Friday, October 26, 2012

In-state gas line meets milestone with final EIS

Tim Bradner
Alaska Journal of Commerce

The U.S. Army Corps of Engineers is scheduled to publish the final environmental impact statement for a 737-mile, 24-inch in-state gas pipeline from the North Slope to Southcentral Alaska on Oct. 26, according to the Alaska Gasline Development Corp., or AGDC, the state corporation planning the project.

Notice of the FEIS will appear in the Federal Register Oct. 26.

It is an important milestone for the project, said Leslye Langla, spokeswoman for ADGC, although it is not a guarantee that the project will be built.

So far AGDC has spent $64 million on the project, mostly in engineering and permit-related work, Langla said, The group will be coming to the Legislature next year with a request for $300 million for engineering and other work, she said, that will take the project through an “open season” for solicitations to ship gas, and to the point where a construction decision can be made.

Two years ago the Legislature set aside $200 million for the project but an appropriation of funds is still needed.

The pipeline is planned to be 737 miles in length and would parallel the trans-Alaska Pipeline System to Alaska’s Interior and then follow the Parks Highway to Southcentral Alaska, terminating near Anchorage. It would operate at a pressure 2,500 pounds per square inch so as to be able to transport natural gas liquids like propane along with methane, the main component of natural gas.

“We will also receive a 100-mile right-of-way across federal lands as soon as the FEIS is issued. We already have an unconditional right-of-way across 604 miles of state-owned land,” Langla said.

The pipeline must also cross a small amount of private land.

Langla said that once the FEIS is published, the Corps can be expected to issue a final Record of Decision in about 30 days. The next milestone would be a Corps of Engineers Section 404 permit to cross wetlands along the pipeline right-of-way. One area of wetlands that would be crossed is Minto Flats, west of Fairbanks. AGDC expects to receive the Section 404 permit in the first quarter of 2013, Langla said.

At this point the project cost is estimated at $7.52 billion in 2011 dollars with about a 30 percent confidence in the number, Dan Fauske, AGDC’s CEO, has said in previous briefings. The estimate will be refined and the uncertainty reduced as engineering work proceeds.

Decisions on the project final ownership and financing have yet to be made, but one possibility is state ownership and financing through state revenue bonds, with construction and operation would be contracted to private firms, Dan Fauske has said.

That form of organization would result in the lowest cost for moving gas through the pipeline because the tariff structure would not contain an equity component with a profit paid to an investor.

Another possibility is for one or more private firms make take an equity ownership in the project and finance and own the pipeline privately, which would take the state out of ownership but also have the tariff structured to allow for profits for the investor.

There are also combinations of the two, one being some form of joint-venture between the state and private parties, with the state providing financing through bonds.

There are precedents for this: The Alaska Industrial Development Corp., a state development corporation, is allowed to invest in a project in partnership with private firms and to provide financing.

Alaskans shouldn’t be wary of state ownership of a large infrastructure project if they are done right, Fauske has said.

There are many successful examples of this including state ownership of large hydro projects like the Bradley Lake project near Homer through the Alaska Energy Authority; the Red Dog Mine road and port, through AIDEA; the Skagway ore terminal and Ketchikan shipyard owned by AIDEA; or smaller projects like the Federal Express hanger at Ted Stevens Anchorage International Airport, which is owned by AIDEA but leased to Federal Express Corp.

AGDC will be asking the Legislature to decide on the most appropriate organization for the in-state pipeline as the project moves forward, Langla said.

The current design capacity for the 24-inch pipeline is for 500 million cubic feet per day, which is based on a commitment the state has made in a contract with TransCanada Corp. under the Alaska Gasline Inducement Act.

This limits the amount of gas the state can take for a state-sponsored project other than the larger project TransCanada is working on, which is designed to move about 4 billion cubic feet per day. The state is also supporting that with a $500 million grant under the AGIA contract.

The limit on gas volume has caused some heartburn among state legislators who believe larger amounts of gas being shipped are needed for the pipeline to be viable.

Fauske said he agrees that a higher volume would be better but the state is currently limited by the AGIA contract.

AGDC began work on the 24-inch pipeline as an alternative three years ago when there was great uncertainty about a large-diameter pipeline. The goal would be to move at least some North Slope gas south to the state’s Interior and Southcentral communities in case the large project encounters long delays or is not built.

TransCanada has already encountered one setback when its plan for a 48-inch pipeline from the North Slope to Alberta had to be shelved because of the glut of inexpensive shale gas in North American markets. The pipeline company is now working with North Slope producers BP, ConocoPhillips and ExxonMobil on a large-diameter pipeline to a south Alaska port and a large liquefied natural gas export project, but that is in a very early stage of conceptual planning and is highly uncertain.

ADGC hit a setback itself earlier this year when the state Legislature failed to appropriate all funds requested by the corporation for advanced engineering, although $21 million was made available. ADGC was hoping to have its project in construction by 2016 and in operation by 2018 but that has now been set back a year, and possibly more.

The large gas project being considered by TransCanada and the gas producers, estimated to cost from $45 billion to $60 billion, couldn’t be operational until 2024 at the earliest.

If that project is built the smaller AGDC pipeline could be used as a spur line to carry gas to Anchorage, Fauske said, or converted to other uses.

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