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Port authority suggests parallel process Bill Walker tells legislators they should hire experts to study an all-Alaska gas project themselves, not rely on administration Kristen Nelson Petroleum News
The Alaska Gasline Port Authority, whose LNG project is not being considered under AGIA, is urging the Alaska Legislature to hire its own experts and consider a liquefied natural gas project — in addition to the highway pipeline project by TransCanada that the administration is considering under Gov. Sarah Palin’s Alaska Gasline Inducement Act.
The port authority appealed a January decision by the administration that its application, an all-Alaska project, taking the gas to Valdez for liquefaction, was not complete — and that the application the port authority submitted in mid-December in response to questions on the original application was a new application and could not be considered since it did not meet the Nov. 30 submittal deadline.
The administration refused to reconsider the port authority application but it did agree — in response to a letter from Backbone II — to evaluate the TransCanada highway proposal against a hypothetical LNG project to ensure that, in addition to meeting AGIA requirements, the TransCanada proposal would be more beneficial to Alaska than an LNG project.
Bill Walker, general counsel and project manager for the port authority, told legislators Feb. 11 that the administration turned down an offer to use the expertise the port authority has developed over the past 10 years in the LNG evaluation.
He said he was not comfortable with an LNG “straw man” the administration would use in its evaluation and wanted to make sure there is a true and fair comparison. A comparison with an LNG project is not provided for in AGIA and Walker told legislators he is concerned about the rigor of an LNG analysis.
Legislature not bound by AGIA The Legislature, Walker told the Senate Resources Committee and, later on Feb. 11, an open meeting of the House majority Republican caucus, has three options as it makes its decision on awarding an AGIA license.
The foregone conclusion is that the administration recommends awarding the AGIA license to TransCanada and the Legislature approves that license, he said. This option follows the AGIA process with the addition of an LNG analysis.
If the Legislature votes down an AGIA license to TransCanada, then the administration would move on to AGIA II, Walker said, with another round of applications, a delay of a year and uncertain response to the new call for applications.
The third option would be a parallel process, with the Legislature retaining its own experts now to evaluate an all-Alaska LNG project — a process not in AGIA.
Then the Legislature would have an option, Walker said: It could award the license to the highway project or adopt legislation needed for an all-Alaska line.
State should participate in pipeline Walker said the port authority also recommends that the state participate in the gas pipeline. He said state participation in the pipeline would be a “significant statement” that the project would happen; would provide alignment on a low tariff because the state benefits if the tariff is low and the wellhead price is high; and is the type of infrastructure in which most national oil companies participate.
Craig Richards, an attorney working on the port authority project, told legislators the port authority looked for leverage points on the project: Point Thomson, where having the leases back would give the state 60 percent of the gas needed for a small gas project, requiring the participation of only one of the major North Slope producers; lack of a gas balancing agreement in the Prudhoe Bay operating agreement, which means there is no provision for a working interest owner in the unit to sell its gas; and the pipeline, where state participation would move the project forward.
On the gas balancing agreement Richards said the Alaska Oil and Gas Conservation Commission or the Department of Natural Resources should establish regulations requiring gas balancing. If the state acts, he said, the producers would doubtless incorporate gas balancing into the Prudhoe Bay operating agreement.
Richards said for $1.5 billion the state could move the pipeline forward and have 51 percent ownership. The state’s risk exposure in construction, some $6 billion, could be mitigated, he said.
As the majority pipeline owner the state could hold the open season, and Walker said companies have told the port authority that when an open season is held by the sovereign, there is serious reason to participate because the sovereign is the source of permits needed by potential shippers.
Why new data was important Walker was asked why it was so important to the port authority to include the updated data generated by Bechtel for the port authority’s pipeline and LNG partners, partners who dropped out of the AGIA application process and information which the port authority wasn’t able to obtain until after the Nov. 30 AGIA submittal deadline (see “Port Authority had partner troubles” in Jan. 27 issue of Petroleum News at www.petroleumnews.com/pnads/272826393.shtml).
He said $2 million worth of update of the port authority’s data which was paid for by the partners, produced the information for netback price needed for the application.
That information, incorporated in the mid-December application, showed for a 2.7 billion cubic foot per day port authority LNG project the netback is estimated at $5.43 per thousand cubic feet, compared to $4.33 for a 4.5 bcf a day highway project, Walker said.
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