Sunday, March 21, 2010

PLAN B- When AGIA Fails

There is no doubt that the long-desired pipeline to carry gas from Alaska, through Canada, to the Lower 48 -- the so-called "Big Line" -- is in significant trouble.

To be sure, the Parnell administration has attempted to convince Alaskans otherwise to justify the state government's continued $500 million subsidy of TransCanada's project under the Alaska Gasline Inducement Act. However, the observations of as diverse a group as the highly respected Potential Gas Committee, the federal Energy Information Administration and long-time and widely regarded consultant (sometimes to the Alaska government) Daniel Yergin clearly demonstrate the gravity of the situation.

In a November article in The Wall Street Journal that summarized the effects of what Yergin terms the shale gas "revolution," he concluded, "[a]t current levels of demand, the U.S. has about 90 years of proven and potential supply -- a number that is bound to go up as more and more shale gas is found." Against those numbers, is it realistic to think that producers will risk the $25 billion to $30 billion necessary to build an Arctic pipeline to attempt to penetrate an already oversupplied Lower 48 market? Not really.

So what happens to North Slope gas -- which is almost as important going forward to the Alaska economy as incentivizing continued development of Alaska oil -- if the Big Line fails (or to use the EIA's gentler term in a November study, if it is "significantly deferred")? Because the groundwork is in the process of being laid now, Alaskans should focus on -- and ask those who propose to lead them -- what is "Plan B?"

Three scenarios -- all led by various government components -- are materializing. The first two focus on other methods for developing a market for Alaska's North Slope gas. Oddly, the third scenario goes in reverse, and proposes steps that undermine monetizing Alaska's North Slope gas.

The two that develop a market for Alaska's gas are the Alaska Gasline Port Authority's Valdez liquefied natural gas project, which is the centerpiece of Bill Walker's campaign for governor, and the North Slope to Southcentral bullet line, most recently in the news as a result of Harry Noah's resignation from the Department of Natural Resources.

Of these, the bullet line clearly creates the best future for Alaska in a Plan B world.

Why is the bullet line the best? That is easy. The bullet line bundles a number of markets together in one project, and by doing so achieves the lowest cost for all users. It supplies gas to Fairbanks -- which needs a cleaner fuel to address the area's increasingly worrisome environmental issues. It brings gas to Southcentral -- which even the Parnell administration is now beginning to admit needs new gas supplies to offset declines in Cook Inlet production.

The Bullet line also creates the potential for a value-added industry in Alaska, such as the proposed, large scale gas-to-liquids project, which depends on the Cook Inlet's depleted oil and gas reservoirs to store the carbon dioxide produced from the process. The bullet line additionally brings a supply of gas to the Pebble Project, which because of the size of its demand for gas, would significantly reduce the transportation costs borne by other Southcentral consumers. Also, the bullet line provides a means for monetizing Alaska's North Slope gas on a large scale by moving it to tidewater (albeit the Cook Inlet), paving the way for an LNG export project.

By bringing all of these requirements together, the bullet line produces the lowest cost transportation option for all users, and, in doing so, creates the greatest potential that each project it touches clears its economic hurdles.

Read More

No comments: