"US Leadership In An Emerging Arctic" is the lecture topic next Tuesday in Anchorage, when Ambassador David Balton (NGP Photo) and former Lieutenant Governor Fran Ulmer (NGP Photo) will address the World Affairs Council.  Reservations here. Various Arctic energy issues are certain to be addressed, including Arctic shipping, resource development, and sovereignty issues.  -dh

 

"Alaska's Troubled Romance With LNG", by Dave Harbour.  Here is this week's Xtra column, submitted for distribution to tens of thousands of households.  

Note that these columns (see them all, here) are limited to about 1,000 words.  Accordingly, it grieves us that much must be left out.  With that limitation in mind, we encourage readers to support our goal of 100% accuracy by sending us additions/corrections here and we will make necessary adjustments to the archived story below.

 

 

 


North Slope Borough Breaks Ground For $90 Million In Utility Improvements At Prudhoe Bay

by

Dave Harbour

On Wednesday several dozen Alaska North Slope Native residents, service company managers and oil industry officials gathered at Prudhoe Bay to 'break ground' on for new utility facilities serving the large oil field.

Improvements now in the design stage will involve replacement and upgrading of the North Slope Borough's water and wastewater treatment plant and expansion of the landfill.

…more coming next week.  We confess that priorities and a desire to provide readers with a good story required that we take the weekend to complete our work.  Have a nice one….  -dh


Alaska’s Troubled Romance With LNG

By

Dave Harbour

After the Prudhoe Bay discovery (“the discovery”) in the winter of 1967-68, Alaskans learned that their great, Arctic oilfield was also the largest natural gas find in American history.

Then, in 1969, a Kenai Peninsula Liquefied Natural Gas (LNG) plant began cooling Cook Inlet gas to almost -260 degrees Fahrenheit, compressing it to 1/600th of its gaseous volume, transporting it by tankers to Japanese utilities.  The Kenai plant introduced Alaska to its love affair with LNG.  It was only U.S. LNG export facility for over four decades.

The larger, Prudhoe Bay discovery injected vigor into the 49th state: new jobs, new public services and amenities, and countless new business opportunities for a new age of pioneers.

Prosperity also produced political tensions.  Politicians wanted tax money for constituent projects.  Proliferation of social services increased state spending.  Environmental activists sued developers.  Petroleum investors –and the state treasury–wanted the lowest possible capital and operating costs to secure profitable returns. 

*     *     *

After that discovery 45 years ago, companies began planning transportation alternatives for Prudhoe’s oil and natural gas reserves. 

Investors wanted the most efficient transportation system, but politicians wanted a say, too. 

In the early 1070s Congress concluded the oil line should run through Alaska to Valdez while a gas pipeline could move Arctic gas to Midwest and other markets. 

Alaskan oil producers completed the Trans Alaska Pipeline System (TAPS) in 1977.

To build a gas pipeline, twenty-seven U.S. and Canadian oil and gas companies formed Alaskan Arctic Gas Pipeline Company in the early 1970s led by former Lieutenant Governor Bob Ward.  Former TransCanada President Vern Horte led the sister company, Canadian Arctic Gas Pipeline Limited. 

Arctic Gas chose a Mackenzie River Midwest pipeline route for Alaskan and Canadian gas, and rejected inefficient alternatives including LNG trucks, tankers, trains, dirigibles and submarines.  It spent $250 million on technical studies and the most extensive environmental study in history.

Arctic Gas was well into its planning when El Paso Natural Gas began promoting a Gravina Point LNG project near Valdez.  Alaskans loved it and a new LNG romance began.

A third challenger entered the fighting cage in the mid-1970s when Northwest Energy Company and Alberta Gas Trunk Line defected from Arctic Gas’ Consortium to promote a separate Alaska Highway routing for Alaska gas.

All three projects fought for Federal Power Commission (FPC, now “FERC”) approval in the United States while Alcan and Arctic fought for Canada’s National Energy Board (NEB) blessing.

Alaska’s governor, William A. Egan, and a budding grass roots organization called Organization for the Management of Alaskan Resources (OMAR) supported El Paso’s LNG Project.   Most Lower 48 Governors and influence leaders favored Arctic Gas.

