Legislators are enthusiastically considering the idea of the state financing and even owning a $7.5 billion pipeline to bring North Slope natural gas to Interior and Southcentral Alaska markets.
State officials on Tuesday presented the Legislature with a long-awaited report saying the gas project is likely to be commercially feasible. It said the state will need to spend hundreds of millions of dollars to flesh out details before any final decision.
Legislative leaders said they still need to dig into the 144-page report but liked what they were hearing. The project, for the so-called "bullet line" down the Parks Highway, is touted as an alternative to get gas to Alaska consumers while the decades-long wait for a much wider pipeline to the Lower 48 continues.
House Speaker Mike Chenault described himself as "pretty stoked up about it." Senate President Gary Stevens lauded the report as a "major step forward."
But the release of the report is just the start of a long and intense debate. There are all sorts of questions about costs to the state and ratepayers, and what it might mean for other energy projects like the proposed Susitna dam and TransCanada pipeline to the Lower 48.
Kenai Sen. Tom Wagoner pointed to a new federal report saying Cook Inlet holds far greater natural gas reserves than previously realized. The state just had its best Cook Inlet lease sale since 1983, Wagoner said, and he doesn't want the proposed in-state line from the North Slope to dampen enthusiasm of such investors for reviving production in Cook Inlet.
Other legislators fear that building the in-state pipeline would damage the chances for a much bigger project to bring gas to the Lower 48. Anchorage Rep. Les Gara said that would provide far greater state revenue as well as cheaper gas to Alaskans than the in-state proposal. He questioned whether state subsidies might be better off going to help the big line.
"Picking the most expensive option that produces the least revenue and highest gas prices would be a mistake," Gara said. "We need more information to make sure an in-state line doesn't do that."
AHFC GETS JOB
In 2010, the Legislature asked Dan Fauske, chief executive of the Alaska Housing Finance Corp., to explore options for building an in-state natural gas pipeline. Fauske's agency has an expertise in financial markets, and he also brought in experts on pipelines and business development. Fauske and his team, under a new state corporation, the Alaska Gasline Development Corp., delivered the report to lawmakers Tuesday.
Fauske said on Tuesday that he doesn't see it as in competition with hydro projects or the Alaska Gasline Inducement Act (AGIA) effort under which TransCanada would bring Alaska natural gas to the Lower 48. "It was never intended to get in the way of AGIA nor should it," Fauske said.
He called it a matter of timing with shortages of gas production in Cook Inlet projected to happen before any big pipeline to the Lower 48 could be tapped to provide for Southcentral residents.
Cook Inlet production has been declining so fast that utilities are moving toward importing liquefied natural gas from overseas by mid-decade.
Natural gas from Cook Inlet is Southcentral Alaska's principal source of energy for heating and electrical power generation. Fauske's report estimated an in-state gas pipeline from the North Slope, if it were in place today, could provide a consumer cost in Anchorage of about $9.63 per million Btu, a unit of energy measurement. That compares to a current cost in Anchorage of $8.85 and is cheaper than what it could cost to import liquefied natural gas.
Fairbanks residents, who get some compressed natural gas by truck but mostly pay high fuel oil prices, would see a much larger savings. Fairbanks legislators are especially pushing for the in-state pipeline. Former Fairbanks Rep. Jay Ramras has been running commercials calling for a special legislative session to discuss an in-state pipeline.
But the state report says the relatively cheap cost for Anchorage is dependant on at least one new industrial user taking a large share of gas. Such an "anchor tenant" would be like the now-closed Agrium plant in Nikiski, which used gas to produce fertilizer. Fauske said he's heard expressions of interest from big gas users but said the details are confidential.
PRUDHOE TO BIG LAKE
His agency's report calls for a 24-inch pipeline to run from Prudhoe Bay down the Parks Highway, with a spur to Fairbanks. The pipe would run 737 miles and enter the Southcentral distribution system by connecting with the Beluga gas pipeline near Big Lake.
The goal is that the first gas from the in-state pipeline could be delivered in 2018.
The report said the state should spend $210 million for the next phase of developing the project. An additional $130 million would be needed to complete the design before a final decision on the project.
The total cost is currently estimated at $7.5 billion but could end up being 30 percent higher or lower than that, according to the report. Fauske said pipeline design work is needed to get more certainty on just how much it would cost.
State ownership and financing are the cheapest ways to construct the pipeline project, Fauske said, but that does not mean the state would operate it.
Most consumers there are using heating oil priced off crude oil, and are suffering from far higher costs than in Southcentral.
Wasilla Republican Sen. Charlie Huggins said his constituents just want to "keep the pilot light on" and the report gives legislators a lot to work with. Other legislators from Southcentral said their constituents were worried about an energy crisis.
Gov. Sean Parnell said the report deserves a close review.
"This report really points up the fact that to pick one project at this time or to discard another would be premature," Parnell said.
Reach Sean Cockerham at email@example.com or 257-4344.
By SEAN COCKERHAM