An offer for North Slope gas

Posted: Tuesday, September 09, 2003

A laska is now presented with a one-time opportunity to market its natural gas as liquefied natural gas (LNG) to the West Coast market, resulting in financial benefits to the state ranging from $500 million to $1 billion per year over the life of the project. This one-time opportunity will go away if the state does not act quickly.

On June 28, 2003, the city of Valdez and the Alaska Gasline Port Authority held a four-hour meeting with approximately 50 people attending, including Gov. Murkowski, Sen. Ted Stevens, Sen. Lisa Murkowski and many state and local government leaders. The purpose of the meeting was to learn about the market's interest in Alaska's LNG. Among those attending from the LNG market were representatives from Sempra Energy. Sempra Energy is a San Diego-based company. One of its subsidiaries, the Southern California Gas Company, is the nation's largest natural gas distribution utility with over 21 million customers. Approximately eight companies are seeking permits to be the first LNG receiving terminal on the West Coast.

Since the Valdez meeting, Sempra Energy has received the final remaining permits from the Mexican government in order to build its LNG receiving terminal (located in Baja, Mexico) and is the only company holding all the required permits for such an LNG receiving terminal on the West Coast. Sempra is being heavily courted by many companies and foreign governments around the Pacific Rim to supply Sempra's now fully permitted receiving terminal. Even with this pressure from elsewhere, Sempra has offered to contract with Alaska to supply 100 percent of its LNG receiving terminal capacity with LNG from Alaska. However, time is quickly running out for Alaska to enter into a contract with Sempra, as the company will undoubtedly enter into a contract with a supplier sometime this year.

The Alaska Gasline Port Authority's LNG base case model generates projected revenues to the state of Alaska of $628 million per year plus a payment to the North Slope producers for the purchase of the gas of $926 million per year. It is conceivable that one-half of this project could be supplied with Alaska's own royalty gas, which would increase the state's revenues from this project to nearly $1 billion per year.

How unfortunate it would be for all Alaskans, as we struggle to resolve our financial shortfall, if Alaska's LNG misses this one-time opportunity to supply a market demanded by our fellow citizens on the West Coast. How unfortunate it would be if those resources remained in the ground awaiting further studies or financial incentives only to learn that the world LNG market had indeed passed Alaska by and another opportunity may not be available for another decade, or two or three.

This LNG project opportunity would not compete with a proposed gasline along the Alcan highway through Canada to Chicago, should the requested federal legislative financial incentive package be approved. In fact, the gasline to Valdez, utilizing the already granted permits for such a project, could financially benefit the Canadian highway route through potential shared costs of the line to Delta Junction (550 miles) and the very expensive gas conditioning plant on the North Slope.

Alaska can take advantage of this opportunity without taking on the financial obligations traditionally associated with the ownership and operation of the gasline. One option would be for the Alaska Gasline Port Authority to finance, build and operate the gasline, using its tax exempt status, without any cost or risk to the state.

Legislative committees should convene soon to meet with Sempra Energy representatives. The time has come for the people of Alaska to take control of its own resources. Unfortunately, competing interests around the world have diverted the major oil and gas companies' interest elsewhere, and Alaska suffers through lack of exploration and development. I strongly encourage the Legislature and Gov. Murkowski to act on behalf of the people of Alaska and exercise due diligence quickly and not let this resource development opportunity pass.

Additional information about the Alaska Gasline Port Authority can be found at its web site www.alaskagaslineportauthority.com.

• Rep. John Harris, a valdez Republican, is co-chairman of the House Finance Committee.



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