Gov. Sean Parnell deserves a pat on the back for bringing to closure the contentious Point Thomson gas field lawsuits. Those were big clouds hanging over a major North Slope gas project. Point Thomson has almost one-fourth of the gas reserves on the Slope, and resolving uncertainties over its ownership is necessary for an eventual gas project.
Parnell also used the lawsuit settlement as leverage to get the three big Slope gas owners, BP, Conoco Phillips and Exxon Mobil, back on the same page on a gas project and one that is now, hopefully, focused on liquefied natural gas, or LNG. The governor has asked for a work plan by Sept. 30.
This doesn't mean an LNG project will actually happen. All the challenges are still there, including high Alaska costs, the burden of an 800-mile pipeline to an LNG plant vs. competitors who have gas right at tidewater, and the yet-unresolved state tax issues. But at least we have a fresh start.
The history on these initiatives is disheartening. This will be the fourth time there has been an attempt at LNG and there have been eight initiatives over four decades to get gas off the Slope, including several failed land pipelines. I'll detail those in another column, but it's a depressing record. Each time a project gets up steam the market seems to collapse.
Could the same thing happen this time? It's always a danger. Pedro van Meurs, the Alaska Legislature's consultant on oil and gas, warned legislators in hearings that LNG from Alaska may flop. Shale gas doomed the all-land pipeline, and the same thing could happen to LNG, van Meurs said, because China is working on applying new "fracking" technology to develop its own shale gas resources. Because China is a big player in the Asia market, this could work to our disadvantage. Van Meurs suggested gas-to-liquids as an alternative. In any event, I have this unsettling sense we're back to ground zero on gas.
Which brings me to the one project that's moving: the state's own initiative to build a small, 24-inch gas pipeline if the big project falls by the wayside again. I am surprised by the flak this is getting in the Legislature, frankly. House Speaker Mike Chenault is its champion, which of course puts it in the cross hairs for other legislators who want to leverage the speaker. There is a bill giving the state's Alaska Gasline Development Corp. the needed flexibility to tackle the project, but it is bogged down in the usual late-session politics.
Some of the damage to the gas line development corporation's plan is self-inflicted. Not by its managers and staff, who are competent, but by the fundamentals of the project, which were imposed by politicians years ago when it started. Chenault inherited the problems with the latest initiative.
The biggest issue is that this pipeline is too small to be efficient and is burdened in ways it shouldn't be. For example, the project bears the cost of building with thick steel and operating at high pressures so it can move natural gas liquids like ethane, butane and propane along with the methane, the main component of natural gas used for heating. Moving these liquids adds costs, but there are no known buyers for them in Southcentral Alaska. Consumers need only the methane. If someone wants the liquids, that company should pay the extra costs.
Interestingly, I'm told that the ethane, the gas liquid commonly used as a petrochemical feedstock, doesn't need a high-pressure pipeline. It can ride along with methane in a lower cost, low-pressure pipe. Butane and propane do need a high-pressure pipeline, but butanes can also be mixed with oil and shipped through the TAPS pipeline. That would leave only the propane.
And propane may not need a pipeline either. The Alaska Natural Gas Development Authority, a sister state corporation to ADGC, has done feasibility studies with private firms on the possibility of trucking propane to Fairbanks, shipping it on the Yukon River by barge to small villages, and shipping by barge from the Slope directly to Western Alaska. Without the need to ship gas liquids, a low-pressure, thinner-walled and less costly pipeline would be more affordable for consumers.
What really irritates me, though, is that the high-pressure, gas liquids plan would impose unfair costs on Fairbanks consumers. If there is a gas "off-take" pipe for Fairbanks, the gas liquids must first be separated from the smaller amount of methane that goes to the Interior city. This requires a "straddle plant," estimated to cost $250 million. Under rules of the Alaska Regulatory Commission, the cost of this plant has to be added to the cost of delivering the gas to Fairbanks, the result being that North Slope gas would cost more in Fairbanks than in Anchorage. This has outraged Fairbanks community leaders.
The fault is not the regulatory commission's rules, which are long-standing, but that the 24-inch line carries liquids when it could be a low-pressure, less expensive line carrying no liquids and imposing less costs on Fairbanks.
The ADGC project is worthwhile and needed as a contingency to bring North Slope gas south, but I think these other alternatives need to be made more visible to the public. I hope the money now being spent on engineering allows for the project to be efficiently re-sized and redesigned if needed.
My biggest worry, however, is that all this good work may have to be thrown away. If the LNG project does develop and the pipeline goes to a plant in Valdez, as might happen, the most practical "spur" line to the Mat-Su and Anchorage area would be the 150-mile Glennallen-to-Palmer route mapped out by ANGDA, the natural gas development authority. This would be less than half the distance, and much less expensive, compared with a Fairbanks-to-Southcentral spur along the Parks Highway, which is the southern half of an ADGC project.
We also need to know, and we will by this summer or fall, if those plucky explorers in Cook Inlet have discovered enough new gas to eliminate altogether the need to bring Slope gas south. Maybe then the best course would be a small Fairbanks-only line, either from Cook Inlet -- if there is enough gas -- or from the Slope. The Legislature is looking at this too. There are lots of possibilities -- too many, it sometimes seems. We just need to remain flexible and not get prematurely locked into one course.
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 Daily News.