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

Is Palin really the biggest obstacle to a gas pipeline?

Here's the press release on McGinniss' story. After that is McAllister's response to the press release. And lastly is a zinger -- a little tidbit about Palin and Exxon meeting the other week.

CONDÉ NAST PORTFOLIO ON SARAH PALIN, BIG OIL,
AND THE PIPELINE TO NOWHERE
New York-Joe McGinniss, bestselling author of Going to Extremes, a nonfiction account of his year in Alaska, returns to the state in search of the $40 billion natural gas pipeline that Sarah Palin has said she is building. But McGinniss finds that not only is the pipeline not being built, but Palin herself is the biggest obstacle in its path. ("Pipe Dreams" p. 50). "Everything she is doing is the opposite of ‘Drill, baby, drill,' " former governor of Alaska Tony Knowles tells McGinniss. Despite pressure from the Obama administration to get pipeline construction underway, the prospect of its ever being built looks dimmer by the day. McGinniss reports how Palin has virtually ignored the pipeline issue since returning to Alaska in November to focus instead on her 2012 presidential campaign strategy. McGinniss notes her absence from major oil-company summits, and hears from a rising chorus of critics, including some of her former supporters. Alaska Republican Mike Hawker tells McGinniss, "The only thing standing in the way of an Alaska gas pipeline is the Sarah Palin administration." Palin's biggest blunder? Locking the state into an exclusive contract with a Canadian pipeline company (TransCanada) that has no access to Alaska's natural gas. Now BP and ConocoPhillips--two companies that do have gas--have launched a rival project. McGinniss writes that despite her repeated claims that she'd already gotten the project underway "What Palin had done... was contrive to pay as much as $500 million to a foreign company to look into the possibility of someday building a line." Since the election, the price of oil and gas has continued to plummet and Alaska's budget deficit has soared. McGinniss argues that Palin's $500 million commitment to TransCanada looks increasingly like money wasted. Even Hal Kvisle, the CEO of TransCanada, concedes, "I don't know whether we're going to see this [pipeline] get built or not."

*****

Here is Bill McAllister's response on the McGinniss press release:

It seems to expect people to be surprised by the fact that the pipeline is not under construction. That's not much of an "aha." Obviously, anyone paying attention knows this will be years in the making.

"Palin has virtually ignored the pipeline issue since returning to Alaska in November to focus instead on her 2012 presidential campaign strategy." Show me one shred of proof for either part of that statement. The governor had a nearly daylong meeting with her gas line team the week after the election, and of course those consultations have continued. In early December, she arranged an event in Fairbanks to present the AGIA license to TransCanada. She has gas line-related funding requests pending before both the Congress and the Legislature. This is "ignoring"?

McGinniss notes "her absence from major oil-company summits." She had Exxon in her office last week. Not sure what his point is there.

McGinnis calls AGIA a blunder, but every lawmaker but one voted for it, and a majority voted to stay the course over a year later and give TransCanada a shot. The governor campaigned in 2006 on getting Alaska's terms for its gas, in contrast to the Murkowski contract that ceded tax sovereignty, judicial sovereignty and regulatory sovereignty. AGIA was a game-changer, a new paradigm.

*****

And here's a follow-up exchange between Alaska Dispatch and McAllister about the Palin-Exxon meeting:

Alaska Dispatch: Gov. Palin met with Exxon? Can you tell me more about that meeting and the date it occurred? Why did she meet with Exxon? For Pt. Thomson? The gas line? Something else? What was the result of the meeting?

McAllister: I don't have details. I just saw them go into her office. I didn't ask her about it afterward. But hey, that wasn't the first time since the election. That's what's so off-base about McGinnis. He obviously doesn't have a clue what she does.

*****

And now we end with a few questions for you to chew on in the comments section:

1) Was AGIA nothing more than a ploy to get the industry to move on the gas line project?

2) Can Alaskans trust BP and Conoco to follow through with their Denali pipeline?

3) Should the state continue down the AGIA path, including subsidizing TransCanada, especially during these lean economic times/lower oil prices?

4) And is Palin really the biggest obstacle to a gas pipeline?

Read More