By Tim Bradner
Alaska Journal of Commerce

The state of Alaska has awarded a contract for engineering and feasibility studies to Michael Baker Jr. Inc. for a 24-inch, high-pressure bullet line that could bring natural gas from the North Slope to Southcentral Alaska. The work, valued between $5 million and $6 million, is to be done by June 2010.

Separate contracts are soon to be awarded to other firms for work on environmental permits and an assessment of Cook Inlet gas potential, Harry Noah, Gov. Sarah Palin's lead person on in-state gas issues, told state legislators June 5.

As the Legislature adjourned in late April, lawmakers appropriated $7 million to the governor's office for work toward an in-state pipeline. Noah is to give legislators monthly progress reports.

Under its contract, Michael Baker will also do a cost comparison of moving gas through a new pipeline built from the Slope to Southcentral along the trans-Alaska oil pipeline and the Parks Highway, and a spur pipeline built off a large-diameter pipeline at Delta and routed to Southcentral via Glennallen, Noah said.

The engineering company will also do a preliminary assessment of building a smaller pipeline from main pipeline west to the proposed Donlin Creek gold mine on the Kuskokwim River, Noah said.

Energy costs are one of the major obstacles to be overcome in developing the large mine, which would be a major employer in the region if it is built.

"The key questions we have to answer is whether a stand-alone pipeline (a bullet line) from the North Slope is viable," Noah told legislators. "Alternatively, what are the savings if we wait and build a spur line off the large pipeline built to the Lower 48? Or would it make more sense to give additional incentives for Cook Inlet gas development?"

Other groups, both in state government and private, are working to assess Cook Inlet potential, Noah said.

Michael Baker is to do the technical work needed to assess the basic feasibility of a bullet line.

"This is not detailed design, but it will give us enough information," Noah said.

Preliminary engineering, route design and environmental permitting has already being done on the spur line alternative via Glennallen by the Alaska Natural Gas Development Authority, the state gas development corporation.

Noah said ANGDA has been asked to take the lead in securing major permits for the bullet line as well as spur line, and to select the preferred route between the Parks Highway and Glennallen alternatives.

Industrial customers needed

One of the major questions affecting economic viability of either a bullet or spur line is whether there will be major industrial customers, in addition to the utilities, that will purchase gas shipped through a pipeline.

The working assumption is that a volume of at least 500 million cubic feet per day is needed for a pipeline to be economic. Regional electric utilities and Enstar Natural Gas will use about half of this volume, so industrial shippers or purchasers are also needed, Noah said.

One possibility being pursued is whether the Agrium fertilizer plant near Kenai can be restarted, he said. There is an existing liquefied natural gas plant near Kenai, but this facility may close in 2011 unless its federal license to export LNG is extended.

The pipeline is being designed to operate at high pressure so natural gas liquids like propane and ethane can be shipped along with methane, the main component of natural gas. Once these are delivered to Southcentral Alaska, there may be firms that will be able to use the liquids.

ANGDA has done studies of the feasibility of shipping propane in bulk from Interior and Southcentral Alaska to be used as a fuel in river and coastal communities. Ethane, another natural gas liquid, is typically used in the manufacture of petrochemicals.

Noah is assembling a commercial working group to help evaluate prospects for industrial customers. He has asked potential customers like Agrium, Enstar and the utilities along with North Slope producers BP, ConocoPhillips and Anadarko Petroleum, to serve in the commercial working group.

"Our intention is to get the people who can sell gas at the same table with people who want to buy gas," he said.

The working group will have its first meeting in late June.

Pipe to Donlin Creek considered

On the idea for a separate, smaller line to the Kuskokwim River, Noah said this needs a careful look.

"We have an opportunity with the Donlin Creek mine for a large base-load customer in the region. If we have enough of a load we might be able to get gas into the area for a reasonable cost," he said.

Once a pipeline is built, gas might also be available for local communities. Noah said a separate line to Donlin Creek might be built off the bullet line near Nenana, southwest of Fairbanks.

The idea of bringing an environmental contract on board before the technical and feasibility studies are done is mainly to expedite the schedule if a decision is made to go forward with a bullet line.

"If it is commercially viable we want to be able to more forward quickly to begin permitting," Noah said.

As for technical aspects of the pipeline, the working assumption is that it will be a 24-inch pipeline, that it would operate at high pressure up to 2,500 pounds per square inch that it will use X-70 grade steel, which is commonly available.

Noah said the pipeline could mechanically transport as much as 1.3 billion cubic feet a day with additional compressor stations but the assumed threshold at the start is 500 million cubic feet a day.

That number is typically used because amounts above that would trigger the treble-damages provision in the state's agreement with TransCanada Corp. under its Alaska Gasline Inducement Act contract.

TransCanada wants the assurance that it will be able to take large amounts of gas from the North Slope to Canada and the Lower 48, and its contract with the state limits the state to 500 million cubic feet a day to be taken off the line.

If the large pipeline is not built, the limit would no longer apply.

Legislators weigh complex tradeoffs

Noah said his project is considering only natural gas. Legislators will separately have to weigh the advantages of new energy from hydro projects that are being discussed, like from the Susitna River, he said.

The tradeoffs are complex because consumers might be better off if electricity generated by hydro is less expensive than power generated with gas brought through a pipeline from the North Slope.

However, if part of Southcentral region's electricity market is taken by hydro or other renewable energy projects, there will be less demand for gas delivered through a pipeline, which would undercut the economics of either a direct bullet line to the Slope or a spur line connecting with a large gas line.

The equation with Cook Inlet gas is similar. Most geologists agree the Inlet has prospects for new gas discoveries, but where and how much gas can be found, or what it might cost, is unknown until drilling is done.

The prospect of a pipeline bringing gas from the North Slope, if it moves forward, could dampen exploration for new gas, companies now active in Cook Inlet say. Conversely, a series of new gas discoveries in the Inlet could undercut a pipeline if the newly developed gas can supply regional power or space-heating markets for less than the cost of building a gas pipeline from the Slope.

One consideration is that while electricity can be generated with hydro or other renewable energy sources like wind, space-heating in most of Southcentral can now only be done with natural gas unless homeowners and businesses convert to all-electric or fuel oil.