Although the odds for a Lower 48 gasline originating in Alaska’s North Slope appear to be waning, the state has choices to consider for serving the needs of consumers in the interior and Southcentral regions of the state.

An in-state pipeline would be cheaper than importing liquefied natural gas (LNG) — as some utilities have proposed — according to a study released last week. However, another recent study claims that there is plenty of gas still underfoot in the Cook Inlet region and only more investment is required to get it out. That investment might be discouraged should an in-state line from the North Slope be developed, some worry.

Last 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. 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 LNG to make up for a projected supply shortfall (see NGI, July 4). While a U.S. Geological Survey study recently found that there is a lot more gas in the Cook Inlet region than originally thought, significant investment would be needed to bring it online, and it likely wouldn’t be in time to head off the shortfall projected to take hold as early as 2014.

“…[F]ailure to make appropriate investments in lockstep with demand requirements will necessitate alternative sources of natural gas to be made available sooner,” the assessment of Cook Inlet resources said. “Therefore, transition to alternative sources of natural gas may begin to occur before the 2018-2020 timeframe as part of a comprehensive supply and risk management plan,” said the study, which was conducted mainly by the state’s Department of Natural Resources’ (DNR) Division of Oil and Gas.

Even though there is more gas in the Cook Inlet, timing is the enemy when it comes to getting it out. While utilities look at importing LNG, a long-sought in-state pipeline from the North Slope is said to be cheaper.

“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,” said the report last week from the AGDC. “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.

Last week state Sen. Tom Wagoner (R-Kenai) expressed concern that if an in-state gasline is built, it will be a disincentive to producers for further exploration and development in the Cook Inlet region, as reported by the Alaska Journal of Commerce.

Bill Walker, who is general counsel to the Alaska Gasline Port Authority, also has his reservations. Walker’s group wants an in-state gas pipeline that would run parallel to the Trans Alaska Pipeline System (TAPS), serving Fairbanks along the way with a spur to Southcentral and Anchorage and LNG liquefaction and export facilities in Valdez.

“While it is important for Alaska to be aware of all options for our natural gas, it is disappointing that a small-volume line is even being considered, given the abundance of our resource and the location of our state,” Walker said in response to the in-state gasline report. “As scores of LNG projects are being developed around the world bound for the premium Asian markets, some are considering a small-volume bullet line, which only ensures high prices of natural gas for those in Alaska who would receive natural gas from it…This project option does not allow for the people of Alaska to benefit from selling Alaska’s gas.”

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.

Walker wants the state to break with AGIA and build a larger pipeline.

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 NGI, May 23).

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