Tim Bradner: State wise to pursue own natural gas pipeline as backup

Tim Bradner | Alaska Journal of Commerce

The Legislature is highly focused on energy this year. Lawmakers are grappling with the complex issue of oil taxes. They know what they want to do, but they have to figure out how the turn the right knobs in a very complicated tax law to achieve their goals and not cause unintended consequences. I don't envy them their task.

The Interior delegation is meanwhile focused on relief of sky-high energy costs (the monthly winter oil bill is as much as the mortgage for some in Fairbanks), and there is legislation supported by Gov. Sean Parnell for the state to finance a modestly sized liquefied natural gas (LNG) plant at Prudhoe Bay and to truck LNG to Fairbanks.

This isn't a radical idea because LNG is now trucked from a small plant in the Mat-Su to Fairbanks for a small gas distribution system serving a core downtown area. The challenge for this new project, I believe, is putting all those LNG trucks on the Dalton Highway, the gravel road connecting Fairbanks to the North Slope. The Dalton has a lot of truck traffic already and is very constricted at points.

Another bill the Legislature is working on deals with the proposed in-state pipeline being planned by the Alaska Gasline Development Authority, a state corporation. This is basically a contingency effort in case a big gas pipeline and LNG project being pursued by North Slope producers and TransCanada, a pipeline company, does not go forward.

The bill in the Legislature is kind of a technical fixup that gives ADGC more flexibility to do needed engineering studies and clarify regulatory provisions, but it also gives the corporation access to funds set aside for ADGC a couple of years ago to do engineering.

A lot of people ask me whether it makes sense for the state to pursue its own pipeline when the industry is working on a large one? It's not only sensible but vital, I believe. We need it as a backup plan.

At some point Alaskans will need access to North Slope gas. Things like trucking LNG are short-term and high-cost. We all agree the best future is one in which industry builds the big pipeline and we move the gas we need through a large, efficient system.

But we have no guarantee this will happen. How many times have we seen our hopes for a big gas pipeline dashed, usually by some unexpected turn of events in the market like shale gas in the Lower 48?

The in-state gas pipeline, which is now planned to be 36 inches in diameter, is our fallback, something we can do if the big line gets shelved again. But to have it as a realistic option we have to do the engineering and cost studies and even get some of the key permits so we can move quickly if we have to. ADGC is doing these things. It needs the legislation to pass to continue its work.

Of course, if the big line does go, the in-state line could become a spur line from Interior Alaska south to Anchorage, assuming the big line goes to Valdez. Also, ADGC could become the corporate entity for the state to own a share of the big pipeline, as has been previously proposed and which could happen.

However, the most interesting opportunity the in-state pipeline presents, I believe, is simple leverage for the state on the sponsors of the big project. The governor is constantly looking for ways to goose that project and this is a good one because the state is saying, "OK guys, if you won't build it, we will."

That idea is realistic because there is a group of Japanese companies seriously interested in investing in an Alaska LNG plant and pipeline, and buying LNG. For the first time we have a market knocking on the door.

Also, although TransCanada is a "partner" in this informal group working on the big pipeline, isn't TransCanada still under contract to the state under the Alaska Gasline Inducement Act (AGIA)? We're still paying it under that contract, right?

If the big project is delayed again, why not have TransCanada partner with the state, ADGC and the Japanese?

The governor should think about this as a way to get the big North Slope producers to move a little faster.

We've been gutsy before as a state. If former Gov. Sarah Palin hadn't created AGIA and brought in TransCanada, we wouldn't have had ConocoPhillips and BP initiate their Denali project or ExxonMobil sign on with TransCanada, all of which led to the big project group now working together.

There are times for gutsy moves, and having the in-state pipeline be ready to go puts the state in a better position.

Tim Bradner is an Alaska business writer who lives in Anchorage. His column appears once a month in the Daily News.

Tim Bradner