Alaska Legislators Support Gas Projects

The Alaska Legislature this session appropriated more than $440 million to help move natural gas off the North Slope and into furnaces, water heaters, power plants and possibly mines across the state, and maybe even to the doorstep of a liquefied natural gas export terminal.

The appropriations for fiscal year 2014, which starts July 1, continue state support for two different pipeline projects and also a liquefied natural gas trucking project, though the funding and authorizing legislation do not guarantee any of the projects will be built. That will be up to market conditions, project economics and possibly future Legislatures.

Included in the appropriations is $25 million to continue state reimbursement of the preliminary planning and design work under way on a large-volume gas pipeline project sponsored by North Slope producers ExxonMobil, BP and ConocoPhillips and pipeline builder and operator TransCanada. The money is another installment on the state’s $500 million contractual commitment in 2008 with TransCanada to help push the multibillion-dollar project. The state expects 2008-2013 reimbursements to total close to $300 million by the end of the fiscal year on June 30.

The state operating budget for fiscal year 2014 also includes $3 million for the Department of Natural Resources Gas Pipeline Project Office, charged with overseeing the deal with TransCanada that requires the company to apply by October 2014 for a Federal Energy Regulatory Commission certificate to build and operate the pipeline. That deadline is open to renegotiation between the state and TransCanada.

The pipeline builder and its North Slope producer partners are looking at the commercial feasibility of an 800-mile pipeline to tidewater in Southcentral Alaska, a liquefaction plant and shipping terminal for exporting liquefied natural gas to Asia markets. The companies estimate the project’s total cost at $45 billion to $65 billion.

Also included in the budget bills is more than $2.5 million to the state Department of Revenue and Department of Natural Resources for oil and gas fiscal systems analysis and work related to the commercialization of oil and gas resources.

SMALLER, IN-STATE LINE

The budget bills include about $355 million to continue design, permitting and commercial work on a much smaller gas pipeline project — known as the in-state line, bullet line and Alaska Stand Alone Pipeline — managed by the Alaska Gasline Development Corp. The state agency-led project is seen as a potential back-up plan if the larger, producer-led pipeline does not move forward; as a potential business partner with the producers’ line if the state decides to take an equity stake in that project; and as a potential supplement to the larger line for moving gas around the state though smaller pipelines.

The fiscal 2014 appropriation is in addition to $72 million directed to the state corporation in the past three budget cycles for the pipeline from the North Slope to Southcentral Alaska.

A little more than $1 million was appropriated from the $355 million to the state departments of Transportation, Environmental Conservation and Law for work related to the in-state gas line project.

In approving funding for the smaller, state-led gas pipeline, lawmakers approved House Bill 4, which transfers the 3-year-old Alaska Gasline Development Corp. from the state housing finance agency to a new home at the Department of Commerce and sets up a procedure for naming a new board of directors — five public members and two members of the governor’s Cabinet.

The legislation gives the gas pipeline corporation unlimited authority to issue bonds to pay for construction of the project, estimated at $5.4 billion to $10 billion, with the restriction that the state is not legally or morally responsible for the debt. Repayment would come from the revenues collected from the pipeline’s customers, including utilities and large commercial customers. Any appropriation of state money for the project would require additional legislative action.

With the funding approved by legislators, the in-state gas line project team plans to further refine its cost estimates and solicit potential shippers in early 2015. The volume and duration of customer commitments will go a long way to help determine if the pipeline is economically viable, should the state decide to proceed with its own project to meet in-state energy needs if the larger, producer-led pipeline fails to pass its own economic test.

The initial capacity of the state-sponsored line would be about one-sixth that of the producer line: 500 million cubic feet a day vs. 3 billion to 3.5 billion cubic feet a day for the producer line.

Gov. Sean Parnell has 30 days after receipt of the budget bills to approve the measures in their entirety or to make selective vetoes of any appropriations. The Legislature adjourned April 14, though the 30-day countdown will not start until the governor’s office actually receives the bills later this month or next.

TRUCKED LNG TO FAIRBANKS

While waiting to see if a gas line is built, lawmakers also took action to bring North Slope gas to Fairbanks in a shorter timeframe. Working through the Alaska Industrial Development and Export Authority, lawmakers appropriated $57.5 million in cash and authorized up to $275 million in loans toward a project to deliver truckloads of LNG to the community.

AIDEA, a state agency, would use the $57.5 million for an equity stake in the North Slope liquefaction plant and perhaps other aspects of the project.

The plan is for a private operator or operators to build the small gas liquefaction plant on the North Slope, own and operate the fleet of LNG delivery trucks, build and operate the aboveground storage tanks and regasification equipment that would feed the gas into a distribution grid for delivery to residences and businesses around Fairbanks. The local electrical generation utility and an oil refinery also are seen as potential customers for the trucked LNG.

The development could total about $425 million, according to one scenario mapped out by AIDEA. That would include the state cash and loans, $30 million in tax credits that would accrue to the owners of the LNG storage tanks in Fairbanks (approved by legislators last year), and $70 million in private money.

That estimated cost includes local distribution lines for only the first phase of a build-out to serve Fairbanks and neighboring North Pole. Expansion of the distribution lines to more of the community would be an additional cost, as would the private expense of converting home and business heating systems to burn gas.

AIDEA is reviewing several proposals from private parties interested in taking on the project. Board approval will be required before any developer is allowed access to the loan funds and state cash — putting the burden on the developer to show that the project’s economics work and that the loans would be repaid.

“Authorization to use state funds will not be issued if AIDEA determines the project is not feasible,” AIDEA said in a presentation to legislators in March.

Of the $275 million in loans, $125 million would come directly from the state, at an interest rate not to exceed 3 percent. The other $150 million would be borrowed on the open market and secured by the state to help hold down the interest rate charged.

The trucking LNG project plan shows that while its gas would be more expensive than pipeline deliveries to Fairbanks, should that occur in the future, it would cost less than expensive diesel fuel and could be delivered several years ahead of any pipeline — an important factor for a community suffering under high heating costs.

Lawmakers also appropriated $500,000 to the Alaska Industrial Development and Export Authority to conduct a feasibility study of converting natural gas to a liquid, a long-held dream by many Alaskans for moving North Slope gas down the existing trans-Alaska oil pipeline — thereby turning gas into cash and avoiding the expense of a separate gas pipeline.

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April 26, 2013; Source: arcticgas.gov