Understanding Alaska's gas projects

February 5, 2006

Valley Voices\Larry Wood

The gas line route favored by Gov. Frank Murkowski and inherited from former Gov. Tony Knowles (&#8220My Way is the Highway”), parallels the trans-Alaska pipeline right of way to Big Delta, and then goes east into Canada. Murkowski's route differs from the original Knowles route in that it extends the pipeline through Canada into the U.S. near Chicago.

This is the longest and most expensive route of any proposed thus far, some 3,500 miles with an estimated cost of $25 billion. This cost estimate has increased by $5 billion since Congress passed loan guarantees in 2004 totaling $18 billion.

Gov. Murkowski is seeking a $4 billion investment ownership by the state of Alaska. If built, the Murkowski-Knowles pipeline is to be a 48-, 52- or 54-inch pipeline with a capacity of 4.5 billion cubic feet per day, expandable to 6 bcf per day. Estimated completion date is 2016, if the producers decide the line is viable after another long five-year study.

Problems with the Murkowski-Knowles pipeline routes include: rising cost estimates; North Slope reserves are insufficient to cover the financing cost over 30 years; steel for rolling the pipe requiring a full year's world steel production quota, and new, and as yet, untried pipe technology.

The only viable alternative to the governor's Canadian pipeline is an LNG project advocated so passionately over the years by Jeff Lowenfels. It is the same route originally permitted by Yukon Pacific Corp.

The permits to build the Yukon Pacific NG pipeline have been in place since the mid-1980s. In other words, if the producers would sell North Slope NG, construction on this line could begin almost immediately.

This pipeline route parallels the existing trans-Alaska pipeline from Prudhoe to Valdez. Obviously, all jobs and construction generated by this route stay in Alaska.

Most importantly, this route would generate a spur line into the Matanuska-Susitna Valley along the Glenn Highway or possibly down the Parks Highway.

Alaskans recognized the logic and benefits of this route when we passed Proposition 3 in the 2002 election, which created ANGDA (Alaska Natural Gas Development Authority).

The Yukon Pacific pipeline was designed to carry 2.2 bcf per day to a LNG plant to be constructed in Valdez. The liquefied gas was to be transported to other markets by LNG tanker.

The economics for this pipeline were predicated on NG with a market price at or above $3 mmbtu (million btus, equals approximately 1 thousand cubic feet of NG). The current market price is still above $8 mmbtu and has recently been as high as $15 mmbtu.

ANGDA carefully assessed the original Yukon Pacific LNG project and found it both economical and feasible. (Report to the People, September 2004) ANGDA has included a spur line of 500 mcf per day into Southcentral via Palmer, as part of its pipeline plans.

The ANGDA pipeline could be moving gas within five years after the start of construction, including the necessary LNG plant at Valdez. The cost is estimated at $14 billion.

The Alaska Gas Port Authority (AGPA) is a consortium of Fairbanks, the North Slope Borough and Valdez to promote and build a NG pipeline using the Yukon Pacific route, but with a difference. The capacity of the pipeline that AGPA is advocating is now up to 4.5 bcf per day to match the Murkowski-Knowles pipeline.

However, this increase in capacity also changes the dynamics of the original route permitting. This means that AGPA will have to acquire some new permits, and repermit others, meaning additional delays before construction would begin. AGPA also advocates and promises to build a spur line to Palmer.

Potentially, with the ANGDA or AGPA pipeline proposals, Alaska gas could be flowing to market by 2012.

As noted by Pedro van Meurs, the Murkowski administration's chief negotiator in comparing Alaska's hydrocarbon resource development policy with that of Norway: &#8220With the present system, wealth is slipping through the fingers of Alaskans, and Norwegians hold on to it … Norwegians are doing something right, and Alaskans are doing something wrong.” (Fairbanks News Miner, Jan. 30, 2006)

Why not an Alaska petrochemical industry stripping our gas of NGLs (butane, ethane and propane) for use in Alaska to provide new industry and creating new jobs, before our NG leaves the state? Why do we have to keep doing it &#8220wrong” and let the real wealth of using our resources to build industry in Alaska continue to slip through our fingers?

Alaskans need the opportunity, jobs and the industry our NG represents, not more government.

Larry Wood is a Palmer resident. His Valley Voices column appears every four weeks.