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Alaska Pondering Gasline to Serve Its Own

With the Lower 48 taking care of itself with gas from shale plays, it's looking more like Alaska might be on its own to develop an in-state gasline to meet its own needs rather than a mega project that would cost tens of billions of dollars and move about 4.5 Bcf/d to Canada and the rest of the United States.

On Tuesday Alaska lawmakers received a report from the Alaska Gasline Development Corp. (AGDC) that outlines plans for a pipeline from the North Slope along the Parks Highway to deliver gas to the interior and Southcentral region. The Alaska Stand Alone Pipeline (ASAP) would be 737 miles of 24-inch diameter pipeline expected to cost $7.52 billion with an "uncertainty range" of plus or minus 30%.

The outlook for gas supply in the Southcentral region has grown increasingly dire, with utilities there pushing a plan to import liquefied natural gas (LNG) to make up for a projected supply shortfall (see Daily GPI, June 28). While a U.S. Geological Survey study recently found that there is a lot more gas in Southcentral's current gas breadbasket -- the Cook Inlet -- than originally thought (see Daily GPI, June 30), significant investment would be needed to bring it online (see Daily GPI, July 6), and it likely wouldn't be in time to head off the shortfall projected to take hold as early as 2014.

"Using a reasonable set of economic assumptions, the project is likely to be commercially feasible with an uninflated consumer cost in Anchorage of about $9.63/MMBtu," the AGDC report said. "This cost is less than the next most practical alternative...LNG, which would cost about $16-20/MMBtu (about $14-19/MMBtu plus local distribution charges of $2/MMBtu). The current cost of gas to Anchorage consumers is $8.85/MMBtu."

The uninflated cost of gas to Fairbanks customers is $10.45/MMBtu, according to AGDC, which said the current published cost for Fairbanks is $23.35/MMBtu.

"No other single project alternative is likely to address the same Cook Inlet energy supply shortfall in a comparable time frame; gas storage and hydroelectric projects are complementary to ASAP," the report said.

The report recommends that the pipeline be owned by the public because that would allow for a lower cost of debt and would provide the lowest tariff. Public ownership would require enabling legislation, though.

"The principal business risks of the ASAP Project are a failed open season, increased construction costs, and project delay caused by regulatory or environmental permitting," the report said, noting that only a Parks Highway route with a spur to Fairbanks would meet the requirements of HB 369, which lawmakers passed last year to set an in-state pipeline project in motion.

That legislation also called for completion of a project by 2015, which the AGDC said is no longer possible. It recommended a first-gas date in 2018 and first transmission in 2019.

AGDC has obtained a lease right-of-way from the state, which it said is the first nonconditional pipeline right-of-way granted by the state for the purpose of moving North Slope gas to market "and will likely be perceived as a significant milestone and increase project interest and confidence among potential shippers and developers."

Due to restrictions laid out in the Alaska Gasline Inducement Act (AGIA), ASAP would be limited to a capacity of 500 MMcf/d. A larger project would be seen as a competitor to the AGIA licensee, which would be entitled to a penalty from the state should such a competing project be constructed.

"The ASAP Project was conceived as a smaller-diameter in-state gas pipeline that could be built sooner and help meet the urgent energy needs in Alaska, particularly in the population centers in Fairbanks and the Cook Inlet region," AGDC said.

Gov. Sean Parnell said the state needs to "continue moving on every potential project to bring Alaskan gas to Alaska and to markets beyond.

"Alaska natural gas is a key component to Alaska's future -- both as an energy source and as a revenue source for Alaskans. This report is a positive step toward solving Alaskans' energy challenges. It merits a thorough review by the legislature, by my administration and by the public."

The state has worked for years to develop a Lower 48 pipeline that would allow commercialization of its North Slope gas resource. Such a project would cost anywhere from about $20 billion to $41 billion depending on its route and other factors.

Most recently those efforts have been under the AGIA, a cornerstone of the administration of former Gov. Sarah Palin. The AGIA project, backed by TransCanada Corp. and ExxonMobil Corp., is still working to secure shippers while it awaits resolution of a lease dispute between the state and producers. A competing project outside AGIA also was pursued by producers BP plc and ConocoPhillips until it was dropped in May (see Daily GPI, May 18).

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