Lawmakers last week expressed their anxiety about the state's multi-million dollar commitment to a natural gas pipeline that appears stalled by proposing legislation that would give the state an out if the project is not economic.
That immediately set folks to asking: What's Plan B? The state has been trying for more than 30 years to market the abundant natural gas on the North Slope. If this gas line plan falls through, what next?
In 2008, the Legislature at the behest of then Gov. Sarah Palin agreed to a contract with TransCanada that gave the Canadian energy company up to $500 million to help with pre-construction costs of a gas line that could run from Prudhoe Bay all the way into central Canada. A competing project involving BP and ConocoPhillips for a similar gas line also is still on the table, but those companies don't have a contract with the state and are getting no state funding.
Last summer, both TransCanada and the BP-ConocoPhillips venture solicited bids aimed at gauging interest from customers in shipping gas through the pipeline. Neither has revealed the results of those bids, and TransCanada has said it needs more time to work out conditions. That's made lawmakers and others question whether there is really enough interest and whether the state should continue to subsidize it. House GOP leaders last week introduced a bill that sets a deadline for TransCanada and Gov. Sean Parnell to prove that the gas line is economically feasible.
Then on Wednesday, ConocoPhillips and Marathon Oil told employees at their Nikiski LNG plant the companies would close the facility as soon as April. The market for liquefied natural gas, primarily Asia, is just not there, the companies said, raising more questions about the economic realities of selling Alaska gas Outside.
Lawmakers were quick to point out that at the same time Railbelt utilities are seriously considering importing LNG to make up for a lack of gas needed to keep the lights on in the most populous areas.
Now, proponents of other gas projects are smelling blood in the political waters and they're circling Juneau armed with power points and proposals. Legislators' angst over the TransCanada project, the closing of the Nikiski gas export plant and the notion of importing gas to a state that is supposedly full of it has certainly churned up the talk about other possibilities for getting Alaska gas off the Slope and put to use in Alaska.
Here's a look at some of those ideas and where they're at:
The 'Bullet Line' Proposal
This is the in-state gas line that has generally been viewed as the fall-back plan if the TransCanada pipeline failed to work out. The current vision is for a 24-inch pipeline -- half the diameter of a big gas line to Canada or Valdez -- that would run from Prudhoe to the Fairbanks area then along the Parks Highway to the Anchorage area.
Alaska's Sens. Lisa Murkowski and Mark Begich last week reintroduced a bill that would authorize a right-of-way along the highway through Denali National Park, but a spokesman for Murkowski said that was just coincidental and wasn't intended to be a statement on whether the TransCanada project was in trouble.
Dan Fauske, who heads the state agency spearheading the bullet line option, said last week his agency is "in this kind of weird position" because it's not really in competition with TransCanada or the BP-ConocoPhillips project. He thinks the bullet line could just as easily become a spur line off a larger line and that it's not an "either or" proposition.
The bullet line has an estimated price tag of $5.7 billion to $11.8 billion, according to the governor's website, and that doesn't include the cost of a necessary processing plant on the North Slope, estimated at as much as another $11 billion. Critics say the cost of the project is so high, gas customers in the Railbelt will see their rates skyrocket; proponents argue their rates will skyrocket anyway as local utilities scramble to find gas supplies.
Fauske said work on the permitting and design of the line is continuing, as well as looking at the treatment plant, which he called "a major deal." A report to the Legislature is due July 1.
He says he is hearing more "sniping" about TransCanada now but refuses to debate whether his project is better than a large-diameter line to Outside gas markets.
His efforts to stay out of the political muck were made harder last week when the Office of the Federal Coordinator -- the agency created by law to help get a big gas line built -- released a study by well-known petroleum economist Roger Marks that said the state would be better off subsidizing a large-diameter line than spending its money on a smaller line from the North Slope to Anchorage.
Larry Persily, the federal coordinator, said it wasn't the intent of the report to torpedo the bullet line and that the timing was coincidental to lawmakers' recent nervousness about the TransCanada project.
