Once discredited as a pipe dream, an all-Alaska gas line is gathering interest.
Legislators said Friday they are impressed that the second-largest energy marketer in North America, Sempra Energy, is now backing up the Alaska Gasline Port Authority in its effort to land a 800-mile gas pipeline for liquified natural gas (LNG) and valuable byproducts from North Slope to Valdez.
"What a great leap forward the port authority has made," said Rep. Beth Kerttula, D-Juneau.
Sempra and the port authority pitched the general terms of their all-Alaska proposal to public audiences at the Capitol on Wednesday and Thursday.
The port authority estimates the annual revenues from the project to gas producers could be $1.9 billion and the state could gain $627 million in severance and royalties. On a prorated basis, Alaska munic- ipalities could gain an annual $166 million, according to the port authority.
The port authority's board chairman, Jim Whitaker, said in an interview that his team is having positive discussions with the Murkowski administration and two of the state's oil producers.
Natural gas includes a light gas component and a heavier liquid component. The gas is methane, used for heating and cooking fuel. The liquid component includes ethane, propane, butane, isobutane and natural gasoline, commonly used as raw materials for petrochemical plants, home heating and refinery blending.
Typically, natural gas liquids (NGLs) are removed early in the process because they have more value if they are sold separately.
The product that results after NGLs are removed, called plant residue gas, consist of methane, used for heating and cooking fuel.
In contrast to the all-Alaska pipeline's public pitch, the major oil producers remain locked in secret negotiations with the Murkowski administration over a fiscal proposal for a $20 billion pipeline project through Canada to the Midwestern United States.
The details of the latter proposal, and others submitted under Alaska's confidential Stranded Gas Act protocol, may not be available for months, legislators said.
The major producers have claimed the all-Alaska option is not commercially viable on the world energy market. And they have one clear advantage - they own the North Slope gas leases.
But the all-Alaska team is building some momentum, and if it hasn't convinced legislators, the team's proposals have at least piqued their interest.
The port authority has pledged to build, own and contract for operation:
a gas conditioning plant on the North Slope
a pipeline to Valdez
a spur line to Palmer, supplying energy to Southcentral Alaska
large industrial plants in Valdez to liquefy natural gas and process it to remove commercial products like propane and butane
storage and docking facilities at Valdez
Sempra LNG president Darcel Hulse told legislators Wednesday and Thursday that Alaska has the ability to capture a lucrative West Coast market for liquefied natural gas that will otherwise go to foreign competitors.
"Other than (the) producers, I don't know anybody who knows the market better than Sempra," Hulse said.
"We think the West Coast market is one you ought to capture now," Hulse said, adding that the Midwest is a market that can be supplied at a later time.
At present, gas prices in Chicago are higher than in California. But Hulse said prices are flat in the Midwest and will rise on the West Coast. More importantly, he said, lucrative byproducts, called natural gas liquids, will get 30 percent higher prices if they are shipped to the West Coast and to Pacific Rim countries than if they are piped to Canada.
Sen. Gene Therriault, R-North Pole, said the latter point will probably be scrutinized carefully by the other proponents. "The pricing on the gas liquids and the increased value they have in the Pacific Rim is very interesting to me ... (It) could impact some of the other proposals on the table."
Like other legislators interviewed at the end of the week, Therriault said he was impressed by the port authority's pitch, though he still has many unanswered questions about how it might work.
"I think (the port authority and Sempra) made enough of a case that it warrants devoting some state resources to look at the economics of that project," said Therriault, chairman of the Joint Legislative Budget and Audit Committee, which will have the primary role in vetting gas line legislation.
The governor has proposed additional funding for staff to review the gasline proposals, said Becky Hultberg, the governor's spokeswoman.
Some legislators, including Kerttula, said the all-Alaska proposal is likely to spur greater competition among the companies, and likely a better gas contract for Alaskans.
"I was really encouraged," Kerttula said. "It gives us options. The second thing I really like is they aren't asking for any (tax) breaks."
The way has already been paved, with federal legislation, for the three main oil producers owning gas leases to earn tax breaks on their proposed project.
Still, the producers are adamant that the all-Alaska project won't work.
"It doesn't compete with the world's liquid natural gas (LNG) market," said BP's Alaska spokesman David MacDowell.
No other LNG projects elsewhere in the world involve an expensive 800-mile pipeline to reach tidewater, MacDowell said. All the others are at or near tidewater.
Hulse told legislators Thursday and Friday that Alaska LNG will be able to compete and can deliver gas as early as 2012. He presented graphs and figures indicating that costs of producing and distributing the gas by either the Alaska and Canada route are roughly equivalent.
Comparing the pros and cons of several multi-billion-dollar projects, each heavily promoted by large and influential energy companies, isn't an easy proposition.
But Rep. Mike Hawker, R-Anchorage, said comparing the bottom line - which proposal provides the most revenue and economic benefit to Alaska - is an simple way to look at the problem.
"The project that returns the most money to Alaska (gets) some bonus points," said Hawker, adding that other crucial factors are providing gas to Alaskans and boosting the state's industries.
"I had and still have some technical concerns about the conclusion the project would be tax-exempt," Hawker said, adding that his concerns are partly alleviated because Sempra's experts have good confidence about an IRS finding on the port authority's exempt status.
Hawker said he was worried about the port authority's profit sharing with the state. He said any contract should stipulate the port authority may not reduce the state's share in profits in the future.
Legislators also worry about the shipping of LNG gas, which would likely require construction of new tankers in foreign ports. That would be impossible without an act of Congress.
"That might be easier said than done," Therriault said.
Elizabeth Bluemink can be reached at firstname.lastname@example.org.
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