Alaska editorial: Making sense of gas pipeline chess game

Posted: Thursday, July 10, 2008

Good thing Enstar, an upstanding, multimillion-dollar private company, was at Gov. Sarah Palin's press conference Monday. Otherwise, a sober-minded observer might have wondered - have the governor and the Alaska Natural Gas Development Authority gone crazy?

Instead of shipping gas from the North Slope south to Fairbanks and Southcentral, the government leaders were talking about shipping gas north to the Golden Heart city from Cook Inlet.

That's Cook Inlet, where local utilities are already wondering how they'll get enough natural gas to supply their own customers in the coming decade. Where the Agrium fertilizer plant shut down because it couldn't get natural gas feedstock.

Not only that, Gov. Palin and the gas development authority were talking about sending the gas north on an L-shaped route through Glennallen. That's roughly 100 miles longer than a bullet line shooting straight along the Parks Highway.

On the surface, Monday's deal makes as much sense as trying to feed New York City with grain from the Arizona desert, instead of the fertile plains of the Midwest.

But there was Enstar, chief proponent of the small, in-state "bullet" pipeline from the North Slope, lending credibility to the whole affair.

Alaska gas a chess game

If you look deeper at what's going on, and think of gas development throughout Alaska as a huge chess game, Monday's announcement begins to make a little more sense.

The new partnership may not produce the L-shaped, northbound gas project the parties were talking about Monday. But in the bigger chess game, the players in this deal are creating more options for themselves.

Here's how.

Cook Inlet still has lots of untapped potential for natural gas. Companies don't have much incentive to look for it because there is no ready market for any big, new discovery. Today's Cook Inlet gas supplies were found by companies looking for oil.

What Enstar gains

Anything that might stimulate Cook Inlet gas exploration helps Enstar in a couple of ways.

It improves the odds the company can get new gas to supply existing customers in Southcentral. It also creates an alternative source of gas for expanding Enstar's network to the rest of the Railbelt, including Fairbanks and the missile defense system at Delta Junction. The more gas Enstar moves, the more money it makes.

Right now, Enstar's only option for expanding is the bullet line from Anadarko's holdings in the North Slope foothills to Fairbanks and Southcentral. Having a Cook Inlet supply option would give Enstar leverage in negotiations with Anadarko. The Anadarko option is already giving Enstar leverage with Cook Inlet gas producers - something Enstar has lacked until now. It doesn't matter to Enstar if gas is moving north to south or vice versa, as long as it's moving to Enstar customers.

Partnering with the gas line development authority could give Enstar cheaper, tax-free government financing for a pipeline.

What the state gains

Monday's announcement does a couple of things for the state, too. The L-route through Glennallen would help open markets for gas prospects that have been found on state land in the Copper Center basin. A line taking gas north from Cook Inlet would also help stimulate drilling on state leases in Southcentral.

Finally, the partnership announced Monday has political value for the Palin Administration. It's a way to say to Fairbanks, "We feel your pain. We're working on your energy problem."

It's also a way to mollify those who complain that the governor is too focused on shipping gas out through Canada, instead of getting gas to Alaskans. This arrangement gives the Alaska Natural Gas Development Authority - created by voter initiative in 2002 - something useful to do. The agency can issue bonds to finance the project. It has also secured a right of way for a gas line from Palmer to Glennallen and can do similar work north from Glennallen to Delta Junction.

Last but not least, the deal raises the prospect that Cook Inlet gas producers might demand space in an export line running through Canada. If so, they would give the Palin administration strong private sector supporters for its goal of making that line accessible and affordable for new explorers.

Less than advertised

For now, what the Palin Administration announced Monday is much less than advertised. It's nothing more than an agreement to talk about new gas line options in the Railbelt. All that talk about dates that construction might begin and gas might begin to flow was premature.

Enstar and the state have basically agreed to start seeing each other. They are not married to anything yet, and they definitely have not conceived a viable project.

But what they have done is send a strong message to North Slope gas holders - you're not the only game in town.

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