"We just wanted to get some numbers in front of people so they could consider the options," he said.
Generally, according to the report, those numbers shake out to mean that the state would have to spend more than $4 billion on the bullet line to keep the cost of gas to consumers at about what they're paying now. After factoring in the benefits of a large gas line -- including higher taxes and royalties and that it likely would spark more North Slope investment in oil production -- the state would be better off investing the $4 billion in a large-pipeline project like TransCanada, the report suggests.
The 'Stub-to-Hub' Proposal
Longtime Anchorage financial advisor David Gottstein has been doing the math for the last 18 months on a proposal he thinks is the best way to get Alaska gas to Alaskans, and soon -- a large-diameter line that ends in Fairbanks but would allow others including utilities to build their own "hub" lines to the main "stub."
Gottstein insists he has no financial interest at stake here. He is not heading a company that would profit from a gas line or gas sales. He is simply "a very concerned lifelong Alaskan" with a good idea, he says.
Last year Gottstein floated the idea in a letter to bullet line czar Dan Fauske as part of the debate over an in-state gas line. This year, Gottstein has escalated his approach, pitching business and union groups and traveling to Juneau to meet with legislators. He's got an appearance scheduled before at least one committee in a couple of weeks.
Gottstein, whose family pioneered Alaska and founded the grocery store chain that became Carrs, says the problem with a big pipeline all the way to Canada or even to Valdez is that the market value of gas is so low no major pipeline company or producer can get the financing to build a line now in the hopes that the price of gas will go up.
You need a good hour or so with Gottstein to grasp the details, but the basics go like this: The TransCanada or BP-ConocoPhillips project are what he calls the "fill it then build it" model -- get the customers lined up first in order to get the financing to build it. Gottstein is proposing to change that to a "build it then fill it" model, by the state investing its own money to help get it built, giving the state an ownership interest in the line and a say over tariff prices and other factors.
Gottstein is suggesting that the state absorb what he calls the "incubation risk" of the project -- the financial downtime between when the pipeline is built and when revenues increase. He likens it to a farmer who owns property five miles from a town that is growing his direction a mile a year. He has to wait five years for the town to get to him before he can make money on his property.
The state could absorb the incubation risk by guaranteeing the financing on a scaled down pipeline -- say, one that is about 400 miles from the North Slope to at or near Fairbanks. The main line would have to be big -- at least 30 inches and perhaps even the 48-inch diameter envisioned by TransCanada, to make it economical.
Gottstein agrees with Roger Marks and others who believe the smaller diameter lines like a bullet line just won't pencil out when it comes to the construction costs and capacity to carry enough gas to keep the end price low for the consumer.
"I think Roger Marks is on target except that no subsidy is required, but rather a huge return on investment is obtained when you add to the additional revenue to the state the huge cost avoidance to residents and businesses that they would otherwise incur if we don't make this extremely attractive investment."
The stretch from the North Slope to the Fairbanks area would be the "stub" line that begins a hub of other lines leading to utility plants.
"This is not a pipeline to nowhere," Gottstein said.
Gottstein's proposal could include keeping the contract with TransCanada, just renegotiating it as is allowed under the law. TransCanada would then become the builder of the "stub" line and, if gas markets in the Lower 48 or the Pacific Rim become viable, the large diameter line could be extended to Valdez or Canada, he said.
This proposal also benefits rural Alaska, Gottstein said, because it would allow gas products -- propane, for instance -- to be processed in the Interior and shipped along the Yukon and Kuskokwim rivers to villages throughout the northern regions.
Now, Gottstein is hoping to convince lawmakers that his advanced degrees in finance and economics have taught him something -- and can be put to good use in Alaska. He's refining his pitch and scheduling as many appointments as he can with business leaders and policy makers.
