The Alaska Gasline Port Authority’s (AGPA) 1.2 Bcf/d All-Alaska gas pipeline proposal and liquefied natural gas (LNG) export terminal would have an economic advantage over the producer-sponsored Alaska pipeline to the Lower 48 states because AGPA’s project would be in service a full three years earlier, according to a new study by California consulting firm Econ One that was presented to the Alaska Senate Special Committee on Natural Gas Development on Aug. 24.
The AGPA believes the study shows that its 800-mile pipeline and LNG project will be the one left standing when the dust settles from the political upheaval in the state, including the loss by Gov. Frank Murkowski in the gubernatorial primary and the turmoil over a new FBI investigation into allegations of improper legislative influence by oil field service company Veco, a major arctic pipeline developer.
Federal agents swarmed legislative offices around the state Thursday, executing search warrants in a coordinated series of raids that appeared to target the long-standing relationship between Veco and leading lawmakers, according to a story Friday in the Anchorage Daily News. AGPA General Counsel Bill Walker said it is just the latest event in a series that proves the state needs to step back and take a fresh look at pipeline project alternatives.
“This is turning things upside-down, which from our standpoint is good because while I’m a big supporter of the oil industry — they have done a lot of good things for our state — when they influence too greatly what goes on with our elected officials that’s not good,” Walker said in an interview with NGI.
He speculated that the Veco influence may have been in part designed to help force a decision by the legislature on the Alaska gas pipeline agreement between the Murkowski administration and the producers, ExxonMobil, BP and ConocoPhillips. However, despite Murkowski having called the legislature back into two special sessions, the contract has failed to win legislative approval. And on Aug. 22, Murkowski was defeated by former City of Wasilla Mayor Sarah Palin for the Republican party’s gubernatorial nomination.
Nevertheless, Walker claims the producers’ pipeline proposal is weak for a large number of other reasons, not least of which is that it requires no commitment to build a pipeline at all. The producers’ contract with the Murkowski administration stipulates that upon contract approval and execution, the producers would embark on a four-year study to determine the viability of the Alaska highway route for their pipeline through Canada. If that determination is eventually made, the project still would require six years for completion, leaving an in-service date of 2016 at the earliest. In contrast, AGPA’s project could be in service in 2013.
Walker called the producer project a “really bad deal” for Alaska. “It freezes taxes on oil and gas for between 30 and 45 years and there is no commitment to build a [pipeline]. The only commitment is that the producers will meet in 90 days and begin a four-year study… It’s just crazy that we would give up oil concessions starting today for a study for maybe, possibly doing something in the future.”
Furthermore, AGPA’s proposal makes much more economic sense, Walker said. Econ One economist Anthony Finizza told the Alaska Senate committee that although the producers’ 4.3 Bcf/d Alaska highway line may produce a higher netback to the state, that benefit would be more than offset by the increased net present value of monetizing the gas earlier with the AGPA’s LNG project.
“If the LNG component can be built early as proposed, it would be in the best interest of the producers to consider this option,” the Econ One analysis concluded.
“Econ One’s conclusion supports what we have believed, and what our economic model has demonstrated, all along,” Walker said. “The senior environmental permits have already been acquired for the LNG project which creates, at minimum, a three-year time advantage over the highway project. Some of these permits took 10 years to obtain.”
The APGA’s project would require only a four-year construction window. It would include an 800-mile 1.2 Bcf/d gasline from Prudhoe Bay to Valdez where the gas would be liquefied for shipment on LNG tankers to the North American west coast. AGPA currently is negotiating for capacity at six proposed regasification projects, including Sempra Energy’s Energy Costa Azul terminal, which is under construction in Baja California, and the proposed LNG terminal in Kitimat, BC.
AGPA’s pipeline also would be built to accommodate an extension to Canada for the producers’ project. To assist the producer’s Alaska highway project, AGPA has proposed to pre-build a larger capacity line from Prudhoe to Delta Junction. The project also would accommodate spur lines for in-state gas usage.
The Alaska Gasline Port Authority was created in 1999 by the Fairbanks North Star Borough, the City of Valdez, and the North Slope Borough. Its objective was to obtain tax exempt status in order to provide an economic advantage for commercializing Alaska’s gas. The Internal Revenue Service issued a ruling in 2000 certifying its tax exempt status.
Bechtel Engineering already has contributed 55,000 man-hours on a detailed engineering study for the project. Greengate LLC, AGPA’s financial advisor, has concluded that the LNG project exhibits robust pro forma economics, indicating a likelihood that it could obtain financing without any state concessions or subsidies. The project is also eligible to apply for up to $18 billion in federal loan guarantees.
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