Alaska's biggest cheerleaders for developing natural gas and building a pipeline to get it to market are scheduled to gather before the Senate Resources Committee this week to talk -- again -- about projects and plans.
Missing from the hearings, however, are people who might want to buy the gas and the companies that would need to sell it. For decades, a big pipeline to export natural gas from Alaska's Arctic oil field -- the largest proven conventional gas supplies in the nation -- has eluded state visionaries because there have been no customers for it. And that means no financing for a line that could cost $40 billion or more to ship gas from the North Slope through Canada.
Even a smaller, in-state line that would serve local cities and markets is now estimated at more than $7 billion -- plus or minus 30 percent, state officials have said. Dan Fauske, the head of the Alaska Gasline Development Authority, is slated to give his presentation Monday morning, a report that has been aired at least twice in recent weeks to different legislative gatherings.
Sen. Bill Wielechowski, a member of the Resources Committee, has submitted a seven-page list of questions to Fauske aimed at drilling down on the advantages of a smaller in-state line vs. a bigger line to distribution points in Canada. That line is envisioned to have spurs going down through the Railbelt. Wielechowski says he is trying to resolve Alaska's critical energy needs while avoiding a boondoggle that could saddle energy consumers with staggering costs for years to come and ruin the state's fiscal soundness.
Department of Natural Resources Commissioner Dan Sullivan and his staff also are on the agenda to talk about Alaska gas, including Cook Inlet reserves which could factor into a pipeline that would run from Cook Inlet to Fairbanks. That twist on the bullet line is getting some attention as gas companies signal renewed interest in Cook Inlet and federal officials have boosted resource estimates. Resources co-chair Sen. Tom Wagoner is one of those interested in the idea.
But the "big" gas line isn't off the table yet, even though lawmakers have expressed impatience with the lack of information about what sorts of bids came in to Calgary-based TransCanada Corp. during the "open season" last year.
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As part of the Alaska Gasline Inducement Act (AGIA) the state is committed to reimbursing TransCanada and its partner, Exxon Mobil, up to $500 million. Some Republican legislative leaders in both the House and Senate have been pushing to find a way to end that subsidy unless TransCanada can demonstrate that buyers and sellers are likely on board with the project. TransCanada executive Tony Palmer is scheduled to testify on Tuesday morning about the status of the project.
Gov. Sean Parnell and other state officials have been content to let the AGIA process play out without seeking other ways to get Alaska's valuable natural gas off the North Slope and to markets in the Lower 48 or overseas.
Korea bypasses Alaska gas for Canada
In the last month, according to press reports, Korea Gas Corp., the world's largest importer of liquefied natural gas, has been visiting the Canadian Arctic and with an eye toward possibly buying an interest in the Mackenzie Valley pipeline, a project similar to an Alaska gas line. Kogas, as its known, also has talked about building tankers that could carry LNG from the Arctic to South Korea and elsewhere.
Kogas didn't reply to requests for comment for this story.
But late last year, two Alaska resource proponents had a deal of sorts in the works with Kogas and arranged to visit Kogas officials in South Korea to talk about Alaska natural gas and a gas pipeline. Bill Noll, the former state commerce commissioner who died in June, and Harold Heinze, the chief executive officer of the Alaska Natural Gas Development Authority, had worked for months to set up a meeting and finally had it arranged for late January, according to documents obtained from ANGDA under a public records request.
But shortly before the trip, Parnell nixed it. A Jan. 28 letter from Noll to Kogas President K.S. Choo explains that the governor "wants to wait for further results from the two Open Seasons now being conducted by the major oil producers." Noll went on to say he was hoping to meet with Parnell in February and "I intend to emphasize the strong activity that your company has recently demonstrated through your investments in Canada and Australia."
Joe Balash, deputy DNR commissioner, said Kogas has not shown any interest in Alaska gas and that nothing more has been done to reach out to the company. He said a 2008 executive order signed by then-Gov. Sarah Palin that is still in effect makes it clear Alaska is interested in working with anyone who is interested in LNG. Companies know the executive order is in place "and we will work with them constructively," Balash said, adding that the state did meet with Mitsubishi on LNG but nothing came of it.
Still, he said "I would characterize our efforts on (LNG) as passive rather than active."
A company like Kogas also would be more likely to be talking directly to gas producers, he said. The state is working with some companies to encourage them to bid on state lease sales and acquire the resource that way, he said.
The administration is focusing now on the AGIA process and Balash anticipated that DNR Commissioner Sullivan and Palmer of TransCanada might have new information when they testify at the Senate hearings this week.
Did Alaska drop the ball with the world's largest LNG importer?
For his part, Heinze said he hasn't "got the foggiest idea" why the state dropped the ball with Kogas after Noll set the meeting up. "I thought it was a pretty good idea," he said.
Larry Persily, the federal coordinator for the Alaska gas line project, said he thought waiting to see the results of the open season was probably the best idea. And, he noted, TransCanada had an LNG option -- a line to Valdez as part of the overall project -- that Kogas or others interested in LNG could have bid on.
Persily said it appears that the Valdez option is off the table and that suggests potential LNG customers weren't interested in it. "If Kogas or anyone else thought there was something there they'd bid on it," he said, "but they're not chasing a market that doesn't exist."
The Federal Energy Regulatory Commission on Aug. 1 issued its notice of intent to start the environmental impact statement process. The notice only discusses the Alberta option for a line from the North Slope into Canada. There is no EIS for a Valdez option and Persily said there would be one if the company had gotten enough interest in an LNG shipping facility in Valdez.
A TransCanada report filed with FERC earlier in the year notes that it is focusing on an Alberta line and not a Valdez option.
And, a footnote in the the Aug. 1 FERC notice regarding the EIS says:
The project proponent is also considering an alternative proposal to build a natural gas pipeline to Valdez, Alaska, for delivery into a liquefied natural gas (LNG) plant for liquefaction and export to global LNG markets. Because the Commission has received very little information on the LNG plant and the associated pipeline, the Valdez proposal is not sufficiently developed for the FERC to include in the environmental review at this time.
Persily is also scheduled to testify before Senate Resources on Wednesday and gave a preview of that testimony to a luncheon gathering of Commonwealth North on Friday. He noted that TransCanada is doing substantial field work this year and appears to be on track to file its application with FERC as required by Oct. 2012.
AGIA doesn't get Alaska a pipeline
Unlike other major pipeline or utility projects regulated by FERC, a 2004 federal law allows the company to file the application without having financing or agreements with shippers in place, he said.
"AGIA doesn't get you a pipeline," Persily said. "AGIA gets you the building permit," likening it to building a house where you get all the permits lined up and the house designed but you still need to get financing for it.
For the gas line, "without financing all you have is an expensive certificate to hang on the wall," he said.
As it has for decades, financing will hinge on the need for gas in the Lower 48 and the price. Persily said shale gas has filled the demand and kept the price too low to make Alaska gas economically viable. But that demand is building again as coal-fired power plants are being shut down or converted to natural gas for environmental reasons and shale gas is peaking and facing deeper environmental scrutiny.
Persily cautioned that the state also will need to step up soon and discuss fiscal terms including taxes and royalties for the gas so that shippers can be assured of a cost, at least for the near term.
"No one is going to build a $40 billion project on spec," he said.
Contact Patti Epler at patti(at)alaskadispatch.com