.

Carey, who also is president of the Homer Electric Association board, said gas supply problems at Agrium have led the fertilizer producer to cut its purchase of HEA power in half in recent months. Long term, that could affect all HEA customers.

"If Agrium continues to lose jobs, HEA would have to raise rates to its 18,000 users," Carey said.

Tim Navarre, former Kenai Peninsula Borough Assembly member and current president of the Kenai Chamber of Commerce, called the ANGDA board "the most important committee active in the state of Alaska."

He said it was important not only to get North Slope gas to market, but to "accommodate Alaska's needs" for that gas as well.

ANGDA board members met in Kenai for an all-day session that included a tour of Agrium and the LNG plant in Nikiski. During the meeting, discussion centered on cost-benefit studies, on work still needed and on the critical matter of future funding.

ANGDA is mandated to deliver a report by June 15 on the general feasibility of a gas line to Valdez with a spur to the Cook Inlet Ba-sin.

Authority Director Harold Heinze told the board he likely could write that report today based on what he's already learned.

"But it wouldn't necessarily be a convincing document," he said.

Many questions remain to be answered, he said. ANGDA has spent or has committed a little more than $276,000 of the $350,000 appropriated by the Legislature last year, some of it on various studies meant to answer them, including $50,000 for an initial benefit analysis by the Anchorage-based North-ern Economics.

Heinze said he expected the "phase one" benefit analysis to be ready by mid-April.

Another contract covers a $30,000 analysis of the possible future tax status of an ANGDA project being done by the law firm of Morris and Foerester.

Heinze said ANGDA should pursue an IRS tax-exempt status so it would have to pay no income taxes and be able to issue tax-exempt bonds.

To qualify, ANGDA needs to be seen as a political subdivision of the state, serve a public purpose and exercise one or more sovereign powers, such as the power of eminent domain.

Heinze said current law already gives ANGDA the power of eminent domain, a power that could be used to acquire right of way across private property for a pipeline, but that power should be clarified by amending current law.

Morris and Foerester is likely to recommend appropriate amendments, he said.

Heinze said it was important to "absolutely, totally nail eminent domain."

The lack of more funding from Juneau is beginning to slow ANGDA's progress toward a pipeline project, Heinze said.

"We can't move on to some very substantive issues," Heinze said. "That's what's killing me."

In his financial report to the board, he listed $500,000 worth of contracts the authority needs to let but can't until the Legislature acts.

High on that list is a $150,000 project that would hire Goldman Sachs to explore financial structures. Examples would include determining how much equity and debt are involved and what interest rates might be.

"What we want to do is end up with a business structure that allows us to deliver the gas at the lowest possible cost," Heinze said in an interview.

Finding the answers necessary to get ANGDA to that point will take money. At the moment, however, how much state lawmakers will appropriate is up in the air.

Senate Bill 241, sponsored and introduced by Gene Therriault, R-North Pole, in early January, originally aimed to appropriate $2.15 million to the Alaska Department of Revenue and ANGDA for cost, risk and benefit analysis and for design of a pipeline and related facilities.

A Senate Finance Committee substitute forwarded March 10 cut that sum to $1 million to go to the Department of Revenue "for work related to bringing natural gas from the North Slope to market." ANGDA was no longer a named recipient.

That's significant, Heinze said.

"The board doesn't feel it has control over that money," he said.

While there is less direct control, the benefit may be that by being part of a bigger process the state's overall effort to market and use its gas ANGDA may ultimately get the funding it needs.

Bill Popp, the Kenai Peninsula Borough's liaison to the oil and gas industry, noted the wealth of issues facing ANGDA, but said he believed adequate funding eventually would be appropriated.

"I believe the funding is going to come your way, and I believe you've got a long road in front of you and a lot of work on behalf of the citizens of Alaska," he said. "In doing that, the economics of the project is going to be a key issue as you develop your plans and future visions of how ANGDA is going to proceed."

He noted that preliminary numbers explored by Heinze putting the tariff for gas through a spur to Southcentral at $2.50 per thousand cubic feet.

"I hope that Mr. Heinze is absolutely correct and he can get it within that range," Popp said.

"The previous number, and the only number we've had to work with, was over $5 per thousand cubic feet, from a Department of Natural Resources study back at the beginning of the decade."

Heinze said that overall, the prospects are brightening for an ANGDA project as more information becomes available.

"The project economics have improved. Our competitiveness has improved," he said.

A Tuesday story on the Alaska Natural Gas Develop-ment Authority board meeting in Kenai requires a clarification. Preliminary figures show that gas through a spur line to Southcentral Alaska might be possible at a delivery price of $2.50 per thousand cubic feet, a cost derived from a $1 per mcf wellhead price and a tariff of $1.50 per mcf.

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