By Tim Bradner
Alaska Journal of Commerce

With an Alaska natural gas pipeline on hold for what could be an extended period, importers of foreign liquefied natural gas (LNG) are rapidly expanding their capabilities of bringing gas to U.S. consumers from overseas, a senior official with the Federal Energy Regulatory Commission told an energy symposium in Anchorage last week.

Mark Robinson, director of FERC's energy projects office, said the United States is now importing 5.8 billion cubic feet a day of LNG through expansions of existing regasification facilities located mostly on the U.S. Gulf Coast. An additional 22.8 billion cubic feet a day of additional import capacity will be available with projects recently approved by FERC. These include 11 new sites and two expansions of additional plants, Robinson said. Five of those facilities are under construction now, he told the American Conference Institute's annual Alaska oil and gas symposium, held in Anchorage Sept. 18 and 19.

In addition, applications are pending for 10 proposed new sites and three proposed expansions that would regasify an additional 16.1 billion cubic feet per day, he said.

There are huge deposits of natural gas overseas that can be economically marketed in the United States once regasification plants are built, and these plants could undercut Alaska gas in the market if the Alaska pipeline is delayed, said James Slutz, the U.S. Department of Energy's deputy assistant secretary for oil and gas told the conference.

"We had hoped to see progress being made on the Alaska pipeline," Slutz said.

Robinson said FERC is ready to process an application for an Alaska pipeline, "but we have to have an applicant." He also said it will take FERC an equal amount of time to process an application for an Alaska LNG project and a pipeline, about 10 years.

Joe Marushack, ConocoPhillips' vice president for North Slope gas, told the conference, "we're prepared to move forward, to sign the contract, and we're even prepared to make changes (in the contract). ConocoPhillips is ready to move forward on this project. We have to see if the state of Alaska is ready," Marushack said.

The project is bogged down following the Legislature's failure to approve a proposed contract this summer on fiscal terms and state participation, and with Gov. Frank Murkowski's defeat in the Aug. 22 state primary election.

Murkowski will hand off the draft contract to the new governor after the November general election, but if either of the major party candidates is elected there will be a substantial delay, possibly for several years. Both of the major candidates, Republican Sarah Palin and Democrat Tony Knowles, say they want major changes in the contract. Only independent candidate Andrew Halcro has endorsed the present contract.

Rep. Ralph Samuels, an Anchorage Republican legislator who was deeply involved in gas pipeline issues this summer, told the conference that the cost of delay is huge for both the producers and the state. Delay adds to the project cost because of continuing price increases for materials and labor. Steel prices are up 150 percent since 2001, when the three producers developed a $20 billion cost estimate, and steel typically makes up about 20 percent of the overall cost of the pipeline.

The costs of importing LNG, however, will be declining. Robinson, of FERC, told the conference that the International Energy Agency estimates LNG import costs will decline 20 percent by 2010 because of larger ships brought online and new, more efficient gasification technology.

Add to that the latest dip in natural gas prices. Samuels said Henry Hub prices for natural gas closed at $4.83 per thousand cubic feet (mcf) Sept. 19. That's about one-third of what prices were a year ago, in the wake of Hurricane Katrina, Samuels said. It's a level that makes the Alaska pipeline economics very thin even if construction cost increases are kept to a minimum. "Alaskans need to understand how volatile the gas market is," and how that will affect the pipeline project, he said.

"The question we face now is whether the new governor will use the existing contract and the work we have done as a template, or whether he or she will totally reject the notion of a producer-owned pipeline and the state taking its gas in-kind, which means we essentially throw away what has been done to date," Samuels said.

Tim Bradner can be reached at

tim.bradner@alaskajournal.com.