Legislature mulls two gas line projects

Lisa Demer

House Speaker Mike Chenault's bill to create a natural gas pipeline from Alaska's North Slope to Southcentral is moving through the Legislature even as oil producers talk about moving ahead on a $40 billion project that would make the small line all but irrelevant.

No one expects two pipelines to be built, but Gov. Sean Parnell said last week that having two projects in play could help spur one of them forward. Neither Chenault nor Parnell, who is pushing for the big pipeline, is ready to abandon either approach just yet.

"I suggest that competition always breeds a better product, and in this case I'm trying to keep driving competition between pipeline projects," the governor said. Ultimately, the projects may merge into one.

At a time when many Alaskans are struggling with huge winter heating bills, pressure is mounting on legislators to solve the decades-old problem of how to get North Slope gas to major markets -- siphoning off some for use in state along the way.

Political muscle is embedded in the speaker's project, House Bill 9. But after hours of hearings in two House committees, questions remain about who would own and pay for the project, whether the legislation contains enough checks and balances to ensure it's built and managed for the public benefit, and whether the pipeline would deliver gas at an affordable price.

Critics say it would lead to far more expensive natural gas than a big pipeline and could bind Southcentral Alaska consumers to high prices for 20 years.

The legislation gives a subsidiary of the Alaska Housing Finance Corp. the power to get a $7.5 billion pipeline built or become a partner to a bigger line or a spur. The Alaska Gasline Development Corp. would figure out who would own the line. Maybe the state. Maybe a private company. Maybe a combination.

The housing agency hasn't built a pipeline before, but its chief executive, Daniel Fauske, is well-regarded among legislators for his financial skills. The same officials who oversee the housing corporation would comprise the gas line board: three state commissioners and four public members, some of whom have expertise in housing or finance but not pipelines. The gas line corporation would hire staff for that.

Already $200 million in state money has been set aside for planning and engineering, an amount expected to double. The gas line corporation could take on unlimited debt. And much of its work would be confidential.


Alaskans have been pushing for a natural gas pipeline almost since oil was discovered at Prudhoe Bay. Many projects have come and gone, including some that would lead to exports of liquefied natural gas.

"Along the way, certain positions on the gas project developed and hardened: A national preference for piping gas to the Lower 48, an Alaska tilt toward an LNG project, North Slope producers running hot and cold on a pipeline project and a world appetite for natural gas that kept growing without Alaska gas" is how the Office of the Federal Pipeline Coordinator recently summed up the 40-year quest.

Chenault, R-Nikiski, and one of his co-sponsors, state Rep. Mike Hawker, R-Anchorage, say they are trying to ensure a reliable supply of gas for Alaskans at the lowest cost.

They want something in place should a big pipeline being pursued with state help by a private pipeline company, TransCanada, fail to materialize. The TransCanada project would cost an estimated $20 billion to $41 billion, depending on the route. The Palin administration agreement with TransCanada squeezed through a divided Legislature in 2008. Hawker and Chenault were among the 16 House members who voted "no."

"I'm not just going to just shut down House Bill 9 and sit here and wait and hope," Chenault said recently. "Because we've waited long enough, and we probably hope too much."

Ultimately, the project might lead to export of liquefied natural gas out of Nikiski, in Chenault's backyard. Conoco Phillips already has an LNG plant there. It sent five tanker loads last year to Japan and one to China.


Parnell said he is "cautiously optimistic" the three major oil producers will meet his informal March 31 deadline -- he calls it a "benchmark" -- to join forces on a big pipeline that would send North Slope gas to a Southcentral Alaska port, then export it as liquefied natural gas to Asia. The oil producers first must resolve lease disputes at Point Thomson, a huge undeveloped oil and gas field on the North Slope, another matter that Parnell wants agreement on by next week.

Representatives of BP, Exxon Mobil, Conoco Phillips and TransCanada said talks are ongoing.

The effort is on track to meet the governor's benchmarks, John Minge, the president of BP Exploration Alaska, told reporters recently. If the Point Thomson dispute is resolved, the companies then would examine markets, logistics and the economics of how to commercialize the North Slope gas.

Nothing is yet set.

"Go with whatever the governor said," Natalie Lowman, Conoco Phillips spokeswoman.

Chenault says he hopes the big pipeline is the one that emerges.

"I wish they would come forward and say, 'We're not going to look at the line. We're going to build the line. Get out of the way.' That wouldn't hurt my feelings a bit," Chenault said. "That's going to bring jobs and a 100-year future to Alaska versus what we currently have, which is nothing."


As it is, the state is putting money into two pipeline tracks at once.

It's committed to the project begun under the Palin administration in which TransCanada, working with partner Exxon Mobil, holds an exclusive state license to collect up to $500 million in state reimbursements for work toward a large-diameter, 48-inch pipeline. It could transport up to 4.5 billion cubic feet of natural gas a day.

