Gas line team agrees to study larger pipeline

Partners in the massive Alaska LNG project have agreed to study a larger line as proposed by Gov. Bill Walker, a $40 million process that could take months to complete, adding another step that needs to be cleared before the project can move ahead.

Also, concerned with public apathy about an effort the state has pursued unsuccessfully for decades -- to tap and sell gigantic volumes of North Slope gas -- the Alaska Gasline Development Corp. has proposed launching a communication campaign to educate the public about Alaska LNG.

"We've been talking about this for 40 years, and we don't have one stitch of pipe in the ground," said John Burns, AGDC chair. "There is a heck of a lot of distrust, and we have to overcome that."

The $55 billion export proposal combines the state with ExxonMobil, ConocoPhillips, BP and pipeline builder TransCanada. The group collectively has spent hundreds of millions of dollars on early studies. But a crucial decision awaits the partners next year to determine whether the project should enter the next phase, involving costlier and more detailed engineering studies.

First gas isn't expected to flow until at least 2024, but the effort is considered paramount to the state economy. Alaska is using savings to cover a multibillion-dollar deficit amid low oil prices, an imbalance so enormous it won't be closed with new taxes alone.

The governor has said he wants the project partners to pursue a 48-inch-line, a boost from the plan's current 42-inch proposal. Walker said a larger line would more easily allow new gas discoveries, should they be made, to be added to the project.

"We're pushing for companies that haven't arrived yet, because we want them to come up" to search for gas and oil, he said.

The private companies approved the study with AGDC staff voicing support. TransCanada currently acts as the state's representative for studies related to the 800-mile-long pipeline proposal, so the state did not vote for the study.

TransCanada will pay $10 million for its 25 percent portion of the larger-line study, with the oil companies pitching in the remaining $30 million, said AGDC employees.

Efforts are in the works that would allow the state to buy out TransCanada's involvement in the pipeline at a cost of about $100 million to the state. That plan, also presented by Walker, could be discussed in a special legislative session later this year.

Dan Fauske, president of AGDC, said the private entities agreed to "reluctantly" study the larger line.

"It didn't happen overnight," he said at an AGDC meeting Wednesday.

Steve Butt, senior project manager for Alaska LNG and an ExxonMobil employee, said recently that the partners have focused their efforts on a 42-inch line. He said a study of the larger line could delay the project six to eight months. The test pipe alone costs $1 million.

There are potential trade-offs to going with a larger line, experts have said. Both would be engineered to move the same amount of gas, and both could be expanded to carry more, but doing so would be easier with the fatter pipe. A bigger line would cost more up front but would be less expensive to operate.

Where the additional gas would come from is uncertain, but the AGDC meeting included an optimistic presentation from Doyon, the Interior Native corporation that is exploring large, promising gas deposits near Nenana and the pipeline route.

The company wants the opportunity to contribute gas to Alaska LNG and has had encouraging discussions with project officials about the idea, said James Mery, Doyon's senior vice president of land and natural resources.

"With a little more drilling, we could be in a position to tell you by 2018 or 2019 that we a have significant resource and we have gas to put in the line," said Mery.

In an interview after the meeting, Walker said that with additional exploration also occurring in North America's largest natural gas basin, and with Shell prospecting offshore, the pipeline needs to be ready for more gas.

"There won't be a second line, and we need to get it right this time," he said.

Sen. Cathy Giessel, R-Anchorage, said she has concerns that the study could slow the project. But she added that it's important to "measure twice and cut once," like good carpenters do.

"I do trust the companies -- who are so concerned about cost overruns -- to present an objective analysis," she said.

She said other issues need to be resolved among the partners to keep the project on track. For example, she said the administration needs to decide whether it will accept its royalty in the form of gas, rather than cash.

Walker has said the royalty decision is tied to the completion of a gas-balancing agreement -- to ensure supply is met in the event of an interruption -- something the oil companies could have finished in years past but have not.

Other unrelated issues also must be agreed upon to advance the project, he said.

"There is a sequence to these decisions," he said. "They are not made independently, and they are not made piecemeal."

The unfinished business, and the extra time needed to study the larger line, could mean that a decision to enter the project's final-engineering phase may not happen until next fall. That is in line with the project's original schedule, though it's slower than the best-case scenarios some participants were hoping for, said Fauske.

The board meeting was the first time all seven seats have been filled since January, when the governor removed three board members appointed by his predecessor, Sean Parnell. Walker recently appointed Joey Merrick (who must be approved by the Legislature), leading to joking from his colleagues that he'd be sent to gas line boot camp to get up to speed on the complex deal.

The board also heard about a proposal in the works by AGDC employees to launch a campaign to educate the public about Alaska LNG and why it's important.

Among other things, it would provide information about offtakes along the line where portions of the gas could be distributed to communities around the state before the rest is shipped to Asia. Those offtake points could also serve as intakes, allowing gas to be contributed to the line, Fauske said.

AGDC board members expressed support for the idea, though the concept is only in draft form.

They said the message about Alaska LNG's promising prospects should be on the table next spring as the Legislature grapples with cutting the budget and creating new revenues through taxes or tapping the $51 billion Permanent Fund.

Burns, the chair, said there's a lot of "gas line fatigue" in Alaska, with people confused about the process. Some don't understand that the large sums the state is putting into the project are investments that will one day yield income, he said.

An education campaign could help unify the state's messages that currently come from multiple sources, including the governor's office, AGDC and agencies working on the effort, officials said.

"The general public has to know what's going on. It's Alaska's pipeline," said board member Dave Cruz.

Miles Baker, vice president of external affairs and government relations, said the campaign could probably cost "several million dollars" over the next couple years.

Fauske said that's possible, but a final plan has yet to be presented to the board.

"We really have no clue," he said, referring to the potential cost.