Another AK LNG issue: Who pays for state access to gas?

If the giant Alaska LNG Project is built, more than three billion cubic feet of gas will be flowing through the Matanuska-Susitna Borough every day by pipeline.

Will it be available for local residents along the pipeline route?

The answer to that is yes, but there are qualifications, and Mat-Su legislators say they are getting a lot of questions about gas availability from constituents.

“There is a perception by people that they will be able to ‘get’ natural gas. Everyone believes that. But we’re not sure where the take-off points will be,” or what costs will be, said Sen. Mike Dunleavy, R-Wasilla, at a Sept. 9 legislative hearing in Palmer.

Dunleavy said some form of state subsidy for local gas service may be needed.

The industry-state consortium planning the big gas project has agreed that there will be at least five “off-take” points along the 800-mile route of the pipeline, and there could be more than five.

Agreement on how many off-take points will be specified must come this fall so that the information can be incorporated into a series of regulatory filings the Alaska LNG group must file next spring with the Federal Energy Regulatory Commission, said Miles Baker, spokesman for the state’s Alaska Gasline Development Corp.

Just where the connections will be can be decided later but the working assumption is that there will be one near Fairbanks and two in Southcentral Alaska: a “North Cook Inlet” connection (meaning in the Mat-Su) and a “South Cook Inlet” connection on the Kenai Peninsula, Baker said.

AGDC has scoped out the cost of gas processing facilities that will have to be built at the off-take points. The costs range from $38 million for a larger-volume plant unit of 80 million to 330 million cubic feet per day, to “mini” plant units designed to handle 20 million cubic feet per day to 75 million cubic feet per day (the appropriate size for an off-take near Fairbanks), and smaller units, for small communities, that would cost about $15 million.

Those costs do not include a spur pipeline to carry gas to the communities or the costs of local gas distribution systems.

Costs and logistics

What is unresolved, however, is who pays for the gas process facilities at the valve, or the spur pipeline. A processing facility is needed because the gas will be at high pressure in the pipeline and will contain some natural gas liquids to “enrich” the gas to a specification desired by potential LNG customers in Asia.

For local use, however, gas taken from the pipeline must be de-pressured and then conditioned, with the liquids removed, to a specification usable by regional utilities.

For the Matanuska-Susitna Borough there is also the matter of getting the gas from the big Alaska LNG Project pipeline — which will follow a route west of the Susitna River — to the population centers of the Mat-Su region east of the river and to Port MacKenzie on Knik Arm where municipal officials hope gas processing industries can be attracted.

Crossing the Susitna River is a pricey matter both for the main pipeline as well as a smaller spur line.

Much of the Mat-Su region is now supplied with Cook Inlet gas through existing Enstar Natural Gas Co. pipeline systems, but those have limits on how much gas can be moved, and having large volumes of North Slope gas available, and potentially at a lower cost than Cook Inlet gas, would be a big selling point in attracting industry.

If the gas from the Alaska LNG Project is used mainly by local residents and businesses, including for local power generation, it is possible that the existing Beluga pipeline, which is also on the Susitna River’s west side, can be used, requiring only a short connection from the Alaska LNG main pipeline.

Even with that, however, the cost of the processing facilities at the off-take point could total several tens of millions of dollars.

It would be another matter for a large industrial project at Point MacKenzie, such as the medium-sized natural gas liquefaction plant proposed by REI Alaska, a Japanese group.

REI’s proposed 1 million-ton per year LNG plant might need more gas than can be moved through the Beluga pipeline. A new spur pipeline might be needed, most likely about 40 miles in length.

While the straight-line distance from the Alaska LNG pipeline to Point MacKenzie may be shorter than 40 miles, the need to cross the Susitna may add to the length because the crossing must be made where the river is relatively narrow. 

The pipeline cost would be added to the cost of the processing facilities. As a frame of reference, the cost of the Fairbanks spur line, developed by the Alaska Gasline Development Corp. as a part of the state’s planning for a backup gas project, is estimated at $50 million to $60 million for a 29-mile, 12-inch pipeline.

The Fairbanks spur, which was designed as part of AGDC’s work on a state-led backup pipeline plan, would be capable of moving about 60 million cubic feet of gas per day. But the final volume could be less, and the pipeline of smaller diameter, if there is insufficient demand for the gas in the Interior community comes below 60 million cubic feet per day.

A spur line to Point MacKenzie would likely cost more than the Fairbanks spur because it would be longer but no estimate can be made until details on the gas demand are nailed down.

Who pays?

But who will pay for that? Under the current agreements, the Alaska LNG Project pays only for the connection, the valve.

Everything else is the state’s responsibility. Gov. Bill Walker is working to get the industry partners in the consortium, BP, ConocoPhillips and ExxonMobil, to pay for more than a valve, the governor’s spokeswoman Katie Marquette said, but the matter is part of a broad range of issues being discussed and is not yet resolved.

Walker is working to get the spur lines to Fairbanks as well as a line to Point MacKenzie paid for the by the project, according to Marquette. If Walker is unsuccessful in persuading the industry partners, the state could pay for the connections and spur lines with state funds, but those are scarce currently.

What’s also possible is that a third party such as a utility, another company or a municipal entity, could step up to the plate.

A complication, however, is that no matter who builds the facilities and spur lines, the state Regulatory Commission of Alaska will have jurisdiction, and the RCA’s rules require, unless the state can just write a check, that the consumers being served by the spur pay for it.

That may not or may not be a big addition to the monthly gas bill for consumers depending on how many are served. However, if there are gas-based industries at Point MacKenzie, they are likely to be more open to paying the transportation cost with facilities’ cost built in, but the Regulatory Commission of Alaska will ultimately decide the matter.

If the state is to be responsible for the spur line and gas facilities it isn’t yet clear which state entity will take responsibility. Senate Bill 138, the enabling legislation for the gas project approved by legislators in 2014, gives certain responsibilities to AGDC such as getting an estimate of potential in-state gas demand updated from previous studies.

The state gas corporation has also sponsored preliminary engineering and cost estimates for the gas process facilities at the take-off points.

But which state entity would actually undertake the financing and construction of spur lines hasn’t been decided. It could be AGDC or the Alaska Industrial Development and Export Authority, the state agency that is sponsoring development of gas distribution systems in Fairbanks. Or, it could be another state entity.

Updated: 
11/24/2016 - 10:00am

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