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A new 'lean gas' plan for Alaska Stand Alone Pipeline

Pat Forgey

JUNEAU -- The Alaska Gasline Development Corp. has scaled back a key part of its natural gas pipeline, and will no longer attempt to carry gas enriched with natural gas liquids (NGL), the heavier components of natural gas such as propane, butane and ethane that are sometimes found along with methane, the type of natural gas used for home heating.

NGLs were once touted as a way to lower the pipeline's tariff, or what consumers along the pipeline's proposed route would have to pay to get gas. Now, AGDC officials are touting the benefits of not carrying them.

"We thought at the time that there was a market for that, but with the shale gas development in the Lower 48 the market for NGLs just disappeared," said Leslye Langla, spokesperson for the corporation.

The change could be good news for Fairbanks, but bad news for Anchorage, according to information from the AGDC.

The plan -- called the Alaska Stand Alone Gas Pipeline (ASAP) -- is one of two natural gas pipeline efforts under way with the backing of the state government.

It would construct a 737-mile pipeline from the North Slope to Southcentral carrying up to 500 million cubic feet per day of natural gas. House Speaker Mike Chenault, R-Nikiski, has been among its biggest backers.

A second pipeline, the Alaska Pipeline Project (APP), is also in the works under the Alaska Gasline Inducement Act (AGIA) process begun under former Gov. Sarah Palin and continued by Gov. Sean Parnell. That plan might carry as much as 3-4 billion cubic feet of natural gas per day with both Cook Inlet and Valdez being considered for its southern terminus.

The focus of the larger pipeline has morphed under Parnell from a project delivering North Slope gas to the Lower 48 into a way of exporting gas as liquefied natural gas (LNG) to overseas markets. But its economies of scale would mean it would provide the cheapest possible gas to Alaska consumers – if it happens.

Gaslines aren't in competition, backers say

Alaska is subsidizing the initial development work on both lines: up to $500 million has been committed, under AGIA, to the large line, and the ASAP line benefits from a projected subsidy of $400 million, with $72 million already spent.

ASAP's estimated cost is about $8 billion, which supporters hope will be paid by shippers.

"This line is not in competition with AGIA, the Alaska Pipeline Project," said ASAP pipeline manager Frank Richards.

AGDC officials say their latest plan, rolled out late in 2012 and recently brought to Fairbanks officials and some legislators, makes changes to AGDC's original 2011 plan in an effort to hold down tariffs and to deal with changing market conditions.

The ASAP pipeline will now carry "lean gas," which is closer to pure methane, rather than "rich gas" that also contains NGLs. Some propane will remain in the lean gas.

Langla said that the companies that they were hoping to attract to Alaska to use those NGLs in Alaska now have access to cheaper raw materials closer to home, making the shipping of NGLs through the ASAP pipeline uneconomic.

The switch to a lean gas pipeline will help lower costs in Fairbanks by eliminating the costly "straddle plant," the equipment needed to extract and then reinject the NGLs from the pipeline so that regular methane natural gas could be sent to Fairbanks homeowners.

"When you take out the expensive facilities you reduce the cost of the project, which reduces the price of the tariff," Langla said.

The total project cost is also reduced by being able to use lower pressure in the pipeline, thinner steel in the pipe, and more standard valves and other equipment, she said.

While both Fairbanks and Anchorage would have needed straddle plants, the small size of the Fairbanks market made the straddle plant there relatively more expensive. Under the latest plan, Fairbanks would have a lower tariff than Anchorage.

A side benefit to the new lean gas approach would be the ability to have multiple off-take points all along the pipeline, something that would be cost-prohibitive with rich gas.

The 2011 ASAP plan had said that shipping NGLs was an important part of keeping down tariffs for most users.

“Eliminating NGLs significantly increases the tariff to a majority of off-takers (Anchorage),” according to the 2011 plan.

The new plan estimates Fairbanks costs at between $8.25 and $10 per million BTUs; Anchorage consumers would pay between $9 and $11.25 per million BTUs. Delay and inflation could drive those costs up, while additional state contributions could reduce them, AGDC officials said.

To help hold down costs the new plan extends the length of the tariff from 20 to 30 years and reduces profits for the pipeline owner.

The Legislature is expected to begin hearing House Bill 4, which would enable work to continue on the ASAP plan Monday.

Richards said the ASAP project is ready for another infusion of cash from lawmakers.

Contact Pat Forgey at pat(at)alaskadispatch.com