If an in-state natural gas pipeline is to ever become a reality, Alaska will either have to subsidize the multibillion-dollar project or secure a high-volume, industrial user to boost demand and keep rates low enough for consumers in the Railbelt.
That's what Harry Noah, Gov. Sean Parnell's lead on in-state gas development, told legislators at a briefing Tuesday morning.
Most gas producers will require an equal or greater profit on gas sales to Alaska utilities and consumers compared to what they would demand from markets in the lower 48, Noah said. To get the gas producers to commit to the project, Alaska may have to subsidize the pipeline or find a large industrial customer to offset the costs, he said.
There simply aren't enough potential customers in Alaska to warrant a pipeline large enough to pay off without charging high transportation fees, according to his team's analysis of a handful of potential routes for a line linking North Slope has reserves with customers in the Railbelt, a swath of land between Anchorage and Fairbanks that's home to most of the state's population.
Considering such things as geology, terrain, river crossings, environmental issues and potential markets, Noah's team's analysis favors a 24-inch line following the Parks Highway from Anchorage to Fairbanks, then paralleling the trans-Alaska oil pipeline north. The Parks Highway route is 92 miles shorter - and $480 million less - than a line tracing the Richardson Highway.
The favored route would cost about $3.93 billion to design and build, but that doesn't include the tremendous expense of treatment and conditioning plants at Prudhoe Bay, Noah cautioned.
"That could be a heavy burden on this project," he said.
The western gas pipeline route includes off-takes to Fairbanks and other major users, and would support a maximum flow of 1 billion cubic feet of gas. That's more than double the estimated demand in Alaska.
Demand in Southcentral is estimated at 356 million cubic feet per day. Users along the Parks Highway could require 3 to 18 million cubic feet of natural gas per day, depending on how many power plants opt to convert.
Fairbanks could add another 27 to 63 million cubic feet per day in demand, which is based on a hypothetical build-out of the limited distribution system, and on the potential for coal-fired power plants to covert to natural gas.
Lawmakers this spring added $4.3 million to the $2.7 million remaining from a 2008 appropriation for the administration's work on an in-state natural gas project. The funds are intended to carry Noah's work through February.
Noah's route analysis is only the first of several steps toward developing solid cost estimates, which legislators and state officials can use to make policy decisions, such as whether to build a gas pipeline now, or wait for a large-diameter line to Canada and the lower 48 states.
More precise reviews, including delivered costs, should be available in June, Noah said. That data should help policymakers decide whether they want to back an in-state gas line in advance of a large-diameter pipeline that may or may not materialize in the next 20 or more years.
Noah called the in-state pipeline work a "backup" in case a large-diameter pipeline falls through. Several lawmakers, including Rep. Jay Ramras, R-Fairbanks, wanted to know when an in-state route gains priority over a large line.
"Everyone in the state benefits if a big line gets put together," Noah responded. "This shouldn't be a competition."
But what if plans for the big line crumble as world supply trumps demand, with prices at rock-bottom levels, Ramras asked Noah. What will the state do then?
"That is a political question that has to be resolved by the Legislature and by the governor," Noah said.
Contact Rena Delbridge at rena@alaskadispatch.com