Bill including peninsula gas line terminus awaits signature

Posted: Thursday, June 24, 2004

A bill expanding the focus of the Alaska Natural Gas Development Authority to include tidewater at Cook Inlet as a possible terminus for a main gas line delivering North Slope gas to market is awaiting Gov. Frank Murkowski's signature.

ANGDA's only charge now is finding a way to deliver gas from Prudhoe Bay fields to tidewater at Valdez with a spur line to the Southcentral gas distribution grid. House Bill 417, passed by the Legislature on May 8, expands the definition of "project" within the act, establishing the development authority and elevating a Cook Inlet terminus to the same consideration status as that of the Prudhoe Bay to Valdez connection.

John Manly, press secretary to the governor, said Tuesday the bill is scheduled for the governor's signature barring any last-minute problem.

"My expectation is that he will sign it. It is on the list (of bills) to be signed," Manly said.

That was welcome news to Bill Popp, the Kenai Peninsula Borough's liaison to the oil and gas industry who has been busy staying tuned to the various and often shifting proposals for exploiting Alaska's North Slope gas reserves.

"We believe there is a rational to look at Cook Inlet and compare it to Valdez," Popp said Tuesday. "Right now, it is just wait-and-see on House Bill 417."

Borough officials, along with peninsula state lawmakers Mike Chenault, R-Nikiski, and Tom Wagoner, R-Kenai, pushed for including a Cook Inlet terminus for a main gas line under ANGDA's mandate, arguing that studies done by companies such as Yukon Pacific, ConocoPhillips and others have explored the direct-route pipeline ideas. Harold Heinze, director of ANGDA, has said the authority would seek access to that data.

On passage of the measure in May, Wagoner said the Cook Inlet gas industry already knows how to ship liquefied natural gas "and obviously, we have strong support for this type of economic development within our community."

The Cook Inlet region is highly dependent on gas for residential, commercial and industrial use. But a steady local supply is not assured, despite ongoing exploration activities that have found and developed new Cook Inlet reserves in recent years. Bringing a supply of North Slope gas to the Southcentral region could promote further industrial development, thus expanding the region's economic base, supporters say.

HB 417 requires ANGDA to consider alternative routes and choose the one that proves most beneficial. Permitting, rights of way and environmental issues, as well as costs, will be reviewed for both routes if the bill becomes law.

Many questions remain to be answered, however, before any route is chosen, Heinze said this week. ANGDA is exploring, not only developing, its own gas line from the North Slope, but also the possible alternative of tapping into a much larger project under consideration by consortiums of major oil and gas players a gas line from Prudhoe Bay south along the Alaska Highway through Canada to the gas-hungry markets of the Lower 48.

One issue currently facing gas line developers is the price of gas. According to Heinze, today's price of gas in the Southcentral region is on average about $2.50 per 1 million British Thermal Units, or Btu (the amount of heat required to increase the temperature of a pound of water one degree Fahrenheit). That's about half the price being paid Outside.

Ongoing exploration efforts may continue to find gas in the Cook Inlet region, Heinze said, but would it ever be enough to get beyond the constant worry that what gas there is might only last a decade or so? That's an issue for decision-makers in major industries such as Agrium.

Attracting exploration capital may be problematic, considering companies are looking to sell gas at $5 to $6 per million Btu, not $2.50, Heinze said.

"As the $2.50 gas (available in the Cook Inlet region) gets used up over the next five to seven years, the price will double," Heinze said. "That's a pretty big impact on all of us. We have enjoyed cheap energy. Excuse me, but it's going away."

On the other hand, Heinze said he believes that given the authority's unique status, which includes certain tax advantages, if the authority can link the inlet to a steady source of North Slope gas, it can do so at roughly today's price.

Among the many questions under study is defining exactly what status ANGDA would have, Heinze said. Nine months ago, the authority existed as a public corporation of the state, but with no real form.

"Are we a utility, a holding company, a nonprofit? Can we own and move gas? All these fundamental questions need to be answered," he said. "We could adopt a model as a profit-making corporation, but since we return all the money to the public good, we could still be tax-exempt."

Also still to be determined is the extent of available gas on the North Slope. Numbers like 35 trillion cubic feet have been tossed around, but Heinze said only about 25 trillion is certain. Some of the "big pipe" proposals for sending gas to the Lower 48 might require as much as 50 trillion cubic feet to make an attractive bottom line, he said.

"Somewhere, the amount of gas and the size of the project have to come together," he said.

Various proposals to deliver gas to markets Outside range from $13 billion to $26 billion. ANGDA remains ready to execute a spur line for any of these down-the-highway ideas, Heinze said.

But the authority also is looking at a range of options for developing a line on its own. At the high end, a 2 billion cubic feet per day line to Valdez with a spur to Cook Inlet, the "classic LNG project" Heinze called it, could cost $10.5 billion. A spur line itself only might cost $500 million to $1 billion, he said.

Another option is a smaller line direct from the slope to serve the inlet region and coastal Alaska with a minor export component.

"A bullet line to Cook Inlet would cost $2 billion to $3 billion. We think we can make sense out of that because of the high Alaska value we'd get out of it."

While the big players are eying a high-volume pipeline to Canada and the Lower 48, Heinze said ANGDA believes it has the low-end of the scale covered.

"We don't necessarily see it as a competition now, but rather that Alaska has a number of choices that need to be pursued and understood," he said.

Alaska needs to pick the largest project that is doable, and that relates to cost and risk, how complicated it is and how many people have to agree to do it, he said.

ANGDA is in the process of completing studies and preparing a development plan due out in August. It will deliver answers to questions mandated by the ballot measure that created the authority.

"The report will say we have looked at the basic concepts of LNG and a spur line carefully enough that we have not found any showstoppers," Heinze said. "We have found some good news in the world. The report will conclude we need to keep looking and move to some next step."

If a simpler project seems most beneficial, ANGDA is prepared to put that forward and define what that project would look like, he said.

One thing is certain, he added:

"Alaskans are not prepared to wait 10 years to figure out what we are going to do."



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