ADGC, state’s gas corporation, puts forward “pipeline first” plan for North Slope gas

The state’s Alaska Gasline Development Corp., or AGDC, has put forth a new “phase one” plan for its project to build an 800-mile natural gas pipeline from the North Slope.

The concept is to build the pipeline only in an initial phase to meet emerging needs for gas in Southcentral Alaska, and with a large export liquefied natural gas, or LNG plant, in a phase two.

Frank Richards, AGDC’s CEO, outlined the idea in a Feb. 26 briefing for legislators in Juneau. The rough cost is $10.7 billion, Richards said.

The plan is to build the 42-inch pipeline without the compressor stations or the large North Slope gas treatment plant that are part of the larger project to reduce costs. There would also be no large liquefied natural gas, or LNG, export plant on the Kenai Peninsula in phase one.

Because there would be no LNG plant, as yet, there is no near-term need for a Cook Inlet crossing for the pipeline, another cost saving, according to Richards. The new pipeline would be built south from the North Slope along a right-of-way approved for the larger project. The pipeline would connect with the Enstar Natural Gas Co.’s existing gas transmission system in the Mat-Su Borough, Richards said.

The plan would require utilities in Southcentral Alaska including Enstar Natural Gas Co. and Chugach Electric and Matanuska associations to sign up for the gas as well as a major industrial customer.

For that, AGDC is talking with Nutrien, owner of the mothballed fertilizer plant on the Kenai, as a potential industrial customer, Richards said. Gas would move to Nutrien’s plant, which would be rebuilt, through Enstar’s pipeline system from the Mat-Su.

Richards said ADGC would sell North Slope gas delivered through the pipeline to utilities and Nutrien at or below the cost of imported LNG shipped to Alaska from the Lower 48. The imported LNG cost is pegged at about $15 per million cubic feet, about twice what Cook Inlet gas now sells for, Enstar Natural Gas Co. has said in legislative hearings in Juneau.

Richards said AGDC’s goal would be to beat that price with a long-term objective of lowering the price to about $6 per million cubic feet if the larger Alaska LNG project is built and that would move substantially more volumes of gas, most of it for export.

Getting the pipeline built first, assuming it can be done, will make it easier to bring in investors for the bigger project, Richards said, because would leave only the LNG plant at Nikiski and the gas treatment plant on the slope to build.

If the pipeline-only plan can come together one year of final engineering is needed with four years of construction, Richards said. The first gas could be delivered in 2029. That is when gas production from Cook Inlet fields is expected to be in servious decline, according to the state Division of Oil and Gas.

However, AGDC says $50 million is needed to do the Final Front-End Engineering and Design, or FEED, for the pipeline. That would allow for an updated cost estimate. Gas sales contracts with North Slope producers also must be finalized. Nutrien would also have to commit to rebuilding its Nikiski fertilizer plant.

The big question is how the $10 billion-plus construction cost can be funded. Gov. Mike Dunleavy has said he wants the private sector to take the lead in the gas project with the state having only a role as facilitator.

However, attracting a private investor to the slimmed-down phase one will be a challenge given the narrow customer base, which is the regional utilities and possibly Nutrien as an industrial customer. It would be challenging for a large multi-billion-dollar investment to earn a profit given the relatively small volumes of gas to be sold for the Alaska market only.

One possibility is that if one or more private investors can be convinced that building the pipeline as phase one will enhance the economics of the larger project. The advantage for the initial investors is that they can take a lead role in the larger project. However, it’s a big gamble.

Some state legislators think that state backing in some form will be needed, and given the urgency of the gas supply problem in Southcentral Alaska it’s worth it for the state to make the pledge.

State Sen. Lyman Hoffman, D-Bethel, who cochairs the Senate Finance Committee, said the energy situation should cause Alaskans to take some bold steps. “It’s time to build the pipeline,” Hoffman said in a mid-January briefing for reporters in Juneau.

There are, of course, other issues. One is that serving Fairbanks with gas will require a separate lateral pipeline because the approved route of the large pipeline is west of the community. The lateral pipeline is not part of the Alaska LNG Project and absent a state subsidy the lateral will have to be financed by a tariff on gas shipped and used by Interior consumers.

Despite the wrinkles, big and small, a key advantage of the North Slope gas pipeline even in a phase one is that all federal and state permits and rights-of-way have been approved. As for the LNG export project in phase two President Biden’s well-publicized ban on U.S. LNG exports won’t apply to the Alaska LNG Project. That’s because the federal export permit is already signed, unless the president were to revoke it. That is considered highly unlikely, however.