Palin reverses course on LNG pipeline plan

Posted: Tuesday, June 10, 2008

Gov. Sarah Palin began campaigning for office two years ago as a supporter of bringing Alaska's vast natural gas reserves to market as liquefied natural gas exported through Valdez, popularly known as the "All-Alaska" gas pipeline proposal.

Times have changed.

Now, her administration is asking the Alaska Legislature to instead endorse an overland route through Canada that brings Alaska's gas to U.S. Midwest markets, as the best deal for Alaska.

Palin administration officials said their review shows a route through Canada is far more profitable to both the state and the gas producers than LNG(liquefied natural gas) or any other option.

"In general, LNG is economic, just not as economic as the overland route," said Pat Galvin, commissioner of the Department of Revenue, one of two top state officials that reviewed applications submitted under the Alaska Gasline Inducement Act.

Galvin and Commissioner Tom Irwin of the Department of Natural Resources narrowed the field down to just one application, from TransCanada Corp. of Calgary, Alberta, that met all the state's requirements.

If the Legislature approves, TransCanada will be eligible for a $500 million state subsidy, in exchange for building a pipeline set up to meet the state's goal of encouraging development.

The Legislature began its review Monday of the Palin administration's look at LNG options with testimony from the administration and its team of consultants.

Palin said Monday after watching the hearings in the converted middle school gym where legislators are meeting that two years ago she had not expected to see such economic benefits of a longer line.

"It was surprising to see how obvious it was that the overland (route) was much more economic," she said.

Galvin said that while exporting LNG may allow the state to, at times, capture higher prices paid for natural gas in Asia, it also comes with risks that TransCanada's overland route doesn't carry. Those include higher costs, lengthier timelines and the risk that the project might not be done at all.

One of the risks is that the federal government might not approve an export license for Alaska gas, especially if the U.S. Midwest is suffering a shortage at the time.

Palin's administration hired Lukens Energy Group to review the value of the TransCanada project, along with other projects, such as LNG, that were only conceptual in nature. Currently, no company is proposing an LNG project.

An application by the Alaska Gasline Port Authority was earlier rejected as incomplete.

Part of Lukens' job was to determine how profitable the projects would be over time, based on today's dollars, a measure known as "Net Present Value."

Analyst Deepa Poduval of Lukens said that even though an LNG project wasn't chosen by the state, they'd still likely make money.

"NPV is substantially positive for all LNG project configurations considered," Poduval told the Legislature Monday. Legislators expect to spend additional time today reviewing LNG options, before heading on the road for two weeks of public hearings around Alaska.

Palin said the last few years of study have provided the state with information it didn't have before AGIA. Back then, the state wasn't able to determine with authority what was best for Alaskans.

Supporting the Palin administration's position on LNG is a proposal by ConocoPhillips and BP to develop their own pipeline plan, also an overland route.

Galvin held out hope that an LNG export option might yet be developed, but that it would be in conjunction with an overland pipeline, not instead of it.

"The findings are being portrayed as the death knell of LNG," he said, but that's not the case at all.

What's known as a "Y" line splitting off from the main overland line and bringing gas to Valdez still holds great promise, he said.

"Overland going first gives us a leg up," Galvin said.

Such a project would be much less risky, he said.

• Contact reporter Pat Forgey at 523-2250 or e-mail

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