Tim Bradner: Several ideas in the works to bring gas to Alaska homes

Tim Bradner | Alaska Journal of Commerce

State government is certainly moving to address energy concerns, at least in the more populous Interior-Southcentral "railbelt" communities.

Last Wednesday, Gov. Sean Parnell signed House Bill 23, which commits the state to funding a $362.5 million project to truck liquefied natural gas from the North Slope to Fairbanks and to finance a gas distribution system there.

Businesses and homeowners in Fairbanks are breathing a sigh of relief that someone is finally doing something to help the community, where the cost of winter home heating with oil often exceeds the mortgage payment.

But it will be a couple of years before LNG trucks roll down the Dalton Highway from the North Slope. The Alaska Industrial Development Corp., the state's development finance agency, has yet to complete a feasibility study of the LNG plant and trucking operation. Fairbanks leaders must be cautious about letting hopes get too high.

Meanwhile AIDEA's sister organization, the Alaska Energy Authority, is taking the lead on a plan to finance an expanded gas distribution system. Fairbanks Natural Gas LLC, a private firm, now operates a small system serving a limited number of residential owners and businesses with LNG trucked from a small liquefaction plant in the Mat-Su Borough.

That experience can give us confidence that trucking larger volumes of LNG down the Dalton Highway from the North Slope may be workable.

Meanwhile, Parnell has also signed legislation to provide more money and enhance the authority of another state corporation, the Alaska Gasline Development Corp., to build an "in-state" gas pipeline. AGDC has done a lot of work on the project but needs additional flexibility and enough money to complete preliminary engineering.

This project has been criticized as an uneconomic "little pipeline" compared with a larger, more economically efficient gas pipeline and LNG project being worked on by North Slope producers and TransCanada Corp.

There's some truth to the criticism but House Speaker Mike Chenault, a backer of the project, argues that ensuring Southcentral and Interior communities at least have a supply of gas (gas fields in Southcentral Alaska are now being depleted) offsets any inefficiencies.

Also, AGDC's project isn't little. Its $7 billion-plus estimated cost makes it a mega-project in its own right. AGDC expanded the plan last January to use a 36-inch-diameter pipe instead of the 24-inch pipe in an earlier plan. This gives it the flexibility to expand someday and ship more gas, improving the efficiency.

The AGDC project is best seen as a backup plan, a project we can do ourselves if the producers and TransCanada don't proceed with their project. In that event, we would likely expand the in-state pipe with more gas for export, which makes the project more viable.

Let's recognize, though, that having this insurance is costly.

Under AGDC's plan, the state will have invested $400 million in the in-state pipeline by 2015. If the big pipeline does go, a lot of that investment will likely be lost. That's because if the big pipe winds up coming to Southcentral and a large LNG project near Kenai, there will be no need for a parallel in-state pipe.

If the big pipe goes to Valdez, which most people think it will, AGDC will still need to tackle a spur line to Anchorage, but the best spur line will probably be one from Glennallen along the Glenn Highway. That's about half the distance, and half the cost, of a spur down the Parks Highway from the Interior.

Another state gas entity, the Alaska Natural Gas Development Authority (now folded into AGDC) did a lot of work on this option a few years ago, so at least we won't be starting from scratch.

The cost of the spur line is important because consumers basically pay the cost in their utility bills.

As for North Slope LNG trucking, everyone knows this is a temporary fix for the Interior. If the big pipe or the state-led, in-state project proceeds, the LNG plant can be unbolted and moved, or sold. The one investment the state is making that is really important is helping finance the build-out of gas distribution in Fairbanks.

A thought that occurred to me, though, is what if the Cook Inlet explorers -- Buccaneer Energy, Furie Operating Alaska, Apache Corp. and Hilcorp Energy -- make a big gas discovery in Cook Inlet? Buccaneer and Furie are drilling this summer on known gas discoveries, which still need to be tested.

Would it be more economic to make LNG here and truck it up the Parks Highway, as is being done now, or on the Alaska Railroad?

Could we fire up Conoco Phillips' Kenai LNG plant that is now mothballed? The company is maintaining the plant for a restart, so this is at least possible. It would eliminate having to build a new plant on the Slope (where costs are always huge) and avoid adding more truck traffic to the Dalton Highway, which is busy enough already and where winters can pose special challenges.

I'm sure AIDEA is thinking about those possibilities too.

Tim Bradner writes on business and economics topics for Alaska publications. From 1970 to 1984, he worked for BP, a major North Slope oil company. Some of that time was spent as a lobbyist for the company in Juneau.

Tim Bradner