Compass: Apply three tests to gas line progress reports

After a decade of chasing an ill-fated gasline route into Canada, key decision makers now agree that a line from Prudhoe Bay to Alaska tidewater is the proper route. This route provides access to the Asian liquefied natural gas (LNG) markets, a factor that is necessary for shipment of volumes sufficient to provide cheap in-state energy and a market able to fully consume our resource potential. However, there is still a lot of noise and political posturing about which project the state should pursue.

Gov. Sean Parnell apparently supports two competing, yet conceptually incompatible, concepts. The first is the state subsidized Alaska Gasline Development Corp.'s low volume bullet line, a 36-inch low pressure project that could transport a maximum of 1.6 billion cubic feet per day. However, natural gas liquids could not be shipped on their proposed line due to the cheaper thin steel selected and it would take 10 years to build. The Legislature is considering funding approximately $400 million for engineering and permitting of this pipeline study.

The other proposal is a producer pipeline, nominally proposed under the Alaska Gasline Inducement Act (AGIA) to either Cook Inlet or Valdez. The governor has asked the producers to provide site, volume and other project details by Feb. 15. The $500 million in state matching funds previously authorized to TransCanada are available for preliminary work on this project.

Like other Alaskans, I have worked for many years to try and monetize North Slope gas. During that time, I have become a reluctant expert in recognizing when various producer and other proposals are real, and when they are delaying tactics. There are at least three litmus tests that a proposed project must meet for Alaskans to take it seriously.

First, the pipeline must handle large volumes of both natural gas and natural gas liquids. If the pipe is undersized, future exploration and development of one the most productive untapped gas basins in the world will be stifled. The bullet line will not be able to transport above its proposed 1.6 billion cubic feet per day, and it cannot handle the natural gas liquids that will fuel growth of an in-state petrochemical industry. Not only have Japanese, Korean and Indonesian buyers already expressed a written interest for over 5.0 billion cubic feet per day in TransCanada's September AGIA mandated Solicitation of Interest, there are hundreds of trillions of cubic feet of unproven reserves on the North Slope. It would be insanity to spend over $10 billion on a pipeline that leaves most of the North Slope gas resources stranded. If the Legislature funds further work on the low volume bullet line, a 48-inch, high-density steel pipeline should be mandated.

Second, the pipeline must terminate at a deep water port capable of handling year-round the world's largest class of LNG (Q-Max, Q-Flex) tankers to facilitate economy of scale shipping costs. Wind, ice, dredging needs and other environmental conditions must be considered. Alaska will not compete in the global market if our export facilities cannot berth the most economic ships, and any serious project sponsor will know that. The export site must be identified and if it is incapable of handling the large LNG ships, the project should be rejected out of hand.

Third, the project must be market based. Over the past 10 years I have repeatedly traveled to Asia to negotiate with market participants and have brought market participants to Alaska. One thing that is consistent in real gasline/LNG projects is that they start in the marketplace. Some LNG projects in Australia signed up the market prior to the project even finding any gas. Conversely, in Alaska where our gas has been referred to as the "most proved gas in the world," we remain in a maddening cycle of studying and debating different routes.

Pay close attention to upcoming announcements. Is it a real project with solid commitments to build a gas line anchored in long-term contracts with the Asian markets? Or is it just an effort to gain a reduction in oil taxes now in exchange for more gas line studies?

Bill Walker owns an Anchorage law firm that focuses on oil and gas/municipal law. He is the general counsel for the Alaska Gasline Port Authority and was a candidate for governor in the 2010 Republican primary.