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AGPA Attempts to Bypass Majors, Tap Royalty Gas, Other Producers for Alaska Pipeline

The Alaska Gas Line Port Authority (AGPA), a quasi governmental body that proposed an alternative in April to the Alaska Gas Pipeline planned by the big three gas producers -- BP, ExxonMobil and ConocoPhillips -- has filed a new project offer that includes plans to strike a supply agreement only with the state for its royalty gas, leaving the major producers out of the process.

"We're on a time crunch here," said AGPA spokesman Jomo Stewart. "If the market reaches a balance without Alaska gas already in it, then trying to pump 4.5 Bcf/d into that market is going to radically affect the price. If we can get the state's share of [current royalty production] along with a little bit here and there from other small producers, we can approach a 4.5 Bcf/d number [and get the pipeline started].

"We are not trying to exclude the majors, but we need to get a pipeline built. We are going to [bypass the majors] in the short run to at least get the project started. If everything goes well, we could begin construction around 2008 and have a line completed by 2011 or early 2012."

The AGPA project, most of which has not changed from its original plan filed in April, would include construction of an 800-mile 48-inch diameter gas pipeline parallel to the existing crude oil TransAlaska Pipeline System (TAPS), a 125-mile spur to a distribution system on the Kenai Peninsula, a gas fractionation plant (220,000 bbl/d) and a gas liquefaction plant with three processing trains (each with 7.5 million tons per year of production) in Valdez.

Among the more significant changes in the latest version are several new potential destinations along the Pacific Coast for the liquefied natural gas (LNG). The new AGPA offer cites a number of new memorandums of understanding (MOU) with developers of several LNG import terminals along the West Coast, including the Kitimat LNG Inc. terminal in British Columbia, the Northern Star Natural Gas terminal proposed in Oregon, Crystal Energy's Clearwater Port offshore Oxnard, CA, Port Penguin LNG and Sempra Energy's Energy Costa Azul terminal and Baja California Norte, Mexico.

Sempra had partnered with AGPA on the Alaska pipeline alternative but dropped out in June citing a lack of progress being made on the political front (see Daily GPI, June 6). At the time, Sempra LNG President Darcel Hulse speculated that it did not look like North Slope producers would ever opt to send their production to West Coast markets. AGPA, however, now believes it may be able to use that to its advantage.

Officials at AGPA say the major producers, who are negotiating currently with Alaska Gov. Frank Murkowski, are stalling the process because they really have no intention of building a gas pipeline from Alaska's North Slope to the Lower 48 states. Instead, AGPA says, the producers would rather import LNG from other countries and avoid the cost and trouble of building an Alaska pipeline over the next decade. As a result, the citizens of Alaska stand to lose a lot by continuing a negotiation process with the majors.

"By our assessment and their own documents, they are going to try to fill the United States market -- West Coast and Midwest -- with LNG," said Stewart. "Why spend $30 billion to build a pipeline from Alaska when you can make incremental investments and fill the market using foreign gas that you have to use anyway?"

AGPA officials also believe there is enough royalty gas currently being produced along the North Slope to provide the initial volumes to support a pipeline across the state to an LNG terminal near Valdez on the southern coast. In effect, AGPA believes it can move forward right away with a project based upon the state's royalty share of existing production volumes, which it estimates is 8 Bcf/d (1 Bcf/d of royalty gas) along with production commitments from other smaller producers.

"We are asking the state for its royalty share of the gas," said Stewart. "Now when I say 8 Bcf/d is produced currently, I mean it comes out of the ground. Part of it is flared. Most of it is pumped back into the ground for repressurization of fields. Some of it is used for electrical generation.

"In our minds that's produced gas and about 12.5% of it would be the state's royalty share or about 1 Bcf/d. We propose to use that gas to jump-start the project." The remainder of the production would come from contracts with smaller producers, he said.

Meanwhile, the governor flew all the way to Houston for face to face meetings with the CEOs of the three big North Slope producers to negotiate terms of a pipeline contract, which he wants in place by this fall. The producers, however, remain skeptical that such an agreement can be reached in that time frame.

"It is ironic to the Port Authority that the state has chosen to spend all of its time negotiating with an entity that wants to take as much as it possibly can from the state of Alaska and has for all intents and purposes ignored the organization [AGPA] whose only purpose is to give as much as it possibly can to the state of Alaska," said Stewart. The AGPA is led by the City of Valdez, and includes the Fairbanks North Star Borough and the North Slope Borough.

For more information on AGPA's latest offer go to http://www.allalaskagasline.com/.

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