Latest gasline effort pitched by AGDC leadership

  • Natural gas from the Point Thomson field would supply a 42-inch pipeline to Interior Alaska under the latest proposal from state leaders to monetize the largely stranded North Slope assets. (Photo/Courtesy/ExxonMobil)

Leaders of the state’s gasline corporation on Feb. 4 provided details on a new, phased development plan for the $38 billion Alaska LNG Project that could get large volumes of lower cost natural gas to Fairbanks by 2025.

Alaska Gasline Development Corp. President Frank Richards said during a board of directors meeting that AGDC management has been in discussions with several potential private participants in the megaproject.

“This group of strategic parties has the financial and technical capability to bring a project the scale of Alaska LNG to fruition,” Richards told the board.

One in particular has agreed in concept to make a significant investment towards constructing a $5.9 billion portion of large-diameter pipeline to Fairbanks.

The catch to the first pipeline phase, however, is that it relies primarily on billions of dollars of yet-to-be-identified federal funding. Under the working concept, the pipeline firm would contribute 25 percent of the $5.9 billion, or about $1.5 billion, while the rest would come from federal infrastructure funds.

AGDC officials have informed the members of Alaska’s congressional delegation of their desire to participate in a federal infrastructure and stimulus program and briefed President Joe Biden’s transition team on the potential benefits of the project, according to Richards.

“Alaska LNG has the authorizations that truly make it a shovel-ready project,” he said, adding that it should be considered a “clean energy initiative” given gas from the project would displace coal and heating oil relied up today in Interior Alaska and Asian markets.

While Biden has said repeatedly that he wants to rebuild the nation’s infrastructure and invest in clean energy projects, there is no legislation being considered yet. Infrastructure spending was also a priority of President Donald Trump’s but he could not get a bill through Congress.

Richards described the undisclosed firm as a “world-class pipeline operator” in an interview and said AGDC is in commercial negotiations with them to identify what it would take for the company to lead the pipeline portion of the integrated North Slope gas-to-pipeline-to-LNG effort.

Building the section of 42-inch diameter pipeline between the North Slope and Fairbanks first — as opposed to the full 807-mile line to Southcentral Alaska — would provide Interior residents and businesses with natural gas first while the rest of the complex project is sorted out.

Richards noted gas would also be available to the region’s military installations, which could be large volume customers, as the Defense Department tries to transition away from the coal and oil-fired heat and power plants used currently.

Phasing construction and accordingly having separate owners for the project’s North Slope gas treatment plant, pipeline and LNG plant at Nikiski would not only facilitate quicker delivery of gas to the Interior but it would also give AGDC the time to secure the rest of the commercial arrangements needed for complex endeavor.

Richards said that while AGDC has identified “likely” lead parties for the gas plant and pipeline, corporation officials are still trying to get the attention of a firm to lead development of and own the LNG plant that accounts for roughly half of the overall $38 billion Alaska LNG price tag.

It would also defer the expense of the large gas treatment plant by pulling gas only from ExxonMobil’s Point Thomson field. At full build-out, about three-quarters of the natural gas used in the project would come from Prudhoe Bay but its gas contains significant quantities of carbon dioxide that must be stripped out in the treatment plant and reinjected into the reservoir. Point Thomson gas is cleaner and therefore can bypass treatment.

Richards said the pipelines would lead to and from the site of the gas plant to prepare for its eventual construction and because the project would use the same design approved last spring by the Federal Energy Regulatory Commission it would not need new permits; it’s the same work just in a different order.

The progress of the phased development strategy was to be the topic of discussion at a Jan. 14 AGDC board meeting but that meeting was rescheduled to Thursday to allow Gov. Mike Dunleavy to unveil the new plan, which he did in an op-ed published Tuesday in the Anchorage Daily News.

Richards and AGDC board chair Doug Smith emphasized that while there is a lot more work to do they do not want to be late to the game either.

“As Alaskans, we all know this may sound like a long shot and there’s still a lot of hurdles left,” Smith said. “We felt we needed to have a large opportunity on the table should funds become available to support it. We’re not being unrealistic about this and what the hurdles are in front of us.”

After the vote, former board member and construction union leader Joey Merrick questioned the action given no one to AGDC’s liking has shown interest in the LNG plant. Merrick is also a partner with former Gov. Bill Walker, former AGDC President Keith Meyer and others in Alaska Gasline and LNG LLC, a venture they formed last fall to take the project from the state.

Merrick said AGDC officials originally told him that Alaska Gasline and LNG would be able to participate in an open request for proposal, or RFP, process but subsequent meeting requests have been declined.

“We’re standing by ready to take the project from the gas treatment plant on the North Slope to the liquefaction plant at Nikiski,” Merrick said.

“Our plan doesn’t require the $4 to $5 billion subsidy you’re talking about, “ he added. The Fairbanks-only project just doesn’t pencil out as I think you all know. The numbers just don’t work.”

Those additional hurdles include again addressing “fiscal certainty” for the private investors and the project’s property tax obligations.

Under the distant original Alaska LNG structure in which the North Slope producers were planning to be the primary investors in the project, fiscal certainty referred to amending the state constitution to allow for fixed, project-specific taxes and contracts with the state.

A new payment in-lieu of tax, or PILT, structure would also likely be needed for the project’s property taxes, according to Richards, who said the project’s PILT of roughly $400 million per year sharply juxtaposes the tax breaks and incentives other LNG projects around the world are getting.

The board ultimately approved a resolution allowing management to continue negotiations with the current interested parties to transition the project into private leadership and forgo a new formal solicitation period.

AGDC officials hope to make that transition by the middle of the year.

Elwood Brehmer can be reached at [email protected].

02/10/2021 - 8:54am