In 1977, FPC Administrative Law Judge Nahun Litt said, “The Arctic Gas application is superior in almost every significant aspect when compared to El Paso.” 

The FPC decision supported either Alcan or Arctic; El Paso’s LNG scheme was dead!

Canada’s NEB rejected Arctic Gas and approved Alcan’s project which, ironically, was eventually taken over by TransCanada PipeLines Ltd. TransCanada now leads the Alaska gas project, along with Alaska producers.  Its goal – also an ironic twist of fate — now seems to favor moving Alaska’s gas, not via the Alaska Highway route which it had adopted, after opposing — but via a pipeline-LNG system to Asian markets. 

*     *     *

America and Canada had dismissed the Arctic and El Paso LNG alternatives but successive Governors worked to commercialize North Slope gas.

Governor Jay Hammond appointed Governors Hickel and Egan to co chair a gas task force.  The 1982 group embraced LNG marketing of Alaska’s gas.  Hickel later formed Yukon Pacific Corporation to sponsor an LNG project. 

Governor Tony Knowles issued Administrative Order 188 forming another gas pipeline advisory group in 2001.  His theme was, “My way is the highway”.   Though a noble effort, a project could not go forward without producer ‘buy-in’ and producers hadn’t completed their own pipeline and LNG feasibility studies.

After Congress passed the Alaska Natural Gas Pipeline Act of 2004 to expedite an Alaska gas project, Governor Frank Murkowski negotiated a contract with producers to increase taxes in return for giving them “fiscal certainty”.  The Legislature increased their taxes but didn’t deliver the fiscal certainty necessary to finance a giant, 30-year project.

Governor Sarah Palin’s “Alaska Gasline Inducement Act” (AGIA) in 2007 demanded benefits for Alaska from a pipeline project in return for subsidies.  TransCanada became the State’s AGIA partner.  But Palin also sponsored increased oil taxes that made Alaska investments very risky.

Meanwhile, back at the LNG ranch, two main suitors continued their own quest for an enduring relationship with Alaska.

The Hickel inspired, Yukon Pacific, closed its doors in 2011 after a valiant effort to collect permits and unsuccessful work to attract LNG buyers.  Municipal entities, including the City of Valdez, formed the Alaska Gasline Port Authority in 1999 supporting another Valdez LNG project which many Alaskans still love to support to this day.  But last March, the Energy Department rejected the Authority’s gas export application.

After 2007, US markets for Alaska’s gas evaporated with skyrocketing Lower 48 shale gas production.  Today’s domestic gas prices seem too low to support a multi-billion dollar Arctic pipeline to the Midwest.

Happily, Japan’s catastrophic tsunami and nuclear meltdown of March 2011 did stimulate demand for more natural gas.

But Canadian, Russian, Indonesian, Middle Eastern and Australian gas producers are also hungrily eyeing Asian markets.  Once Asian utilities have signed long term LNG contracts, latecomers will be locked out.

Will Alaska be locked out?  

*     *     *

Competition increases and most of Alaska’s competitors don’t have to build an 800 mile Arctic pipeline — on top of LNG costs.  Most have lower costs of labor.  Most operate in low cost temperate zones – except Russia.

Will Alaskans enthusiastically unify behind the AGIA gas project, helping it achieve the lowest possible costs in our high cost environment?

Or, will Alaskans continue fighting over routes, taxes and regulations as federal government rules proliferate and environmental opposition to all energy projects becomes more intense?

Alaska’s troubled romance with LNG continues. 

One wonders, as opposition grows and competition mounts, if the aging romance will give birth to an LNG project or lead to a final break up.

Stay tuned.

-30-


Dave Harbour has directed external affairs for a variety of oil and gas companies in Alaska and consulted with many others.  He is former Chairman of the Regulatory Commission of Alaska, the Anchorage Chamber of Commerce, the Alaska Council on Economic Education and the Hugh O’Brian Youth Foundation.  He assisted in founding Arctic Power, Saturday Market, the Anchorage Downtown Partnership and the Alaska Support Industry Alliance.