Friday, January 27, 2012

Moving gas in-state; House plan combines existing bills, wraps ANGDA into AGDC with same board

Kristen Nelson
Petroleum News

Last year the Alaska House picked away at issues surrounding an in-state gas pipeline, moving three bills to the Senate.

In July, the Alaska Gasline Development Corp. delivered its feasibility report to the Legislature, complete with a list of recommended legislative changes.

House Speaker Mike Chenault, R-Kenai, and Rep. Mike Hawker, R-Anchorage, introduced legislation Jan. 24 combining the existing bills with recommendations from AGDC and additional tools, all of which Chenault described as designed to advance a natural gas pipeline project and bring natural gas to Alaskans.

AGDC has been working on a plan for an in-state gas pipeline since the Legislature passed House Bill 369 in the spring of 2010. HB 369 called for the development of an in-state natural gas pipeline plan, with a proposal to have gas moving through a line by 2015 to be delivered to the Legislature in July 2011.

AGDC delivered the initial plan, but told legislators that it would take until 2018 for first gas.

The new legislation, a committee substitute for HB 9, would keep the momentum going for development of gas for Alaska, “while keeping open all the options for participating in an aligned project,” Chenault said, referring to the governor’s proposal that a large line under AGIA, the Alaska Gasline Inducement Act, could morph into a liquefied natural gas project and combine with an in-state project.

Hawker said he believes we are “on the verge” of seeing a pipeline constructed “that actually will bring Alaska’s gas to Alaskans,” and said the proposed legislation would empower AGDC to carry through to the point where “we can bring a project back before the Legislature and debate the sanctioning” of a project.

He said the bill brings state agencies, including the Alaska Natural Gas Development Authority, “together into a common mission with a common management.” The bill eliminates the present ANGDA board and moves ANGDA under the Alaska Housing Finance Corp. board of directors, which would also replace the Joint In-State Gasline Development Team, which has been the board for AGDC.

Dan Fauske, president of AGDC and CEO of Alaska Housing Finance Corp., said the legislation would give AGDC additional tools. ANGDA’s role in the development, he said, would be in gas marketing and gas purchasing.

Fauske said AGDC is currently in the process of working on a draft environmental impact statement, with public hearings scheduled, and said the EIS is expected to be completed in May. An open season is planned for 2013.

Committee substitute

The proposed legislation is a committee substitute for House Bill 9, introduced last year and includes HB 203, which establishes a fund to receive $200 million appropriated in 2011 for work toward an open season and directs fund management and investment; HB 215, which limits challenges to right-of-way leasing decisions similar to protections extended to the trans-Alaska oil pipeline; and HB 189, which allows AGDC to enter into confidentiality agreements. All three of these bills were passed by the House last year and are in the Senate.

In addition, HB 9 gives AGDC the ability to determine pipeline ownership and operating structure, to exercise eminent domain, to issue bonds and to manage pipeline and related project assets. The bill also removes language limiting an in-state line’s scope to linking North Slope to tidewater, allowing flexibility if there are major finds elsewhere in the state.

The bill recognizes AGDC as an Alaska Housing Finance Corp. subsidiary by replacing the Joint In-State Gasline Development Team with AHFC’s board of directors, and brings the Alaska Natural Gas Development Authority under common management with AGDC. It also protects the state and AHFC from liability related to AGDC and directs state agencies to support AGDC’s efforts by providing permits and state resources such as water, sand and gravel, at no cost.

It amends regulatory requirements for a state-sanctioned project by allowing AGDC to operate a pipeline as a contract carrier and provides AGDC the option for Regulatory Commission of Alaska oversight.

And the bill would exempt an in-state gas pipeline from state and local taxes during construction.

ANGDA changes

The sectional analysis for the committee substitute for HB 9 says certain statutory provisions relating to ANGDA pertaining to the construction of a natural gas pipeline are deleted.

“The overall effect of the amendment in this and later bill sections would be to clarify that ANGDA may operate as a shipper of gas but not as a pipeline owner or developer. This clarifies the respective responsibilities of AGDC and ANGDA and conforms to general requirements of FERC and other potential pipeline regulatory agencies,” the analysis said.

Other provisions of the bill would allow ANGDA to focus on marketing, and give ANGDA the ability to pledge royalty gas owned by the state as long as that gas is not already committed by contract.

Alignment possible

In discussing the proposed legislation, Hawker said that one of the things it does is to broaden the authority of AGDC so that the project could have alignment with a large line going through the state to a tidewater port.

Fauske said the AGDC team is “in constant communication” with the AGIA (Alaska Gasline Inducement Act) project — the Alaska Pipeline Project — and with Kurt Gibson (director of the Alaska Gas Pipeline Project Office, the state agency which is working on the AGIA project) and his staff and with TransCanada.

AGIA is the project being pursued by TransCanada and ExxonMobil to take North Slope natural gas to North American markets in a large line, some 4.5 billion cubic feet a day. The project has held an open season but so far no shippers have committed to shipping on the line, and Gov. Sean Parnell asked the project proponents late last year to look at shipping Alaska North Slope natural gas to Asian markets as liquefied natural gas, a reflection of high prices in Asian markets and the fact that the Lower 48 currently seems more than adequately supplied with natural gas from new shale developments.

Fauske said there is a “community spirit” in progressing the project and noted that if AGIA goes forward, then the work AGDC is doing “is worthwhile in that it becomes the spur line coming off the big line.”

Hawker said provisions in the bill enable AGDC to be a partner or an investment equity holder in other projects, and also allow it to take capacity in other projects, so “this legislation expands the powers and authority of AGDC to be an active participant in other lines.”

Asked about this project in relation to AGIA, Chenault said the legislation “is not about picking a winner: This is about getting gas to Alaskans.”

HB 369 was structured to be within the limits established in the AGIA which prohibits the state from investing in a competing project which would deliver more than 500 million cubic feet a day of natural gas, he said.