The license would entitle TransCanada to a $500 million state grant and other incentives. Meanwhile, two North Slope producers, BP and ConocoPhillips, are working on their own plan for a pipeline but are not asking for a state grant.

In hearings before legislators June 20 Alaska Natural Gas Development Authority CEO Harold Heinze gave his support to approval of the TransCanada license as the fastest way to provide gas for Southcentral Alaska and other instate uses.

License approval would provide tremendous acceleration in timelines and openness in future negotiations on commercial terms of gas use, Heinze said in testimony on the final day of the Legislature's hearing in Anchorage, June 20.

ANGDA has received no commitments from the Denali project sponsors to date and rejection of the TransCanada license would leave ANGDA with “a very limited set of choices,” Heinze told lawmakers.

ANGDA wants suppliers for all instate users to be prepared for a negotiated open season that Heinze hoped could occur before the end of 2009. He also said a spur line could be prebuilt and waiting to connect at Delta Junction, east of Fairbanks, to meet whatever mainline project advances.

ANGDA's base project is a 370-mile, 20-inch line from Delta Junction to Beluga through Glennallen.

Heinze roughly projected total near-term future gas demand just below 500 million cubic feet per day, including 115 million cubic feet per day (mcf/d) for home/business heating, 135 mcf/d for electrical generation, and 50 mcf/d for all Fairbanks uses. All of that totals about 300 mcf/d.

The 500 mcf /d figure includes a possible 200 mcf/d volume for possible industrial uses, a lower figure than the 250 mcf/d used in 2006. Shifts in seasonal heating could mean double the demand in winter versus summer, so storage facility planning will require particular attention, Heinze said.

A coordinated and aggressive schedule will allow the best use of certain leverage available to the instate market and is critical to keeping tariffs affordable. The full-distance tariff from the North Slope to Southcentral Alaska could range from $2.50 per thousand cubic feet on a spur line moving 500 mcf/d to $6.50 for a smaller volume of 100 mcf/d moving through the pipeline. ANGDA projections are based on the $3.50 mcf/d estimate by Black & Veatch for TransCanada's mainline project to Alberta, but the figure excludes the cost of a gas treatment plant.

ANDGA's projected system would serve 99 percent of the state population, Heinze told legislators, including river shipments of propane to villages. Removal of propane through straddle plants located almost anywhere along the spur line to remove natural gas liquids for local use is a technologically simple cooling process. It could remove butane as well as propane. Heinze projected wholesale butane facilities every 150 miles on the spur line but said a large straddle plant for possible industrial uses is a possible future consideration.

The size of Alaska's market is “almost nuisance value” for a developer of the large pipeline and a package deal provided by instate users would be welcomed by whoever builds the larger project.

However, gas sold to Alaska markets enjoys an effective 20 percent reduction on gas severance taxes through a 5 percent cap on in-state gas use the Legislature provided in petroleum tax changes made in late 2007.

The benefit is enhanced by lower distance-sensitive tariffs. Because the market volume is limited gas suppliers - North Slope producers - will be interested in signing long-term contracts which will also give consumers stable rates, Heinze said.

Whether the in-state tax advantage will apply to gas shipped for export overseas, such as with LNG, is uncertain. Lawmakers indicated they will want assurances that consumer rates reflect the benefit of the tax reduction.

Sen. Fred Dyson expressed apprehension that ANGDA's plans for a spur pipeline and a North Slope gas supply that is effectively unlimited for instate use would kill new exploration in Cook Inlet. Heinze said he wasn't concerned about Cook Inlet and said world oil and gas prices would control the future of Cook Inlet exploration.

In another development, Heinze presented draft legislation, written by former attorney general Charlie Cole, that would clarify the ability of the Regulatory Commission of Alaska to assert jurisdiction over all instate gas issues through regulation. The bill eliminates what Heinze said is overly prescriptive statutory language, so that the functions would be provided for in regulations.

Heinze also hinted that he would welcome other legislative actions. The $4 million appropriation ANGDA will receive July 1, at the start of state fiscal year 2009 is restricted to “looking at markets as opposed to projects,” he said.

In a related presentation of an updated 2006 U.S. Department of Energy study, legislators were told that development of petrochemical and other industrial natural gas industries would be dependent on high market prices for their products. Industrial customers could require as much as 127,000 barrels per day of natural gas liquids and 201 mcf/d of gas. The report projected demand at the existing Nikiski LNG plant at 375 mcf/d and estimated that a gas-to-liquids plant built in Southcentral Alaska could require up to 464 mcf/d. It was prepared for ANGDA by Science Applications International Corp., a consulting firm.

The report used prices ranging from $6.44/mBtu to $13.52/mBtu at the Henry Hub trading center as high and low scenarios to forecast industry prospects. Under the low price scenario the SAIC study suggested only fertilizer, petrochemical and LPG industries could be profitable, if they could acquire gas at a price in the $4/mmBtu range. Under the high price scenario and a feedstock cost in the $8/mBtu range those three uses, plus export of LNG to California and a gas-to-liquids plant could also be profitable.

In another presentation, Enstar Natural Gas Co. and its parent company, Continental Energy Systems, have no position on the AGIA license to TransCanada, but said the projected timeline for the large pipeline is too slow for Enstar's 2014 deadline to find new supplies for its 345,600 Alaska customers, representatives of the companies told lawmakers June 20.

Colleen Starring, Enstar vice president, said her company is expecting an update in July from Anadarko Petroleum Corp. on the 2007-08 winter exploration results from the Gubik field, in the northern Foothills region of the North Slope.

Based on results from 2008-09 drilling Enstar will decide whether to invest further in development of the project. Enstar and Agrium have also drafted a letter of intent that they are ready to sign depending on Anadarko's results.

If Gubik gas economic to produce and is available, Enstar plans to build a $3.3 billion, 320-mile, 20-inch pipeline to Fairbanks and parallel the Parks Highway to Anchorage. Permitting work would follow a summer 2009 “go/no decision” with construction starting in 2012.

A statewide load profile presented by Enstar indicates usage would barely remain below the 0.5 bcf/day limit allowed under AGIA without triggering a clause that allows TransCanada to asset treble damages.