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.

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Russia-Belarus Oil Dispute Threatens Europe’s Supply

By ANDREW E. KRAMER
MOSCOW — Russia and Belarus have failed to renew an agreement on crude oil export tariffs that expired on New Year’s Eve, raising the prospect that yet another otherwise unremarkable energy pricing dispute between Russia and a neighbor could unravel into a midwinter fuel shut-off on the Continent.

Just a year ago, Europeans shivered through a politically tinged dispute that went on for weeks between Russia and Ukraine over natural gas prices and transit fees.

This year, the crude oil pipeline that is the focus of disagreement is integral to exports of Siberian petroleum to Western Europe as part of the Soviet-era Druzhba pipeline system.

As is the case with natural gas pipelines in Ukraine, about 1.3 million barrels of oil per day shipped along the Belarussian spur of the Druzhba pipeline supply both the internal market in Belarus and the more lucrative markets in the European Union, like Germany and Poland.

On Sunday, Reuters cited two oil traders as saying that Russia had begun curbing supplies to the domestic market by cutting the flows to two refineries, Naftan and Mozyr. In Ukraine last January, that was a first step toward a more general shutdown.

Russian officials took pains to emphasize that the export volumes would continue to flow, while either refusing to confirm or denying the report of a local shut-off in Belarus.

A Russian Ministry of Energy spokeswoman, Irina F. Yesipova, said the transit flow en route to Western markets, a supply big enough that its disruption could raise global oil prices, had not been and would not be halted. She declined to comment on the domestic supplies in Belarus.

A senior official at Transneft, Russia’s state oil transport company, said in a telephone interview that the company continued to supply both the internal Belarussian market and export markets at full volume.

“We have not stopped pumping, not to Belarus, not for export,” said the official, who was not authorized to speak publicly.

A duty officer at the Belarussian Foreign Ministry referred questions to the Ministry of Energy, whose phones were not answered on Sunday.

Belarus is one-half of a loose confederation with Russia that was supposed to eventually lead to a common currency and customs zone. Yet in the oil business, so vital to Russia’s economy, Belarus was treated with privilege but as less than a fully integrated partner.

Refineries in Belarus paid a fraction — 35.6 percent — of Russia’s standard crude oil export tariff. The Belarussians, though, were able to re-export the gasoline, diesel, bitumen and other products to Europe at a healthy profit. This trade helped prop up the government of Aleksandr G. Lukashenko, the Belarussian president, at Russia’s expense.

The oil agreement with Moscow expired Dec. 31. Russia’s deputy prime minister for energy, Igor I. Sechin, had said that lacking a new deal, Belarus should pay the full export tariff on Russian crude, the Russian state RIA news agency reported.

Belarussian officials responded that their country should pay no tariff because it had renewed its commitment to a customs union with Russia just last year, according to a statement posted on the government’s Web site.

Before the New Year, the Belarussian delegation left Moscow, and the government in Belarus posted a statement saying that they had been subjected to “unprecedented pressure” to acquiesce to Russia’s demands. Both sides, however, said Sunday that negotiations were continuing.

Last January, the Russian natural gas monopoly Gazprom first tried to halt supplies to Ukraine’s domestic market in a pricing dispute. It then shut down the pipeline entirely, accusing the Ukrainians of continuing to supply their own needs by siphoning gas intended for export.

Palin does not play well with others

More Legislature vs. Palin

Posted: April 17, 2009


The antagonism between legislators and Gov. Sarah Palin doesn’t end. Hours after the Legislature voted down the governor’s nominee for attorney general, House Finance Committee members tonight slammed the governor’s aides for not briefing legislators on Palin’s plan for an in-state gas pipeline.

“I’ve had a lot of friction with the governor this year on her lack of connection, frankly the appearance that she’s more concerned about her national ambitions than what’s going on in the state,” Anchorage Republican Rep. Mike Hawker, co-chair of the finance committee, told Palin budget director Karen Rehfeld.

The committee was deciding on a request by Palin for $9 million to help develop a private in-state natural gas pipeline from the North Slope down to the Kenai Peninsula. Hawker and the other co-chair said Palin staffers spoke to legislative leaders about the money -- but several other finance committee members complained this was the first they’d heard of it.

“Nobody from the (Palin) administration has been to my office at all…I see a number of different legislators all shaking their heads, same thing, nobody’s been in their office,” said Kodiak Republican Rep. Alan Austerman.

Haines Republican Rep. Bill Thomas said nobody has spoken to him about gas plan either. Anchorage Democratic Rep. Les Gara -- who questioned if this is a set up to benefit the Enstar "bullet line" project -- said he’s being asked to approve a $9 million plan with no one ever describing to him what it is about.

Hawker said it’s an insult if Palin staffers were only talking to legislative leadership about it and not following up with other members of the state Legislature about something that is supposed to be a high priority for the governor.

“I would offer some counsel and instruction to the (Palin) administration. If this was your highest priority, it is beyond me… 11 people have been sitting at this (finance committee) table all year, you are looking for support for an appropriation and it is just beyond me that you folks didn’t have someone, quite frankly it just never occurred to me that you wouldn’t have talked to everybody on this table,” he said.

Palin budget director Rehfeld responded she is clearly sensing the frustration at the committee.

“We have had this appropriation in our budget for in-state gas since December…it has evolved, but the discussion and the interest and the desire to move forward on in-state gas has been very clear from the administration and we have talked with the committee about the budget request. So the specific design now going through the governor’s office is different, yes, than what we had proposed but I think clearly the governor has been very consistent in her discussion of in-state gas,” Rehfeld told the finance committee.