Doing it right' means Alaska will get the most out of its gas

(Background on the Alaska Natural Gas Pipeline situation. Written just prior to the 2006 election. Relevant to any Alaska Gas Pipeline discussion, the arguments against an LNG port at Valdez, Alaska to ship North Slope natural gas to the U.S. were answered here. )

The gas line route favored by Gov. Frank Murkowski and inherited from former Gov. Tony Knowles - "My Way is the Highway" - parallels the trans-Alaska oil pipeline right of way to Big Delta, and then goes east into Canada.

Murkowski's route differs from the original Knowles route in that it extends the pipeline through Canada into the United States near Chicago. This is the longest and most expensive route of any proposed thus far, some 3,500 miles with an estimated cost of $25 billion. This cost estimate has increased by $5 billion since Congress passed loan guarantees in 2004 totaling $18 billion.

Murkowski is seeking a $4 billion investment ownership by the state of Alaska. If built, the Murkowski-Knowles pipeline is to be a 48-, 52- or 54-inch pipeline with a capacity of 4.5 billion cubic feet per day and expandable to 6 bcf per day. Estimated completion date is 2016, if the producers decide the line is viable after another long five-year study.

Problems with the Murkowski-Knowles pipeline routes include: Rising cost estimates; North Slope natural gas reserves are insufficient to cover the financing cost over 30 years; steel for rolling the pipe requires a full year's world steel production quota; and new, and, as yet, untried pipe technology is also required.

The only viable alternative to the governor's Canadian pipeline is a liquefied natural gas project advocated so passionately over the years by Jeff Lowenfels. It is the same route originally permitted by Yukon Pacific Corp. The permits to build the Yukon Pacific natural gas pipeline have been in place since the mid-1980s.

In other words, if the producers would sell North Slope natural gas, construction on this line could begin almost immediately. This pipeline route parallels the existing trans-Alaska oil pipeline from Prudhoe to Valdez. Obviously, all jobs and construction generated by this route stay in Alaska.

Most importantly, this route would generate a spur line into the Matanuska Valley along the Glenn Highway or possibly down the Parks Highway. Alaskans recognized the logic and benefits of this route when we passed Proposition 3 in the 2002 election, which created the Alaska Natural Gas Development Authority.

The Yukon Pacific pipeline was designed to carry 2.2 bcf per day to a LNG plant to be constructed in Valdez. The liquefied gas was to be transported to other markets by LNG tankers. The economics for this pipeline was predicated on natural gas with a market price at or above $3 per million British thermal units (a million Btu equals approximately 1,000 cubic feet of natural gas). The current market price is still above $8 per million Btu and has recently been as high as $15 per million Btu.

ANGDA carefully assessed the original Yukon Pacific LNG project and found it both economical and feasible. ANGDA has included a spur line of 500,000 cubic feet per day into Southcentral Alaska via Palmer as part of its pipeline plans. The ANGDA pipeline could be moving gas within five years after the start of construction, including the necessary LNG plant at Valdez. The cost is estimated at $14 billion.

The Alaska Gas Port Authority is a consortium of Fairbanks, the North Slope Borough and Valdez to promote and build a natural gas pipeline using the Yukon Pacific route, but with a difference. The capacity of the pipeline that the port authority is advocating is now up to 4.5 bcf per day to match the Murkowski-Knowles pipeline. However, this increase in capacity also changes the dynamics of the original route permitting. This means that the port authority will have to acquire some new permits, and repermit others, meaning additional delays before construction would begin. The port authority also advocates and promises to build a spur line to Palmer.

Potentially, with the ANGDA or port authority pipeline proposals, Alaska gas could be flowing to market by 2012.

As noted by Pedro van Meurs in the Fairbanks Daily News Miner Jan. 30, in comparing Alaska's hydrocarbon resource development policy with that of Norway: "With the present system, wealth is slipping through the fingers of Alaskans and Norwegians hold on to it ... Norwegians are doing something right, and Alaskans are doing something wrong." Van Meurs is the Murkowski administration's chief consultant in the gas line negotiations with the major North Slope producers.

Why not an Alaska petrochemical industry stripping our gas of natural gas liquids - butane, ethane and propane - for use in Alaska to provide new industry and creating new jobs, before our natural gas leaves the state? Why do we have to keep doing it wrong and let the real wealth of using our resources to build industry in Alaska continue to slip through our fingers?
Alaskans need the opportunity, jobs and the industry our natural gas represents, not more government.

Concoco-Phillips Denali Project

The decision by BP and Conoco Phillips to build a pipeline to take North Slope NG to Canada is a definite change of heart for two out of the three Producers on the North Slope.

I believe the reason for this change is not because all of a sudden BP and Conoco want to get NG off the North Slope, but rather because the alternatives are lacking for another high priority project.

Between unstable tundra along the proposed route due to permafrost melting to legal challenges by Deh Cho and other Native groups, and as yet unsettled right of way regulatory issues, the NG from the MacKenzie River Delta that was intended to fuel the separation of oil from the Alberta Tar Sands is not going to be available within the time frames originally envisioned for the MacKenzie River Delta pipeline project. An alternative had to be found, and Alaska’s North Slope gas reserves is that alternative.

The increasing price of oil is driving the recovery of oil from Alberta Tar Sands at an ever increasing pace. A supply of cheap NG is necessary to the economic viability of the separation process.

The only long term viable source of NG without rights of way issues at least to the Canadian border is found on Alaska’s North Slope. The rights of way and other issues would still have to be worked out to get the NG to Alberta, but, undoubtedly, BP will wield considerable influence in dealing with the Canadian side, given the Crown’s interest in BP along with the imperative to get the Tar Sands oil to market.

It is unlikely that Exxon will seek its own means to transport NG off the North Slope, especially with the promises made regarding development of the Pt. Thompson NG reserves made in order to retain those leases. Exxon is in a market it or else situation with the Pt. Thompson NG reserves. Therefore, it is reasonable to assume, that although unannounced, Exxon will eventually join with BP and Conoco Phillips.

Exxon was a player in the MacKenzie River Delta pipeline project, and a major advocate of taking Alaska’s NG over the top and plugging into the anticipated MacKenzie River Delta pipeline system.

Through a subsidiary, Exxon is also a major player in the Alberta Tar Sands project.

A major concern of those who live in the Mat-Su Valley is whether or not there will there be a provision for a spur line from Big Delta down to the Palmer Enstar NG Hub to provide NG for south central?

It is already a fact from the last round of this game under Murkowski that Alberta was all too willing to provide a ready market for Alaska’s NG liquids, such as propane and butane.

Will the Governor and the Legislature allow these valuable NG liquids to be transferred to Canada without proper consideration given to the long term benefits of value added processing in Alaska?

Stripping them out and using these gas liquids here would provide the building blocks for a petrochemical industrial base. A benefit with economic benefits far beyond just resource extraction that the pipeline represents.

Obviously, value added development of our NG resources would allow Alaskans greater opportunity beyond just the construction of a pipeline. Once the last pipe is welded into place, the pipeline jobs go away. Value added industrial development would be a lingering base upon which to ensure that the benefits from our NG resources go beyond fueling bloated, growing, and ever greedy state and local governments.

If the money goes directly to government, we all lose. If there is value added development, then we the people will benefit along with the Producers and government through jobs and infrastructure upon which to build industry.

The challenges for the Palin Administration, the Legislature and the Producers will be to balance the interests of all parties against the imperatives of the looming south central NG crisis, the economics of the proposed pipeline, and the constitutional requirement of the State to gain maximum benefit from the exploitation of this nonrenewable resource versus the interests of the Producers with respect to their profit motive.

Until there is a NG pipeline from the North Slope generating revenue, our responsibility as citizens will be to see that our elected officials do not spend revenue that is not there. And, to see that maximum benefit is exactly what is bargained for across the board.

Another blog dealing with this subject is to be found at http://www.blogged.com/about/denali-pipeline/