The 'Arctic Fox Pipeline' Proposal
Named after U.S. Rep. Don Young -- who commented that the project would be "small, smart and quick" -- the small-diameter line from the North Slope to Fox is an offshoot of Fairbanks energy consulting firm Energia Curia. The company, which operates other smaller pipeline networks in the state, is developing the Arctic Fox Pipeline through its subsidiary, Fairbanks Pipeline Co.
Details of the project are in flux, and company co-founder Alex Gajdos says he is still hoping to get some help from the state, which has been offered a 7.2 percent ownership share in the line.
The company is talking to legislators and pitching a 10-inch high-pressure line that would cost about $500 million to build and be operational in 2014. The company held an open season last fall to gauge interest in the project and said it had received "non-binding nominations for natural gas volumes in excess of those required" to make the project feasible.
The disenchantment on the part of some lawmakers with the TransCanada project has opened the door for the Fairbanks company, its officials believe.
Diane Benson, the former Democratic lieutenant governor candidate who is now the company's spokeswoman, said the measure introduced by House Republicans putting a deadline on the project "is a reevaluation."
"I see it as kind of cracking the door because it creates more of a possibility of evaluating alternative options and we are an alternative option," Benson said. "Ours gets something built so we can get gas to the Interior."
Gajdos says he's never believed the economics would favor exporting Alaska gas so his goal has been to bring gas to the Interior where energy costs are double what consumers pay in Anchorage.
Gajdos said he had been hoping to get a commitment from the state to help the project out with easements, permits and data and to advance legislation. The company's website says the state's share of the project would go to the Permanent Fund.
But the response from Parnell's office has been "sparse," Gajdos said, so company officials plan to work with lawmakers who have expressed an interest in helping.
Company officials testified Monday before the Senate Resources Committee. "Our hope is to spark a little fire and perhaps get another invitation to provide more of the details," Gajdos told the committee.
The 'Truck-it-to-Fairbanks' Proposal
Fairbanks business leaders have long been talking about trucking LNG from the North Slope to Fairbanks and, according to a story in the Fairbanks Daily News-Miner, last week they asked Interior lawmakers to help with support. The estimated $250 million project is being pushed by the Alaska Gasline Port Authority and Fairbanks Natural Gas Co. It would bring gas to Fairbanks for use by the Golden Valley Electric Utility as well as propane to Valdez. It envisions building a production facility and acquiring trucks with deliveries to begin as early as 2012.
The proponents want state-backed financing for the project and company officials told lawmakers their project has the advantage because it's negotiated a long-term supply contract with Exxon Mobil, according to the Fairbanks story.
The Susitna River Hydroelectric Project
As progress on a big gas line seems stalled, momentum is building for a large hydroelectric project that could supply half of the Railbelt's energy needs. Fairbanks in particular is interested in the Susitna project as a way to ease the already high electric costs that now come mainly from generators powered by fuel oil.
Building a large dam across the Susitna River roughly halfway between Anchorage and Fairbanks is an idea that's been around for decades. But a recent study that compared two projects -- Susitna and one on the Chakachamna River -- gave the economic and environmental nod to Susitna.
Since then, Gov. Sean Parnell has proposed $65.7 million in his fiscal year 2012 budget to get the project moving forward with pre-construction work like engineering, design and environmental studies. Legislators have been sitting through presentations on it and are being told the dam could be cranking out power in about 11 years.
Legislation also has been introduced to allow the Alaska Energy Authority to own power projects, which is anticipated to help move the Susitna project forward.
Overall the project is estimated to cost $4.5 billion, and while it wouldn't produce any royalties or production taxes for the state like gas and oil production brings, it would provide cheaper energy and that is the goal of a state subsidy, according to the report by Roger Marks.
Persily worked on the report with Marks and said hydro is an option that should be considered but that the study wasn't meant to steer policy makers to Susitna if they back away from a large-diameter gas line.
"If a big line isn't economic and will never happen and a small gas line isn't economic and we have 600,000 people living in the Railbelt who need to keep their lights on to not mention hydro would have been a glaring hole," Persily said.
Contact Patti Epler at patti(at)alaskadispatch.com