In-state gas line stays on front burner

Posted: Monday, June 09, 2008

As state lawmakers continue their review of a plan to build a multibillion dollar natural gas pipeline from the North Slope to a hub in Alberta, Canada, one issue appears never far from their minds.

They want to know how much gas would be available for state residents, and if granting TransCanada Corp. an exclusive state license would make it harder to get that gas quickly and economically to local markets.

Gov. Sarah Palin's gas line team insists it's a separate issue, but questions kept popping up during the special session.

"Our purpose for being here is about right now - getting gas to stranded, starved, energy-isolated communities like the one I represent," said Rep. Jay Ramras, R-Fairbanks. "This doesn't address the crying need we have right now."

Natural Resources Commissioner Tom Irwin said the administration is sympathetic to Alaskans facing crushing fuel costs. But he warned lawmakers to keep their focus on the bigger prize and not risk jeopardizing a project that could buoy the state financially and spur resource development for decades to come.

He said the law that the Legislature passed one year ago provides more than enough gas to go around.

"We know there's a desperate need for energy in this state. (In-state gas) is available and it does not compete. It's important to understand this isn't an either-or," said Irwin.

The Alaska Gasline Inducement Act, under which TransCanada made its application, would allow the state to assist in building a separate small diameter "bullet line" for in-state use.

But it also blocks the state from providing support if the line carries more than 500 million cubic feet of gas per day.

By way of perspective, Irwin said, a half billion cubic feet is 5 percent of the total amount of natural gas that moves from Canada to the Lower 48 every day.

Irwin assured lawmakers that amount, totaling almost all of the state's 8 percent share of royalty gas, would be plenty for new state markets over the next decade.

TransCanada vice president Tony Palmer said that any more than that could compete with the main line for gas.

"Clearly you would be taking gas away from the larger project and affecting the viability of the project," said Palmer, adding that a larger bullet line would violate existing law.

Palmer said his company is very supportive of providing in-state gas, having committed to building five off-takes from the main line and a lower toll for Alaska-bound gas.

The TransCanada plan also would accommodate construction of a liquified-natural-gas spur line to Valdez that would supply excess gas for both Alaskan and Asian markets.

Sen. Bill Wielechowski, D-Anchorage, said the issue needs a more thorough vetting in the special session.

He pointed to a presentation by the Alaska Natural Gas Development Authority that indicated a bullet line with a capacity of between 1 billion and 1.5 billion cubic feet would be more economic, given the economies of scale. The authority concluded there was likely demand for the larger amount in Alaska.

Charlie Huggins, R-Wasilla, said he too is concerned about the economics of the in-state line.

Even though several entities, including Enstar Natural Gas Co. and the natural gas development authority, are studying construction of an in-state gas line, their efforts won't amount to much if the product isn't affordable, he said.

"Can we afford what the price of the gas is going to be? If people can't afford it, then Enstar won't do it," said Huggins.

The state House and Senate overwhelmingly passed resolutions last spring requesting that the subject of in-state gas needs be added to the special session.

But Revenue Commissioner Pat Galvin continued to maintain that it was not necessary.

"The message today is that the decision on the AGIA license does not limit the legitimate options the state could pursue to meet state needs," he said.

Galvin pointed out that Palin is proposing another special session that would address the short and long term energy needs of the state, including her $1.2 billion one-year energy subsidy for residents and local utilities.

Lawmakers are being asked to pass legislation that would allow the state to grant the license to TransCanada. It would commit the state to spending $500 million as seed money and providing the company other non-monetary inducements. It also would obligate the state for triple damages if it doesn't live up to the terms.

North Slope producers ConocoPhillips and BP PLC meanwhile have said they are moving forward with their own gas line, the so-called Denali project.

The TransCanada application proposes a 1,715-mile long, 48-inch diameter, mostly buried pipeline running from a gas treatment plant at Prudhoe Bay to the Alberta hub.

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