Legislators look for path to cheap in-state gas line

Gara: 'Bullet line' not necessarily inexpensive

Posted: Sunday, March 28, 2010

Some Alaska legislators are promising big things by developing Alaska's natural gas for use by its citizens, but Gov. Sean Parnell and others are warning that such hopes may be overblown.

Legislators from Southcentral, where Kenai natural gas once gave them some of the nation's lowest gas prices, are responding aggressively to dwindling supplies and rising gas prices, demanding the state take quick action to keep prices down.

"Alaskans are clamoring for cheaper and more reasonable fuel supplies," said House Speaker Mike Chenault, R-Nikiski.

Developing what legislators call "in-state gas" has been a focus of many Anchorage, Mat-Su Borough and Kenai Peninsula legislators.

That may mean building a "bullet line" - a small-diameter pipeline - that would serve primarily local needs, in contrast to two large-diameter pipelines proposed that would cross into Canada and serve Midwest markets in addition to Alaskans.

Big pipes, low costs

Economies of scale are dramatic in gas shipping, however, meaning that gas shipped through a small line is much more expensive than when shipped through a larger one.

"My fear is that it is going to be incredibly expensive gas," said Rep. Lindsey Holmes, D-Anchorage, who has been skeptical of the bullet line proposals.

Political candidates have been intentionally misleading the public to think that in-state gas carried through a bullet line will be cheap, said Rep. Les Gara, D-Anchorage.

"They pretend ... they are going to get cheap gas to the people of Alaska, and it's just not true," he said.

Gara said it was those outside the capital who were making the misleading statements, but he blamed the news media for failing to provide accurate information as well.

"I don't think the press has been doing the best job of reporting on this," he said.

Sen. Con Bunde, R-Anchorage, said the idea of cheap gas was attractive.

"It's a lovely sounding idea, I'd like to pay less for my natural gas as well," he said.

Cheap gas through subsidies

The only way in-state gas can be made low cost, or even affordable, is if the state subsidizes it, Bunde said. Cook Inlet gas, which provides heat and electric generation for most in the Southcentral region, already has a special low tax rate intended to keep resident's costs down.

Sen. Bert Stedman, R-Sitka, said it would likely take an "equity infusion," a contribution from the state treasury toward cost of the pipeline, to keep cost down. That would lower the shipping cost, known as the tariff, so customers could afford it.

If state funds are going to be used for that, Stedman and others want to make sure that energy needs for those outside the Railbelt are also addressed.

"I understand the importance of in-state gas, but the Railbelt still enjoys pretty low-cost energy," said Sen. Lyman Hoffman, D-Bethel, which has some of the state's highest energy costs.

Chenault, one of the major backers of in-state gas, acknowledges that it's not automatically cheap.

"A big line is cheaper than a small line, I believe that's true," he said.

Rep. Charisse Millett, R-Anchorage, said price does not matter to her constituents.

"I can tell you, people in my district don't care about the cost," she said. "What they care about is when they flip the switch or turn their heater up, there is a gas supply they can count on."

One more AGIA battle

Many of those supporting an in-state gasline also opposed TransCanada Corp.'s large-diameter pipeline, being developed under the state's Alaska Gasline Inducement Act.

It could bring cheaper natural gas than a bullet line, but it also has many legislative opponents.

Rep. Beth Kerttula, D-Juneau, worries that those opponents may be using a subsidized bullet line to undermine AGIA.

"You don't want to build a small line that is going to jeopardize the big one," she said. "The big one I see as our future."

One of those TransCanada opponents, Rep. Jay Ramras, R-Fairbanks, has been one of the most outspoken proponents of a bullet line. He denied opposing the big line.

"We're all in favor of a large-diameter line," he said.

A separate large-diameter pipeline is being proposed by ConocoPhillips Co. and BP p.l.c. outside the AGIA process. That project is called Denali. The state's third large oil and gas company, ExxonMobil Corp., joined TransCanada's effort.

Chenault pointed out that Alaska has already contributed $500 million as one of AGIA's "inducements" to reduce the tariff.

"Alaska has already bought into one pipeline, so to speak," he said.

Many of the in-state gas line advocates say Parnell has not been moving quickly enough to develop a bullet line.

A bill sponsored by Chenault would create a new team, led by the chairman of the Alaska Housing Finance Corp., to develop an in-state pipeline plan. A Senate bill would put the Alaska Railroad Corp. in charge of developing an in-state gas pipeline.

Parnell working with legislators

Gov. Parnell, at a Thursday press conference, said that an in-state gasline wouldn't necessarily threaten the big AGIA pipeline.

For example, he said, it's possible that a bullet line could be developed from newly developed gas fields at Gubik or the Nenana Basin to Anchorage.

"The answer is 'Yes, we could have both,'" he said.

Parnell said he's working with the bill's sponsors to ensure it doesn't threaten the AGIA effort.

Sen. Fred Dyson, R-Eagle River, said he's worried that state talk of building a bullet line to Southcentral might "put a damper" on investments to find new gas in Cook Inlet and the Nenana Basin, which he said could produce new supplies for the region.

"I'm pretty wary of things that will shut down exploration in both those basins," he said.

Rep. Wes Keller, R-Wasilla, said the real cost savings come from the large-diameter pipeline running through Fairbanks.

He called AGIA "the mother of all in-state gas pipelines."

• Reporter Pat Forgey at 586-4816 or patrick.forgey@juneauempire.com.

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