State needs energy solutions

February 14, 2009 

Alaskans love to tie ourselves in knots over important decisions. There were encouraging developments last month, however, that could smooth out some wrinkles.

First was state Resources Commissioner Tom Irwin's decision to let Exxon Mobil Corp. proceed with the drilling of two wells at the undeveloped Point Thomson gas and condensate field east of Prudhoe Bay.

We're not out of the woods on this complex dispute between the state and the Point Thomson lease owners, which has dragged on for years, but I hope Irwin's decision could be a breakthrough.

The dispute stems from the state's charge that the companies, which include BP, Conoco Phillips and Chevron as well as Exxon, failed to meet drilling obligations agreed to in 2001. Last fall the state moved to cancel the companies' leases. But they're now ready to drill and develop the field, which has 8 trillion cubic feet of natural gas and 200 million barrels of condensates, a natural gas liquid. Commissioner Irwin is playing a tough game and no doubt he'll get his pound of flesh, but he also seems willing to work with the companies, which is important. We don't need Point Thomson tied up in court for years if we want a gas pipeline.

Secondly, there was agreement, after a decade of lawsuits and wrangling, between the Alaska Industrial Development and Export Authority, the state-owned development corporation, and Golden Valley Electric Association, the Fairbanks electric company, to reopen the mothballed 50-megawatt Healy clean-coal plant. This is good because the regional electrical grid urgently needs new power and from sources other than natural gas.

Contrary to the folklore, the new-technology clean-coal systems installed at the Healy plant in 1996 and 1997 performed well. The U.S. Department of Energy contributed to the cost of building this $300 million plant to test the new systems. I talked with some of the DOE people in charge of this project and they were happy with the test results, which showed dramatic reductions of pollutants, including sulfur dioxide and nitrous oxide.

There are risks with this restart. The plant's systems are "one of a kind," custom-built to test the new technology. There might be maintenance challenges down the road aside from the costs of restarting the plant after 10 years. Golden Valley has agreed to buy the plant from AIDEA and restart it. Given the risks, my hat is off to the utility. We need the power.

GAS FOR HEATING

However, there's a third problem we have yet to solve, and it's a really tough one. It is getting new energy for Southcentral Alaska. Natural gas heats our homes and businesses and fuels 90 percent of our power generation, but gas fields discovered 40 years ago are being depleted. Due to the aging of the producing wells we're perilously close to a system breakdown during cold snaps like we just had. Think frozen-up homes.

There's new gas to be found in Cook Inlet, but it won't be cheap. Costs are high. The industry isn't drilling enough wells to find gas mainly because they can't get a high enough price to pay the expense and earn a decent profit. We have some of the lowest-priced natural gas in the nation, Enstar Natural Gas Co. says, but it's still no surprise consumers balk at paying higher prices. The public will is being expressed through the reluctance of the Regulatory Commission of Alaska to approve new gas supply contracts for Enstar at prices the companies say will allow them to drill more wells and find more gas.

Enstar's solution, if it can't get gas from Cook Inlet (even though gas is there) is to build a 20-inch "bullet line" to North Slope gas fields. No one knows if this is even workable, but if it is, the gas won't be cheap. If Enstar runs short of gas before this is built we might have to import liquefied natural gas. It's a serious option, but it seems almost criminal if we really have to do this, given our undiscovered gas right here near home.

Another option is a plan by the Alaska Natural Gas Development Authority, a state corporation, for a 20-inch "spur" pipeline to bring gas to Southcentral from a large-diameter pipeline built to the Lower 48 through Interior Alaska. That won't be cheap either, and it depends on the big pipe being built, which is not at all certain.

THE DOWNSIDES

There's more. An obvious option is to reduce our 90 percent reliance on natural gas for making electricity to free up gas for other uses like heating homes. We would diversify our power sources with alternative energy like wind and hydro and even coal. Yes, clean coal can be done. It just costs money. This option seems like a no-brainer but none of these projects are cheap in the short term, although they are less costly than gas in the long run after capital costs are paid down.

All good ideas, but what's the right mix If alternative energy projects generate electricity and reduce our use of gas, we can take away a market for a pipeline from the North Slope, making it less feasible. If we opt for the pipeline we can kill the alternative energy projects, and possibly new exploration for gas in our own region.

What to do Can we sort it out It's enough to give me a headache.

We've got to figure it out, though, because what's the alternative The big freezeup Going back to fuel oil No thanks.


Tim Bradner writes for an Alaska economic reporting service. He also consults for private clients and writes for business publications. His opinion column appears every fourth Sunday.

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