There may still be uncertainties about Gov. Bill Walker’s expectations for a larger state-led gas pipeline, but the board of the Alaska Gasline Development Corp. has adopted a cautious, step-by-step strategy for investigating an expanded project.
AGDC has currently developed the state-led Alaska Stand Alone Gas Pipeline, or ASAP, as a fallback to get North Slope natural gas to Alaska communities in case a large industry-led gas project falters. ASAP is now designed to move 500 million cubic feet of gas daily.
The Legislature authorized AGDC to pursue the backup plan in House Bill 4, passed in 2013, and added further guidelines in 2014 in Senate Bill 138, which also authorizes the state to partner with industry in the larger Alaska LNG Project.
The governor announced Feb. 19 that he wants the ASAP project “upsized” to more than 2 billion cubic feet per day capacity, to become more economically viable as an option for the state.
Private companies now engaged in the Alaska LNG Project, in which the state is a 25 percent partner, are now worried that the governor may intend his project to become a competing project. AGDC’s board is now working to dampen those concerns.
At the corporation’s March 12 board of directors meeting, its chair, Fairbanks attorney John Burns, laid out a strategy for expansion that requires maintaining the state’s partnership with industry in the larger project, including the sharing of confidential data, with a goal of gaining the partners’ consent in AGDC’s expansion of its plan as a backup.
“The key is to maintain the alignment (with industry partners) and not duplicate the work effort or be competitive,” Burns said. “We need the concurrence of our (private) joint-venture partners,” an expansion plan.
At the same time, AGDC needs to have an economically viable alternative in ASAP if the large project does not go, he said.
The board directed AGDC’s staff to develop, in two weeks, rough costs and a lists of tasks for two increased volume scenarios, one that would move 1.4 billion to 1.6 billion cubic feet of gas per day, and a second that would move 2.4 billion to 2.6 billion cubic feet of gas daily.
The project does not include a natural gas liquefaction, or LNG, plant. The larger industry-led project has an LNG plant with land already acquired for it in Nikiski, however.
Lack of gas
Meanwhile, in a separate forum, state officials identified a critical challenge facing a state-led pipeline: The state has no access to natural gas without North Slope oil and gas operators producing their own gas at the same time.
Department of Natural Resources Deputy Commissioner Marty Rutherford told the House Resources Committee March 13 that the state would receive a royalty share of gas production, but not before the other companies.
“There is no ’overlift,’” provision, Rutherford said, which would allow the state to takes its gas before the producing companies.
AGDC President Dan Fauske also appeared at the House
Resources Committee meeting and, speaking separately, agreed with Rutherford.
“The state has no gas,” to sell before the producers have their gas, he said.
Also, AGDC will not sell state royalty gas even when it is produced. State law reserves that duty to the Department of Natural Resources, although DNR can contract with AGDC to sell the state gas on its behalf, as a marketing entity.
(The large Alaska LNG Project agreement also provides the state with an option to contract with individual producing companies to sell state gas as LNG).
The March 13 House Resources meeting was tense, but it had its lighter moments.
Fauske was pressed about who is in charge of the ASAP project, the governor or the corporation’s board, and about him personally being named as “point person” by the governor for the project.
Fauske said he learned about this while buying a sandwich at a fast-food restaurant and listening on his iPhone to the governor’s press conference when the expansion plan was announced.
Fauske is well-liked in the Legislature but members of the Resources committee pressed the issue.
“Who is the captain of this boat, the governor?” asked Rep. Bob Herron, D-Bethel.
Rep. Mike Hawker, R-Anchorage, asked, “You were personally named as the governor’s point person on this. Are you?”
“I take direction from the (AGDC) board,” Fauske said. “The governor appoints the board but legally it is the board’s responsibility,” to direct the project, he said, drawing laughter from the committee by adding, “I’m not trying to weasel out of answering the question, Rep. Hawker, but, well, maybe I am.”
Hawker asked about the suspension of the ASAP environmental impact statement, or EIS, process by the U.S. Army Corps of Engineers due to the governor’s announcement of an upsizing of ASAP.
“Could this have effects on the (larger) Alaska LNG Project? If the governor ramps up a competing project could it cast doubt, in the federal agencies, on whether Alaska LNG will proceed?” Hawker asked.