TransCanada has favored a route through Alberta, tying in with the pipeline grid already serving the Lower 48. But with new technology generating massive amounts of gas from shale formations in the Lower 48, U.S. gas prices are low. TransCanada hasn't announced any commitments from oil producers to ship gas. Such shipping commitments are essential collateral for pipeline financing.

Late last year, fearing the project through Alberta had stalled, the governor directed TransCanada to look at a liquefied natural gas project with a pipeline ending at tidewater in Alaska. That's what he wants the players to agree on now.

At the same time, the state is investing in Chenault's 24-inch in-state pipeline project, sometimes called a bullet line. The law that creates the framework for the big pipeline, the Alaska Gasline Inducement Act, or AGIA, bars the state from putting state money into a competing big pipeline. So Chenault's state-backed line can transport no more than 500 million cubic feet of North Slope gas a day.

Work began two years ago under legislation also sponsored by Chenault. His new bill is intended to carry the project forward. Among other things, the Alaska Natural Gas Development Authority, a separate agency created 10 years ago through a voter initiative, would become folded into the housing corporation, where its mission would change from constructing a pipeline to trying to market or ship gas through one. The new role upsets the authority's supporters.

Parnell said he sees no need to pick one project or the other at this point.

"Absolutely not. House Bill 9 remains a critical path to getting Alaska's gas to Alaskans and to markets beyond."


House Democrats call Chenault's bill a flawed idea. They say the confidentiality measures are troublesome and that oversight by the Regulatory Commission of Alaska is too sharply limited. The project could disrupt progress toward a big pipeline and put a damper on gas exploration in Cook Inlet.

"Why would we, after decades of trying, and giving major incentives to Cook Inlet to be produced, why would we be undercutting it?" said House Minority Leader Beth Kerttula, D-Juneau. "The bill is really just a bad idea."

New estimates say there's significant natural gas in Cook Inlet, enough not only for Anchorage but also for new markets in Fairbanks -- which is clamoring for an affordable heating source, said Mark Myers, a geologist who served as state oil and gas director from 2001 to 2005 and went on to head the U.S. Geological Survey. He's now a vice chancellor with the University of Alaska Fairbanks.

That mutes any urgency to ship gas so far from the North Slope, Myers said.

The project, as designed, is not "commercially rational," he said. The smaller line would have to ship far more gas than Anchorage now uses to be economic, meaning the excess would have to be exported to Asia, just as Parnell wants to do with a big line, Myers said.

But "it's not really big enough to be cost effective as an LNG export plant, and it's too big for internal gas markets," he said.

State Rep. Les Gara, D-Anchorage, proposed a number of changes but didn't find support for most of them in the House Finance Committee, which passed House Bill 9 on Friday. One idea voted down would have halted the project unless a thorough study found it was the best option for lower-cost energy in Alaska.

Anchorage customers could be hit with bills for the most expensive natural gas ever, paying perhaps four times the cost of gas from a big pipeline, because of expected high tariffs for shipping, Gara said. Regardless, they will likely pay more than they do now, he said.

The state gas line corporation could end up on the hook for billions, Democrats contend.

"That's money we can save for the future if we give the better natural gas options we have a chance and not kill them by moving ahead with this option -- which is a car that drives like a 1980 Yugo at the cost of a 2012 Lear Jet," Gara wrote in a recent newsletter.

Two Fairbanks senators are proposing to ship Cook Inlet gas north to Fairbanks. That may be a better idea, Gara said. There are also efforts to truck more gas south from the North Slope to serve Fairbanks.

Chenault has ready answers for the critics. The recent Cook Inlet gas estimates have not been confirmed. If Cook Inlet resources run low, the state might have to import LNG, which would be more expensive. The project won't go forward unless shippers and buyers emerge for the gas, and he expects some may go to mining operations. If the pipeline is full, the price to consumers will be along the lines of what they pay for Cook Inlet gas, Chenault says.


While much public testimony has gone against the bill, some Alaskans welcome what Chenault wants to do.

"We'll take whatever we can get," said Fairbanks Mayor Jerry Cleworth, who spends $8,000 to $10,000 a year on fuel oil for his 2,300-square-foot ranch home. The Interior is desperate for energy relief, and Chenault's bill has traction compared with other projects, he said.

As of November, about $31 million had been spent on the smaller gas line project. The Legislature has set aside $200 million that could be tapped for it if House Bill 9 passes. In all, it would cost an estimated $440 million for the engineering, permits, design work and financial negotiations needed to get the project ready to build, according to state estimates.

Backers say the smaller line could morph into something bigger through negotiations.

The legislation "gives AGDC the flexibility and the nimbleness to produce a larger project," Hawker, the co-sponsor, told the House Finance Committee.

For now, the bullet line is a fallback.

House Bill 9 is scheduled for debate on the House floor Monday. While some senators find the project questionable, Senate President Gary Stevens, R-Kodiak, has said the Senate will look at whatever the House passes.

Reach Lisa Demer at ldemer@adn.com or 257-4390.

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