Regulators denied more time to build LNG plant in Alaska

Posted: Wednesday, May 19, 2010

JUNEAU - Federal regulators have denied a request by Yukon Pacific Co. to again give the company more time to build a liquefied natural gas plant in south-central Alaska.

The denial by the Federal Energy Regulatory Commission creates new questions about an option to liquify natural gas from the North Slope for shipment by sea, which is part of a proposal to build a major pipeline to carry Alaska's gas to domestic or overseas markets.

FERC, in its denial letter last week, said environmental and regulatory standards have changed since the company obtained permission to build in 1995, and those need to be addressed.

Permission had been extended repeatedly. But the letter from Jeff C. Wright, director of the office of energy projects, said the company's ability to build and run an export terminal for liquefied natural gas near Valdez will no longer be valid after Saturday.

Patrick Rock, an attorney for Yukon Pacific, on Tuesday called the denial a "little bit surprising." In a letter to the commission last month seeking an extension, he said industry efforts to commercialize gas from the North Slope had "increased dramatically" since the last extension in 2007. He said failure to extend the construction deadline by three years would undermine the export project.

The development comes just weeks into TransCanada Corp.'s open season for its natural gas pipeline proposal, when shipping commitments for a line are sought.

TransCanada is partnering with Exxon Mobil Corp. on the project. The cheapest of the two plans they have put forth is a Valdez option that would cost $20 billion to $26 billion. But officials behind the proposal have said someone else would have to build the plant where gas would be liquefied for shipment by sea.

Denali, a competing major pipeline project and joint effort of ConocoPhillips and BP PLC, does not have an LNG option but has sought the ability to consider other options if it deems them necessary.

Yukon Pacific has long been pushing an "all Alaska," or Trans-Alaska Gas System that would bring gas from the prodigious North Slope to Valdez and export markets, and it's faced challenges. It obtained an export license years ago, but the state Department of Natural Resources more recently denied a request to renew a conditional right-of-way lease for the company's pipeline and liquefaction plan. The state agency, among other things, cited an inability to demonstrate substantial progress in developing project plans.

Rock, in seeking the extension from FERC, said it's important that Yukon Pacific's LNG option be preserved as the open season and "other market-related activities ... play out."

He said Tuesday that he hadn't spoken with officials from CSX Corp., which has an ownership stake in Yukon Pacific, to discuss next steps, which could include an appeal or request for rehearing. A CSX spokesman declined to comment.

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