That could cause them to slow down work on Alaska LNG regulatory proceedings.
Fauske said he would not be surprised to see concerns raised by other agencies.
“It could happen,” he told the legislators.
At the March 12 AGDC board meeting, member Dave Cruz said people should recognize the proper relationship between an independent pipeline like ASAP and the producers if the state pipeline were to be built.
“These producers are not our competitors. They are our customers,” Cruz said.
“We will ship their gas, whether under ASAP or (the state’s 25 percent share) of Alaska LNG,” Cruz said.
“They own the gas,” he said, or most of it. The pipeline is a transportation entity, like a railroad.
“We provide a service,” to producers, Cruz said. “If we can offer a better and faster service through ASAP the producers could decide to ship their gas with us,” he said.
AGDC’s staff explained to the board that expansion of volume through the pipeline itself can be achieved using the 36-inch pipe with the strength of steel in the current ASAP design, although additional compression of gas will be needed, presumably with compressor stations added. There is no compressor station along the pipeline in the current design.
The second, higher volume could be achieved using a heavier-strength steel, and also with compressor stations.
The goal is a “Class 3” design estimate, what would be considered the pre-front-end engineering and design, or pre-FEED, level of the project. Design work has currently been completed for the smaller project to a “Class 2” level, or full front-end engineering and design.
The estimates for the pipe changes and compression can be ready within two weeks, but a big gap is that it will not include design and engineering changes for the gas treatment plant, or GTP, at Prudhoe Bay, Cruz said.
“We have not vetted the change in the GTP which would require a total reengineering,” Cruz said. “That will be a lot bigger of an exercise and will take longer than two weeks.”
Cruz is president of Cruz Construction, a long-time Alaskan construction company.
Rick Halford, one of three new board members appointed to AGDC by the governor, said he would be more comfortable doing the scale-up study in smaller bites.
“The GTP is a huge issue,” Halford said.
Step one of a GTP plant redesign, Cruz said, is knowing the specifications of the gas the producing companies can deliver because that will influence what process AGDC would select for the larger treatment plant. The current plant design uses one technology that may not be efficient in a scaled-up facility. A different technology may be required.
“I wouldn’t want to wade into this before deciding which model (technology) to use,” Cruz told fellow board members.
Also, the current design assumes that only Prudhoe Bay gas will be used. An expansion would require gas also produced at Point Thomson, which has a different chemical composition. Designing a larger plant to handle the different gas compositions adds complications.
As for the scale-up scenarios, AGDC Engineering Vice President Frank Richards told the board that the normal procedure with pipeline planning is to work with the market to define the volume needed.
“Here we are looking at what can (technically) be done,” he said.
Halford, a former state senator and Senate President, warned that the project should be driven by the economics.
“This seems to be designed to fit politics,” he said. Burns expressed reservations, too.
“This question we are asking is whether it is possible to upsize, but what other information is needed? Without the market you are limited,” he told other board members.
Halford also asked if the assumption of in-state gas demand of 250 million cubic feet per day is net of existing Cook Inlet production, which is now about 100 million cubic feet per day.
Richards said that a 2010 study on in-state demand by Northern Economics, an Anchorage consulting firm, done for TransCanada Corp., is now being updated for the Alaska LNG Project.
The earlier study showed that the actual demand for gas within the state could be less than 250 million cubic feet per day if continued Cook Inlet gas production is assumed.
There could be other new demand for gas, however. Agrium Corp. is studying a possible restart of its fertilizer plant near Kenai, and could be a large industrial customer. Likewise, if Donlin Gold builds its large gold mine in the mid-Kuskokwim River region, the company could also become a new gas customer.
Oh the other hand, there is uncertainty on how much gas might be needed in Fairbanks given the shutdown of the Flint Hills refinery and Golden Valley Electric Association’s startup of the 50-megawatt Healy 2 coal-fired power plant.
The rule-of-thumb has been that Interior region demand might be 50 million cubic feet of gas per day, but it could also be far less. However, if the gas price is Fairbanks is affordable Flint Hills might restart its refinery and other industrial customers could develop, such as a large gold mine being planned at Livengood, north of Fairbanks.