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Alaska Governor Freezes State Spending on Stand Alone Pipeline Project

Declining oil prices have prompted Alaska Gov. Bill Walker to put an end to non-obligated state spending on a half dozen major projects, including the Alaska Stand Alone Pipeline (ASAP) project, a potential alternative to a larger pipeline and liquefied natural gas (LNG) export project.

In an administrative order issued Dec. 26, Walker directed state agencies "to halt to the maximum extent possible discretionary expenditures" for ASAP, the Susitna-Watana Dam Project and four other projects.

"Our budget deficit grows deeper as oil prices go lower," Walker said. "These are large projects that require significantly more state investment to complete. I've requested that state agencies not enter into any new contracts until we've had a chance to look at the various projects...This is a way for us to not commit new money into projects that may not be continued during this fiscally challenging time."

Walker directed the state's Department of Transportation and Public Facilities, Department of Natural Resources, Alaska Energy Authority, Alaska Aerospace Corp., Knik Arm Bridge and Toll Authority and Alaska Gasline Development Corp. (AGDC) to submit by Jan. 5 to the Office of Management and Budget reports detailing operating costs so far, all funding obligations, as well as the potential effects of delaying, suspending or terminating contracts related to the projects.

The spending freeze comes just eight months after state lawmakers overwhelmingly passed legislation (SB 138) to enable the state to take a stake in the Alaska LNG (AKLNG) pipeline and LNG export project, which would tap North Slope gas for domestic use and export to world markets (see Daily GPIMay 7April 21).

Tumbling oil prices have hit Alaska's budget hard, and that in turn has forced the state to put the brakes on spending for a variety of projects. The Susitna-Watana hydroelectric proposal has been in the works for years -- it was scuttled in the 1980s partly because of cheap gas production in Cook Inlet. Also listed in Walker's order were the Ambler Road Project, Juneau Access Project, Kodiak Launch Complex, and Knik Arm Crossing Project.

Following a review of ASAP and AKLNG, one or the other will be selected to go forward, an AGDC spokesperson told NGI. “We’re pretty sure it’s going to be an either-or situation,” the spokesperson said.

Earlier this year, Enbridge Inc. was reported to be in talks with Alaska officials to potentially construct, own and operated the 727-mile ASAP pipeline to serve interior and Southcentral Alaska (see Daily GPIJuly 11).

"The mission of the ASAP is to develop and sanction a natural gas pipeline which is designed to deliver natural gas from the North Slope of Alaska to Southcentral Alaska, serving as many communities as practicable, with an affordable, long-term energy solution," according to a project website maintained by AGDC, the entity charged by the state to pursue the in-state line as well as the larger pipeline and LNG project.

The in-state project could carry up to 500 MMcf/d to serve Fairbanks, Southcentral and other communities in Alaska. It would have a potential in-service date in 2020. The project would include a gas conditioning facility and one compressor station on the North Slope. Cost is estimated at about $8 billion. Potential shippers are utilities and industrial end-users.

Just days before announcing the spending freeze, Walker signed a memorandum of understanding to work with Resources Energy Inc., an affiliate of Japan's Energy Resources Inc., to support development of the state's natural gas pipeline and LNG export project (see related story).

Also reportedly hit by budgetary stringency is the Office of the Federal Coordinator at the Alaska Natural Gas Transportation Projects. The office was not funded in the omnibus spending bill passed by Congress and signed by President Obama earlier this month, and will close its doors in February, federal coordinator Larry Persily told the Associated Press last week. The spending bill also left the U.S. Environmental Protection Agency facing a $60 million cut in its funding (see Daily GPIDec. 16).

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