Walker outlines gas pipeline plans in letter to lawmakers

JUNEAU — Gov. Bill Walker says he can do the engineering for a scale-up for a state-led natural gas pipeline for $85 million and have the work done within a year. That’s in time to have it ready in case the state’s industry partners in the larger Alaska LNG Project decided not to proceed to final engineering in 2016.

The state is now a 25 percent partner in the larger project in a partnership with North Slope producers BP, ConocoPhillips and ExxonMobil, along with pipeline company TransCanada.

In an April 9 letter to state legislators, the governor said that if $85 million is spent on the scaled-up engineering it would leave about $100 million still available for the state-owned Alaska Gas Development Corp. from a 2013 appropriation by the Legislature.

Walkers would like to keep this money available, he said, in case the Alaska LNG Project does not move forward and the state wants to purchase information from TransCanada that the pipeline company did as its part of the larger project.

It is not clear whether a new legislative appropriation would be needed for that, however.

Walker’s letter also acknowledged, possibly for the first time, that a liquefied natural gas, or LNG, partner will be needed for the state project, which is now only a pipeline from the North Slope to the Matanuska-Susitna Borough north of Anchorage.

In his letter, Walker said a lot of work that has been done on the smaller Alaska Stand-Alone Pipeline, or ASAP, can be used in the scale-up.

“New work will be required to appropriately re-size the pipe (which is already at 36 inches) and design the steel metallurgy to best transport the LNG gas at lowest cost,” Walker wrote.

This part of the work will take 12 months to 18 months and will cost $25 million.

On another part of the scale-up, the gas conditioning and compressor station facilities, the work will also take 12 months to 14 months and can be done for $21 million. The state will, “re-tool the design premise of the gas conditioning facilities to meet LNG gas quality specifications,” the governor wrote in his letter.

Other work will include continuing with a supplemental environmental impact statement, or SEIS, that is already underway, which will take 12 to 18 months and cost $21 million.

Another $24 million is needed to develop construction plans, design camps and equipment yards and to develop procurement strategies, the letter said.

The SEIS that is now underway for the ASAP project is for the 500 million cubic feet per day design, however, and the scale-up with a compression station along the pipeline route (the current design does not have one) and a much larger gas treatment plant on the North Slope will almost certainly require a revamp of the SEIS.

The U.S. Army Corps of Engineers has meanwhile stopped its work on the current SEIS until the governor’s plans become clear.

Redesigning the gas treatment plant will also be one of the more complex parts of the expansion engineering because it will involve a switch to a different process technology, an Amine process, than the simpler process used in the current design of the gas treatment plant, which is designed to handle 500 million cubic feet of gas per day.

The Amine process is needed to not only process the larger volumes of gas but to remove virtually all carbon dioxide so that the gas can be used in the making of LNG. The current design would remove most carbon dioxide and process the gas to a quality acceptable for utilities like Enstar Natural Gas Co. or a gas utility in Fairbanks, but not for an LNG customer.

However, the Amine process also uses more water than the current design, which is an added complication for the North Slope.

The governor’s letter did not address it, but another complication is that gas processed for LNG specifications will also be of a higher energy content than gas processed for in-state use by utilities.

This may require another process step, when gas is taken off a state pipeline for local use, to lower the energy content so the gas can be used by local consumers.

In his letter to legislators Walker said the state would be taking the lead on an expanded state project if it, rather than the industry projects, moves forward.

“Alaska will be in control of the financing strategy for the ASAP project and will be in a position to attract funding from buyers interested in investing in our project. We will not have to compete for financing sources with the producers, nor will we be dependent on alignment among producers with potentially divergent financing objectives,” the governor wrote.

That plan is similar to the strategy used by the Alaska Gasline Port Authority, a municipal group that Walker headed, where potential partners and contractors were solicited for financial contributions to the port authority’s project.

A former financial advisor to the port authority, Rigdon Boykin, is now on Walker’s staff in the governor’s office.

Walker cited firms in Japan, Korea, Indonesia and China that have expressed interest previously in Alaska gas. He also said in the letter that the state will have less expensive financing costs and the advantages of federal tax-exempt status as a state-owned pipeline.

Meanwhile, ExxonMobil is managing the larger project, and the partners are now engaged in preliminary front-end end engineering and design, or pre-FEED, a $500 million effort is due to be complete in early 2016.

The next step would be to proceed to final front-end end engineering and design, or FEED, which will require an approximate $2 billion investment.

Walker and state legislators consider the FEED decision in 2016 a critical milestone for the project because it will require a significant investment by the partners that would not be taken unless the big project appears to be viable.

If the industry partners step back, however, the governor wants to be ready with a backup plan, a state-led gas pipeline. The state’s gas corporation, the Alaska Gasline Development Corp., has already done significant work on a smaller backup project designed to move North Slope gas to Interior and Southcentral Alaska communities with a maximum volume of 500 million cubic feet of gas per day.

Walker announced his own idea of scaling up that project to much higher volumes in a newspaper op-ed column, which has set off a testy dispute with state legislators over spending the money for it before it is known if the industry partners will proceed with the larger project.

The governor has fiercely defended his plan, however, arguing that the larger volumes will make for a more economic state pipeline and that he wants the scaled-up work to be underway sooner in the belief it will strengthen the state’s hand in negotiating important agreements on the larger project that are still needed.

The dustup with legislators is turning into a political brawl that is complicating the final days of the 2015 legislative session, which is due to end April 19 unless it is extended.

Walker said his plan for an expanded backup has created no big concerns among major producer company partners in the Alaska LNG Project, although in a speech to Commonwealth North, an Anchorage business group, the governor acknowledged a push-back from one company, which he did not identify.

In his April 9 letter to legislators, Walker said he has emphasized his support for the larger project and that the backup plan is not a competing or parallel pipeline, “but a backup to ensure Alaska will not have to start over if the AK LNG Project does not proceed.”

That represents a step back from the governor’s comments during a press conference following the announcement of the new plan in the newspaper op-ed that his intention is to develop the state project on a parallel path and, in the end, compare the advantages of both and make a decision as to which project the state will support.

Those comments stirred up the Legislature as well as the industry partners, but since then the governor has backtracked to emphasize, now in writing, that the state gas pipeline is only a backup.

However, the governor’s recent announcement that he is forming a special team of advisors to probe the Alaska LNG Project partnership and to make recommendations on possible changes, has raised new uncertainties among the partners.

As a partner in the project the state has the right to review project details, one company official said, as long as the state team signs the appropriate confidentiality agreements.

As of April 15, Walker has not named his review team or indicated when the team will start work, the governor’s spokeswoman Grace Jang said. She previously said the review team would be composed of individuals with large project experience and would be paid for their work.

Meanwhile, in his April 9 letter Walker said most of the partners aren’t bothered by his plan to do engineering on a state pipeline scale-up.

“BP and ConocoPhillips have publicly indicated support for Alaska having our own backup plan,” Walker said in the letter.

That is true for at least one company. In a statement, ConocoPhillips spokeswoman Amy Jennings Burnett said, “ConocoPhillips understands the State’s desire to have a backup plan in place in the event the Alaska LNG project does not move forward. We do not believe that causes a problem for the Alaska LNG project. ConocoPhillips does not believe that the State’s backup plan should compete with the AK LNG project, but by definition, should provide a fallback option.”

Two other company partners were more reserved. BP spokeswoman Dawn Patience said BP’s management “has met with the governor,” but could not provide details on discussions. ExxonMobil spokeswoman Kim Jordan said, “While we have spoken with the governor, we don’t comment on meetings with government officials.”

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

Updated: 
11/20/2016 - 8:13am

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