Last week, Gov. Sarah Palin introduced legislation regarding a solution to the looming in-State natural gas crisis.
One of the bills introduced by the Palin Administration deals with the permitting process and the involvement of the Regulatory Commission of Alaska in the pipeline construction process. The other expands the portfolio of the Alaska Natural Gas Development Authority from just the development of a natural gas pipeline from the North Slope to tidewater to the development of natural gas resources within Alaska.
This legislation is very important in that in-State natural gas development will now receive the priority that has long been needed to resolve Alaska’s in-State power generation and home heating needs.
My criticism of the Palin Administration is that it took three years to get to this point, when Sarah Palin campaigned on natural gas development and was well aware of the Cook Inlet situation.
Alaska’s Natural Gas Dilemma
In Cook Inlet, reserves have rapidly dwindled to the point that in 2007, the Agrium ammonium nitrate (fertilizer) plant at Nikkiski near Kenai was forced to shut its doors. 65 Alaskans lost their jobs as a result.
For the prior three years to its shut down, Agrium was forced to cease production of ammonium nitrate due to dwindling Cook Inlet natural gas resources. These shut downs would occur during the coldest part of the year when the demand for natural gas for home heating and power generation was at its highest.
The majority of power for the Anchorage and Kenai Peninsula is generated at Beluga across Cook Inlet from Kenai. Chugach Electric owns the gas turbine power plant located at Beluga. Now, that natural gas reserves are dwindling, there is concern that the Beluga power plant may not have sufficient natural gas supplies to produce electricity beyond 2012.
There is a very real concern on the part of Alaskans living in the Mat-Su Valley, Anchorage, and the Kenai Peninsula that receive power from Beluga that one day very soon, the decision will need to be made to either stop natural gas flowing for home heating in order to provide enough natural gas for power generation.
This is not a situation that arose suddenly, but has been increasing in concern, but not priority since the early 1990s.
Both Governor Tony Knowles and Gov. Frank Murkowski focused on large natural gas pipeline projects to take Alaska North Slope natural gas to markets in the lower-48 states. Both ignored the looming shortfall of natural gas in Cook Inlet to the detriment of the employees who lost their jobs at Agrium and the impact of dwindling natural gas supplies have had on the price of power generation. The theory being that the Cook Inlet situation would be mitigated a small spur line off of the main pipeline carrying Alaska’s natural gas south to the lower-48 states, either at Fairbanks and down the Parks Highway south to Anchorage, or from Delta Junction and down the Richardson and Glenn Highways to the Enstar Hub at Palmer, Alaska. A spur line that was never prioritized in the discussions regarding the construction of the main pipeline south.
Natural gas exploration activity in Cook Inlet has been practically dormant since 2000. Much of this was due to the price of natural gas, a shortage of exploration rigs, and the politics of oil.
An interesting aspect to all of this is that natural gas is still being exported to Japan by UNOCAL from the LNG terminal at Nikkiski, Alaska near Kenai, Alaska. Yes, Alaska has an LNG terminal.
The LNG plant is supposed to be taken off-line in 2012 when a lack of natural gas reserves will make it uneconomical to export Cook Inlet natural gas to Japan. The current plan is to convert the plant from an exporting facility to a receiving facility. Meaning UNOCAL and others foresee Alaska . . . importing natural gas to its largest market.
There is a desire on the part of the State to keep this facility in operation and exporting natural gas, because it sets a precedent for marketing Alaska’s natural gas elsewhere in the Pacific Basin if the U.S. market is untenable for LNG.
The Jones Act has been a major barrier in reducing the cost of transporting LNG to the lower-48, as U.S. bottomed ships must be used to transport goods between U.S. ports. The cost of U.S. built tankers raises the cost of shipping that gas to market in the lower-48. Shipping Alaska’s natural gas to foreign markets would not require U.S. built tankers.
An exception to the Jones Act has been sought several times to reduce the cost of transporting Alaska oil and gas to market. Thus far, such attempts have been unsuccessful.
Gov. Sarah Palin, like her predecessors focused initially on the large diameter pipeline project designed to take Alaska’s North Slope natural gas to market in the lower-48. Her Alaska Natural Gas Incentive Act (AGIA) legislation was a controversial process that pitted her against the Alaska oil interests and legislators (mostly Republican) who favored the Murkowski approach of letting the oil companies decide when Alaska’s natural gas would move to market over AGIA.
In-State natural gas development has a bright future. Several promising discoveries have been made in the Nenana basin and in the Copper River basin.
Of course, any development in Alaska is strongly contested by the environmental lobby.
The people of the United States need to understand that Alaska is a storehouse of mineral and energy wealth. One day, it may be that Alaska will export water to the lower-48.
Our Governor has made a major move in establishing the foundation for the beginning of a new chapter in Alaska’s energy development. One day, this foundation will have contributed to the end of using diesel generators for power generation in the Bush.
That is, if our governor will stay focused on Alaska and not pleasing Outside interests who would benefit her political ambitions beyond the provincial needs of Alaskans.