State plans fast-track study of LNG export potential

Lisa Demer

The state is launching a fast-track study of the economics of a liquefied natural gas export project. The study would include an evaluation of whether new partners -- and maybe more state investment -- is needed for a project that could cost upwards of $65 billion.

The state also wants to explore whether a commitment to sell its royalty share of the gas itself, rather than relying on North Slope producers to do it, could push the slow-moving project forward.

Alaska has tried, and failed, for decades to bring North Slope natural gas to commercial markets. Gov. Sean Parnell has been trying to jump-start a big, 48-inch pipeline and has gotten Alaska's three major oil producers to work with the state's chosen pipeline company, TransCanada Corp. TransCanada has an exclusive state license to develop a big pipeline and can collect up to $500 million from the state to get it going.

But critics, including Republican gubernatorial candidate Bill Walker, say nothing concrete has happened and it may be time to reconsider a state-owned pipeline. The Legislature this year approved a bill to advance a smaller, 36-inch pipeline from the North Slope to Southcentral Alaska to deliver gas for in-state use and possible export. If the big pipeline moves ahead, backers say, the smaller one won't.

The state Department of Natural Resources announced Friday that it wants to spend up to $800,000 for help "in characterizing and developing the various fiscal and policy measures . . . to advance the North Slope LNG project." Proposals are due May 20 , a contract would start June 12, and the work would be complete by Oct. 15.

Larry Persily, the federal gas pipeline coordinator, whose office is charged with steering any big pipeline project through permitting, said the new study appears designed to strengthen the state's hand.

"When you go into negotiations, it appears you've got to know as much or more than the people on the other side," Persily said after reading the state's request. The state appears to be looking for information "to help the economic viability of this project."

The state intends to spend $500,000, perhaps on multiple contracts, in the current budget year, which ends June 30, with the possibility of another $300,000 next budget year.

That's not much as state contracts go but fairly pricey considering the main work product is a PowerPoint report and supporting documentation, said Sen. Bill Wielechowski, an Anchorage Democrat.

Still, Wielechowski, a frequent critic of Parnell's oil and gas policies, said, "I think it's healthy for the state to find out what we can do, find out if there are incentives we can do to get our gas to market."

The state is seeking a contractor to evaluate LNG markets; ownership, construction and operational elements for plants and a pipeline; incentives and other aspects of a fiscal framework; and risk allocation.

Separately, the Department of Revenue is working with consultants Gaffney, Cline and Associates on "fiscal terms" for natural gas, Joe Balash, deputy commissioner of natural resources, said.

"It looks like we're getting ready for a discussion next year on gas taxes," Wielechowski said. The Legislature this year passed a big cut in oil taxes, which are linked to gas taxes.

But Persily said producers just may seek an assurance that taxes on natural gas production won't suddenly spike.

"It's not so much the rate today. It's the fear of the rate tomorrow," Persily said.

Wielechowski said the state has other options for getting the natural gas to market. He's intrigued by the possibility of processing natural gas into a liquid, high-grade synthetic oil that could be sent down the trans-Alaska oil pipeline. He'd also like to see pipeline developers get a break on state property taxes during construction.

Reach Lisa Demer at or 257-4390.



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