Alaska News

Legislators: Idea of state-backed gas pipeline will dominate much of session

Legislators getting their first look at a state-backed path to an Alaska natural gas pipeline project said Friday they need much more information and expect the matter will dominate much of the upcoming 2014 legislative session.

"We're a long way from a decision. We're in the information-gathering mode," Rep. Eric Feige, R-Chickaloon, said Friday after a hearing of the House Resources Committee, which he co-chairs.

Two sets of consultants discussed the complexities and costs of an Alaska liquefied natural gas project.

Black & Veatch just completed a $424,000 study for the Parnell administration on the economics of a gas project that suggests significant state investment of $9 billion to $13.5 billion could make the project happen.

As it is, under the state's current royalty and tax regime, "the state of Alaska is currently out of the money at current projected demand levels and price levels in 2025," Peter Abt of Black & Veatch told the committee.

Projects already in the works will be able to sell liquefied natural gas for less than Alaska to meet the demand, he said.

The Parnell administration has been pushing the state's oil producers and pipeline company TransCanada Corp. to commit to an LNG project that would export Alaska natural gas to Asia and also provide gas for Alaskans.

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Legislators are learning just how complicated the world of natural gas is and how it differs from oil. Always in demand, oil is sold on spot markets. LNG projects are much more expensive up front. Project backers generally want signed long-term commitments from buyers for the gas before a project is built.

In Alaska, a plant to liquefy the gas could cost $23 billion, on top of a $10 billion gas treatment plant on the North Slope and a $12 billion 800-mile pipeline to ship the gas to Southcentral Alaska, the state estimates.

LNG markets are highly concentrated, Abt said. Seven countries account for 70 percent of the demand, and just eight countries provided more than 80 percent of the LNG exports in 2012, he said.

The United States, which had been a gas importer, is poised to become the world's biggest supplier largely through Lower 48 shale gas projects, Nikos Tsafos of PFC Energy, oil and gas consultants to the Legislature, told the committee. PFC led a natural gas symposium for legislators in August.

Asian buyers, particularly Japan, have been locked into high-cost gas contracts linked to the price of oil but are pressuring suppliers for cheaper gas, Tsafos said.

"The consumers have reacted. The consumers are looking for more choice. There are people who are willing to supply them that gas. So you have a push downward of the price," he said.

Joe Balash, the state's new natural resources commissioner, said the project economics can work -- if Alaska buys in and gets a seat at the table.

The state's share of natural gas is generally 12.5 percent, what's known as the royalty share. In an LNG project, the state could see the value of its gas diminish if the oil and gas companies charge big fees for liquefication, Balash said. The Federal Energy Regulatory Commission oversees natural gas pipelines and LNG export terminals, but not the rates charged for that process, he told the committee.

If the state has an ownership share in the project, its interests would be more aligned with the oil companies, he said.

Legislators said they need to learn more.

"What I heard loud and clear was that the risk-reward analysis needs to be very thorough and it would be premature to say we're at the point where we've fully evaluated in terms of where it makes sense for the state to invest," said Rep. Geran Tarr, D-Anchorage.

"We still don't have enough information to make any good decisions, but I do think we need to make some changes," said Rep. Peggy Wilson, R-Wrangell.

Both legislators said they expected the natural gas project to be much debated in the legislative session, which begins in January.

The Parnell administration and its consultants plan to provide more details to legislators as soon as next month. Balash said the administration expects close scrutiny by legislators, but wants action.

"We're in a competition, and either we're going to get in the game or we're not," Balash said after the hearing, referring to other LNG projects in development around the world. "In my book, sooner's better."

Friday's meeting ended early because of the snow storm. The House Resources Committee plans to take another look at the natural gas project Dec. 9.

Reach Lisa Demer at ldemer@adn.com or 257-4390.

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By LISA DEMER

ldemer@adn.com

Lisa Demer

Lisa Demer was a longtime reporter for the Anchorage Daily News and Alaska Dispatch News. Among her many assignments, she spent three years based in Bethel as the newspaper's western Alaska correspondent. She left the ADN in 2018.

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