The Federal Energy Regulatory Commission denied Yukon Pacific Co.'s request for more time to build a liquefied natural gas plant in Southcentral Alaska.
The FERC denial creates new questions about the prospects for a multibillion-dollar LNG option for North Slope gas.
LNG is an alternative idea to a pipeline from Prudhoe Bay to Alberta, Canada. Of the two ideas, the Alberta pipeline project seems today to have much more momentum, and it is being shopped now to North Slope gas producers to test their interest in the idea.
The commission said environmental and regulatory standards have changed since the company first obtained a permit in 1995, and those issues need to be addressed. The company's ability to build and run an export terminal for liquefied natural gas near Valdez will no longer be valid after Saturday, said the letter from FERC's Jeff C. Wright, director of the office of energy projects.
DECADES OF FRUSTRATION
Yukon Pacific was born in the early 1980s out of the collapse of a 1970s-era gas pipeline project from the North Slope into Canada.
Then Gov. Jay Hammond formed a task force headed by two former governors -- Bill Egan and Wally Hickel -- to figure out what to do about getting North Slope gas to Outside customers. That panel concluded that Asia, not the Lower 48, was the profitable market for Alaska gas. A pipeline should be built to a Southcentral port, where the gas could be super-chilled into a liquid and exported on special tankers, the panel concluded.
Hickel then formed Yukon Pacific to pursue the pipeline, and the company soon zeroed in on Valdez as site for the LNG plant and tanker port, which would be located next to the town's oil port.
Eventually, Lower 48 transportation giant CSX Corp. became majority owner of Yukon Pacific. From offices in downtown Anchorage, company executives unsuccessfully tried for more than 20 years to find Asian buyers for Alaska gas and to persuade North Slope producers to commit their gas to a pipeline.
Lower 48 gas prices spiked in the early 2000s, reviving the idea of piping North Slope gas there, weakening the Yukon Pacific idea.
The three big North Slope producers are involved in proposals to pipe gas to Alberta, and they are testing the market viability of their gas pipeline projects this summer and fall.
The Valdez LNG option is active, however. Republican candidate for governor Bill Walker has made it a centerpiece of his campaign.
On Tuesday, Walker noted that FERC told Yukon Pacific it can update its LNG plant plans and resubmit them.
"That sort of goes without saying that something that old is gonna have to be updated and we've always said that," Walker said.
He called the FERC denial "a minor road bump."
Mark Myers, the state's Alaska Gasline Inducement Act coordinator, doesn't see any of the denial as precluding an LNG option.
POSSIBLE APPEAL?
FERC previously had extended its permission on the LNG plant repeatedly.
An attorney for Yukon Pacific said he hasn't spoken with company officials about their possible next step, which could include an appeal or request for rehearing. A CSX spokesman declined to comment.
Patrick Rock, an attorney for Yukon Pacific, on Tuesday called the denial a "little bit surprising." In a letter to the commission last month seeking an extension, he said industry efforts to commercialize gas from the North Slope had "increased dramatically" since the last extension in 2007. He said failure to extend the construction deadline by three years would undermine the export project.
Rock, in seeking the extension from FERC, said it's important that Yukon Pacific's LNG option be preserved as the open season and "other market-related activities ... play out."
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