Anchorage Daily News

A state agency that hopes to deliver North Slope natural gas to Southcentral Alaska will be looking to the Legislature to give it the funding the Palin administration has turned down.

The Alaska Natural Gas Development Authority is looking for $25 million to $50 million to advance a spur pipeline that would branch off a main, multibillion-dollar pipeline from the North Slope, through the Interior and Canada.

The Palin administration budget proposal unveiled last month called for giving the gas authority $5 million for the state budget year that starts July 1.

The administration said the $5 million signifies a scaled-back commitment to the spur line during uncertain financial times. Oil revenue account for about 90 percent of unrestricted state revenue, and oil prices have plunged in recent months.

Harold Heinze, chief executive of ANGDA, believes time is of the essence for his spur line project. He pleaded his case to the Palin administration during budget deliberations this fall.

The Legislature is responsible for altering and approving the state budget each year.

The Palin administration would prefer to advance the spur line under a public-private partnership announced this summer, but believes the $5 million budget "placeholder" keeps ANGDA's needs on the radar, according to Joe Balash, special assistant to Palin.

"We are not yet convinced that we need to spend $50 million of public funds in fiscal year 2010," Balash said.

SPUR LINE RISKS

The spur line is an attempt to secure a long-term supply of relatively cheap natural gas for the population center of Alaska situated around Anchorage and leading up to Fairbanks.

But the project requires a number of conditions to be as successful as possible.

First, the spur line by definition depends on a main pipeline. Although two main pipeline efforts began in 2008, it's uncertain whether construction will ever occur.

Second, the spur line ideally would be built before the main line to avoid the almost certain escalation in project costs that would come in the wake of a big project, a 1,700 mile pipeline expected to cost $26 billion to $40 billion.

Third, the spur line would be most efficient if it addressed all of the natural gas needs in the Railbelt as one large unit, rather than as a collection of smaller individual utilities.

This "aggregation" would require the major natural gas and electric utilities in Alaska to agree to multibillion-dollar supply commitments for several decades. Those companies have never worked together to that degree before, and have been territorial in the past.

Taken altogether, the Palin administration believes those issues create enough uncertainty on the project to make funding the full ANGDA request unwise while money is tighter.

ANGDA believes the $25 million to $50 million would gather enough information to persuade the utilities to combine their demand.

COMPETING IDEA

In an attempt this summer to address concerns about in-state energy needs and costs, Palin announced a partnership between ANGDA and the Anchorage's Enstar Natural Gas Co. to build a small-diameter pipeline from Cook Inlet to Fairbanks.

ANGDA is looking for a company to help it decide whether to join a public-private partnership, most likely with Enstar but theoretically with any private-sector company.

Heinze believes ANGDA can ensure low fees for shipping gas through the pipeline, while the private sector can build and operate the line, making sure the project comes in on time and on budget.

Enstar said it would consider the spur line route favored by ANGDA and the state, but the company spent some $6 million this year studying a pipeline from Anchorage to the Gubik field, an unmeasured gas prospect in the Brooks Range.

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