Alaska's huge North Slope natural gas reserves were discovered decades ago, but development efforts have been stymied by fluctuating prices and disputes between the state and the lease holders over who should benefit.
With Alaska's oil output in decline, the state is hoping sales of gas will begin to make up the difference when a 1,700-mile, 48-inch diameter pipeline is slated to begin operating in 2018.
The Alaska Legislature's adoption of the Alaska Gasline Inducement Act and the subsequent selection of TransCanada Corp. to develop the line make the state a partner in one pipeline effort, but another is also being developed by two of the state's top oil producers, BP and ConocoPhillips.
Both would run hundreds of miles across Alaska, and an even longer distance in Canada, to reach the big gas trading hub in Alberta, from where it could be routed anywhere in the North American pipeline system.
It is by no means clear which pipeline, if any, will eventually be built.
Either project is expected to provide a huge, multi-year construction boost to the state's economy however. That could create a boom in Alaska not seen since the trans-Alaska pipeline was built more than three decades ago.
Contact reporter Pat Forgey at 523-2250 or email@example.com.
Sarah Palin elected governor
In a public rejection of former Gov. Frank Murkowski's plan to get the state's oil producers to build a natural gas pipeline under the Stranded Gas Act, the state's voters elect ethical reformer and former Wasilla Mayor Sarah Palin as governor. She quickly proposes the Alaska Gasline Inducement Act, seeking pipeline bids from anyone, and offering half a billion dollars in state financing to get the pipeline developed in the state's interest.
The Alaska Gasline Inducement Act is adopted over the objection of the oil companies that control the rights to the state's natural gas. In a vote coming just days after several indictments were issued in connection with an oil field services company's bribery of legislators, there was a single "no" vote.
The act creates an open bidding process to develop a pipeline, but even though the companies said they wouldn't participate, advocates hope several major pipeline companies will be interested in the biggest project in North America in decades.
TransCanada receives AGIA 'license'
Over the objections of top legislative leaders, some Republicans and most Democrats join together to support TransCanada Corp., a Calgary-based pipeline company, to develop the pipeline. Alaska's big oil producers told the state they were the best ones to build the pipeline, but the state discouraged a producer-owned pipeline by requiring its AGIA licensees to operate the pipeline independent of the oil producers who control the bulk of the North Slope's natural gas. Two of the producers, BP PLC and ConocoPhillips Co., began their own competing pipeline project called "Denali-the Alaska Gas Pipeline."
TransCanada, which won the state's license, gets as much as $500 million from the state to subsidize its initial costs. In exchange it must operate the pipeline as an open access pipeline and with other requirements intended to spur more Alaska development.
Open season complete
Among the key terms state legislators have learned over the past few years is "open season," a period when a pipeline developer goes out for bids from shippers looking to utilize capacity in the pipeline. AGIA was originally designed to require a licensee to continue on even after a failed open season, as state officials feared holders of natural gas might withhold the gas. Now, officials are expressing confidence that there will be bids, though they acknowledge that they might come with conditions.
That confidence may come from the decision by ExxonMobil Corp., the world's largest company, to join TransCanada's effort, though there is no responsibility to commit gas as of yet.
The millions of dollars invested so far by both the TransCanada/state pipeline plans and the competing ConocoPhillips/BP effort are designed to provide accurate project cost estimates upon which tariffs can be based. Open season is expected to last 90 days, and may be delayed slightly at the Federal Energy Regulatory Commission's request, state officials say.
October 2012: FERC application filed
The work done by the pipeline builders to date is intended to lead to permission from FERC to build the project. That formal review is expected to take a year and a half, but both projects have "pre-filed," sending in data so the review can begin early. A similar review is being conducted by the National Energy Board, FERC's Canadian counterpart. The NEB filing will follow close on the heels of the FERC filing late in 2012.
FERC CPCN issued
A huge energy project such as the pipeline from the North Slope to the U.S. Midwest requires a "Certificate of Public Convenience and Necessity" from FERC, commonly known as a FERC license. The U.S. Congress has already declared the project to be in the national interest, so the commission does not have to make that determination.
The FERC license will lead to what is arguably the most significant step in the process, the project's "sanction" by the respective boards of directors of the companies involved. That's when they commit to spending their investors' dollars to construct the pipeline.
Construction costs were initially estimated by TransCanada at $26 billion, while a state estimate suggested a cost of $40 billion. The lower the actual cost, the lower the tariff charged to ship gas, and the better the deal is for North Slope gas holders, as well as the state of Alaska.
An initial flow of 4.5 billion cubic feet per day of natural gas begins to flow through the pipeline, providing Alaska's natural gas to homes and factories in the Midwest. That's in the summer. In the winter, colder temperatures allow even more gas to flow. Later, under the state's AGIA license requirements, the pipeline could be expanded to carry even more gas with compression or other improvements.