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Gas pipeline not our only option

Tim Bradner

There's utter gloom around town about a major natural gas pipeline project.

Lower 48 markets are awash in gas, prices are low and shale gas drillers are busy finding more and more of the stuff.

The conventional wisdom, the street talk, is that we've missed the market once again. It's happened twice before, in the early 1980s and early 1990s, with two earlier pipeline attempts.

However, we shouldn't write the obituary on this yet because we don't know the results of the two open seasons held last year by the two competing pipeline groups, TransCanada and BP/Conoco Phillips' Denali project. It's hard to imagine astute business people waging a $40 billion gamble in such a quirky business environment. But the producing companies that have to write the checks have very smart people and what counts is their judgment, not some energy analyst (or politician). These companies have deep pockets and are fully capable of writing big checks if they believe the project can work.

Still, Alaskans would be wise to consider other options, as the big companies certainly are, and not have a single-minded fix on a pipeline. Other approaches to commercializing stranded North Slope gas, like gas-to-liquids plants, might well bring more revenue to the state and actually employ more Alaskans than a pipeline.

Gov. Sean Parnell says he'll stick with former Gov. Sarah Palin's Alaska Gasline Inducement Act, or AGIA (the one where the state is subsidizing TransCanada for $500 million), for a while longer, possibly until TransCanada, leading the state-endorsed project, says it's a no-go. That may be awhile, at least until the subsidy ends. I'm sure the governor has his people quietly working on other options, because the major companies certainly are. We need to be prepared for those, or even instigate our own ideas. We are, prudently, investigating our own fallback plan of a "bullet line," a 24-inch, state-sponsored pipeline from the North Slope to Southcentral Alaska. The economics of this are dubious without a large state subsidy, however. We need some out-of-the-box thinking.

NEW IDEAS FOR ARCTIC GAS

What's encouraging is that some people, outside the state government, are doing just that.

One idea being suggested is that the state work cooperatively (gee, what a concept) with the pipeline companies to do a "pre-build" of a 48-inch gas pipeline from the North Slope to Interior Alaska as the first stage of the line to the Lower 48 or to a Valdez liquefied natural gas plant or, for that matter, a gas-to-liquids plant in Fairbanks or Southcentral. This would still have a 24-inch "spur" pipeline built to Southcentral.

Getting the first stage of the large pipeline built would move the project along. Some believe the cost of a pre-build might be about the same as for a smaller 24-inch line from the Slope to Fairbanks, at least in this initial stage, because the 48-inch segment might be done with fewer compressors than a smaller line would need. Moving natural gas liquids with the gas, which would require more compression, could be done in a second phase. Alternatively, could some of these be shipped through the TAPS oil line? That might be possible. When the 48-inch pipe is eventually extended, additional compression could be added.

This might sound unusual but a pre-build pipe segment isn't a new idea. In fact, pre-builds were done in the 1980s for what was supposed to be the Alaska gas line across Canada. The northern part wasn't built but the southern part was, as pre-builds. These are being used today to ship western Canadian gas to the United States.

This turned out to be a wise investment, as TransCanada will acknowledge.

That's just one idea. Another is the notion of a small 12-inch pipeline just to the Interior from the Slope being pursued by Energia Cura, a Fairbanks company. This entirely private "do it ourselves" approach by Fairbanks people, proposed as a bare-bones, low-cost pipeline, is being taken seriously by potential customers in the region, such as mining companies.

WHAT ABOUT GTL?

Coming back to gas-to-liquids, I believe the state's single-minded focus on a new pipeline, to the exclusion of other options, might have cost us a big opportunity.

Gas-to-liquids would involve building a substantial plant that turns natural gas into a liquid fuel. As a liquid, the fuel might be easier to move to markets.

A few weeks ago, Sasol, the major South African company with substantial commercial experience in gas-to-liquids, announced it is pursuing such a plant in British Columbia using gas from shale wells.

This is the project we should have had. Sasol has been quietly knocking on doors in Alaska, working through a smaller firm, for more than a decade. The company was actually discouraged from pursing a GTL plant by state officials, and now Sasol believes it isn't welcome in Alaska. Among others, the company told this to state Sens. Lesil McGuire and Bill Wielechowski when the two Alaska legislators attended an energy conference in South Africa. This is just shocking to me.

Sasol has taken this project to British Columbia but it still has an interest in Alaska, I'm told.

Our state officials should reach out to this company's executives to tell them the welcome mat is out.

Former Lt. Gov. Craig Campbell went to China on a trade mission to lure Chinese petroleum investment here. (Nothing came of it.) I'm sure current Lt. Gov. Mead Treadwell can do Campbell one better, to tell Sasol that Alaska is as attractive a place to invest as British Columbia.

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 month in the Anchorage Daily News.


TIM BRADNER
ECONOMY