The sponsors of HB 4, House Speaker Rep. Mike Chenault, R-Nikiski, and Legislative Council Chairman Rep. Mike Hawker, R-Anchorage, increased the pipe size to 36 inches from 24, reduced the thickness of the pipe and dropped shipping NGLs, gas liquids, which the Asian market wants, if not demands. Chenault and Hawker, who control the House and dictate to the Senate, say the HB 4 gasline will only cost $8 billion, up from $7 billion sans LNG terminal. What Chenault and Hawker expected to with 260,000 cubic feet per day of gas, methane, that cannot be used in Alaska remains a mystery. The pipeline tariff is based on full pipeline utilization, 500,000 cfd, operating year-round. The cost of HB 4 gas to Anchorage would be closer to twice what Anchorage is currently paying.
Is the $8 billion cost real? Or just another example of low-balling the costs to scam the ignorant and willing gullible Republicans who control both the House and Senate? There is not much difference in cost of construction between a 36-inch and a 42-inch gas pipeline. Parnell, BP, Conoco and Exxon’s alignment 42-inch gasline cost is estimated to $45 to $65 billion or more by the Alignment in 2012 dollars. Subtract $12 billion for the smaller LNG terminal plus $3 billion or so for smaller pipe and gas handling and HB 4 gasline is going to cost $30 billion to $50 billion -- four to six times as much as the $8 billion that Chenault and Hawker are peddling.
Forgotten is the reason for the thick 24-inch pipe. Many rifles and a few handguns can penetrate the new 36-inch pipe but not the original thick 24-inch pipe. Remember TAPS was shot and the oil gushed for days because TAPS did not have a contingency plan. Still does not. Originally the predecessor of HB 4 had a thick high pressure pipe, thus why not add gas liquids for which the Asian market will pay a premium, (gas liquids are worth more than crude). Just like Alaska North Slope crude commands a premium over West Texas Intermediate because of the butane content. All of those facts were forgotten in Chenault and Hawker’s haste to get HB 4 passed this session so as to cloud the financing of the small Cook Inlet explorers.
Chenault and Hawker in haste, threw the baby out with bathwater, when they change pipe sizes and dumped the liquids content, but then that just proves that HB 4 was scam from the beginning and demonstrates Chenault/Hawker ability to dictate to the republican controlled Senate, who obligingly rubber stamped the HB 4 fiscal fiasco. Nobody in the legislature paid much attention, except a few disgruntled democrats; the object was to get something on paper and passed in the waning days of this session of the legislature.
So what was the real goal HB 4 if not a gasline? Conoco is after Furie's Kitchen Lights One and Two reservoirs in Cook Inlet, which may hold as much as 3/4 of a billion barrels of oil. Both Chenault and Hawker have been Conoco contractors and to whom Conoco has paid millions of dollars. Furie, a very small Cook Inlet explorer, says it encountered a large gas discovery when it was drilling down to what Furie believes is a large oil reservoir. Furie plans use an oil and gas platform to produce the gas discovery and resume drilling down to the potential oil reservoir.
The HB 4 is a scam whose purpose, besides adding confusion to the Alaska gas market, is a desperate attempt to cloud Furie's financing so that Furie is forced to sell out rather than develop its Kitchen Lights prospects. Hawker and Chenault obliged Conoco with HB 4. It does not make any difference if HB 4 is ever constructed; it is just the threat of HB 4 that makes the investment bankers hesitate on financing or escalate the cost of financing to the small explorer in Cook Inlet. The banker’s question is, how do I get my money back in light of HB4?
If HB 4 were to be constructed, the malcontents would shoot holes in that 36-inch-thin wall pipe that is going to cost $30 billion to $50 billion. HB 4 does not ship much gas -- only 500,000 cfd, only one-seventh of the Parnell 42-inch line -- but it costs almost as much. The questions remain. What did they intend to do with 260,000 cfd of gas the Alaska cannot use? And what about the 240,000 cfd of supposedly Alaska's gas in the summer when there is little use for the gas in Alaska? So far no one has brought up those issues. The tariff used in the Legislature to assist in obtaining passage was based on full utilization of the capacity, 500,000 cfd, and a $7 billion gas pipeline sans an LNG terminal.
Jerry McCutcheon is a long-time Alaska oil and gas gadfly. He lives in Anchorage.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch, which welcomes a broad range of viewpoints. To submit a piece for consideration, e-mail commentary(at)alaskadispatch.com.