Elwood Brehmer

Clean Air Act regulations could render Healy plant obsolete

Federal efforts to reduce greenhouse gas emissions could hit particularly hard in Fairbanks according to Alaska Department of Environmental Conservation Commissioner Larry Hartig. Golden Valley Electric Association’s Healy 1 coal-fired plant could be regulated off the Railbelt power grid if the Environmental Protection Agency implements its proposed Clean Air Act carbon standards. As is often the case, federal regulations designed to fit a Lower 48 model do not translate well to Alaska, Hartig said. The EPA first unveiled its proposed Clean Air Act Section 111 guidelines for limiting carbon emissions in June. The proposal sets a national goal for reducing carbon emissions from power plants by 30 percent of 2005 levels by 2030 as part of President Obama’s larger Climate Action Plan released in 2013. An extended public comment period on the pending regulations ended Dec. 1. It doesn’t fit Alaska because the state’s carbon emissions come from different sources than the Lower 48, where 32 percent of carbon greenhouse gas emissions were a direct result of power generation in 2012, according to the EPA. In Alaska, about 6 percent of greenhouse gases come from electrical generation. The difference is due to an overall denser population and more coal burning Outside, Hartig said. About half of Alaska’s emissions are from North Slope processing plants that burn natural gas and those are already efficient, he said. “It’s not a statement about the environmental performance of the oil and gas industry in Alaska by any means; it’s just that you have world-class facilities in a state that has relatively low population so it’s going to kind of dwarf everything else,” Hartig said. The Healy coal plant comes into play because it is one of the five plants in the state that fit the proposed regulation — at least 25-megawatt capacity, fossil-fuel burning plant that sells more than one-third of its power to a grid. The others are fairly efficient and generally newer Southcentral natural gas-fired plants. Another “major stumbling block for Alaska,” Hartig said, is the fact that the state has six small Railbelt utilities and piecemeal ownership of its antiquated transmission grid. That limits the ability to sell cheaper, cleaner Southcentral power to Fairbanks, he said. State studies have put about a $900 million price tag on needed upgrades to Railbelt transmission lines, which choke to just a single line in some places. Additionally, the coal-fired power from Healy is some of the cheapest Golden Valley has and the plant is not ready for retirement, according to Hartig. It still carries debt. In the event that a new plant would have to be built, he said, “You’re paying for the new plant; you’re paying for the old plant; you’re paying for transmission and if you’re in Fairbanks you already have some of the highest costs in the country for power.” The president’s plan calls for final regulations to be issued no later than June 1, 2015, and for states to submit how they plan to hit the goal by the end of June 2016. If the regulations are implemented as currently proposed by the EPA, it would force a transformed relationship between the utilities and the Regulatory Commission of Alaska to come up with a suitable plan, Hartig said. “What the state’s doing is we’re working collaboratively with the Alaska Power Association; we’re working with utilities, the Regulatory Commission, The Alaska Energy Authority, the (Attorney General’s) office to carefully review this rather complex proposed rule and the impact it could have on Alaska,” Hartig said. If the State of Alaska is to reach its goal of 50 percent of Railbelt electricity being produced from renewable sources by 2025, which would almost certainly require construction of the $5.2 billion Susitna-Watana dam, Hartig said more focus would have to be put on power generation projects. Rural renewable projects often sponsored by the Alaska Energy Authority’s Renewable Energy Fund would not lower emissions based on the Section 111 proposal because they are not tied into a grid. While the state has put resources towards energy efficiency in urban areas much of it has been for heating efficiency, such as the Alaska Housing Finance Corp. energy rebate and loan programs. “We may think we’re doing all these great things, but they don’t impact greenhouse gas emissions as they’re being regulated under this proposal,” Hartig said. Elwood Brehmer can be reached at [email protected]

Federal judge orders EPA to halt pending Pebble action

The Environmental Protection Agency’s proposal to block Pebble mine is on hold after a Nov. 24 federal court ruling. U.S. Alaska District Court Judge H. Russel Holland ordered a preliminary injunction be put in place on the EPA’s Clean Water Act Section 404(c) process in the Bristol Bay region. The ruling came immediately after oral arguments on a motion for the injunction filed by Pebble Limited Partnership in its lawsuit against the EPA. Pebble claims the 1,000-plus page Bristol Bay Watershed Assessment, the document on which the EPA based the need to take action against mine development, is biased and flawed. Pebble CEO Tom Collier said in a formal statement the ruling is important because it prevents the EPA from continuing its process to ban the mine. If a final agency determination were reached prior to a final ruling in the case, the court could not repeal the agency’s action. “The court today granted our preliminary injunction blocking EPA from taking any further steps in the 404(c) regulator process it has initiated at Pebble before Judge Holland is able to issue a final decision on the merits of our case,” Collier said Nov. 24. “We expect this case may take several months to complete. This means that for the first time EPA’s march to preemptively veto Pebble has been halted.” The EPA has the authority under Section 404(c) of the Clean Water Act to ban specific development projects it deems would cause a significant adverse impact on fish and wildlife because of fill placement. Trout Unlimited Alaska Director Tim Bristol said in a formal statement the ruling does not prevent the EPA from eventually using the science in the assessment. Trout Unlimited has been a lead organization in the fight against Pebble. “This decision is far from damning, but it does nonetheless represent an unfortunate example of Pebble throwing up legal and procedural road blocks against scientific fact and the will of Alaskans, which has consistently spoken out against Pebble mine,” Bristol said. “Moving forward, we hope the legal process is quickly and fully resolved so the people of Bristol Bay can get back to living their lives, running their businesses and making investments with an eye on a fish-filled and mine-free future.” It is the second suit Pebble has brought against the agency heard by Holland. He dismissed a prior case Sept. 26 on several of Pebble’s claims because the EPA has not made a final decision. The State of Alaska intervened on Pebble’s behalf in that case. The agency announced its intent to begin the 404(c) process in late February, about a month after the final Bristol Bay Watershed Assessment was released. It typically takes about a year to complete. EPA Region 10 officials are quick to note the authority has only been used 13 times since the Clean Water Act was enacted in 1972. While the law does not specify when the agency can use its authority, the copper-gold Pebble project would be the first instance in which it was used prior to a formal project plan being released. Pebble’s first lawsuit challenged the EPA’s authority to block a project prior to a wetlands permit application being submitted to the U.S. Army Corps of Engineers, which evaluates such applications. The EPA has ultimate say, however, and can veto a project even if the Corps approves the application. Holland ruled that Pebble attorneys raised “serious questions” as to whether working groups that contributed to the watershed assessment document were subject to the Federal Advisory Committee Act, which attempts to ensure the advice agencies receive from such groups is objective and the process is public. Pebble contends emails sent as the assessment was formed from 2011-2014 between EPA Region 10 staff and mine opposition groups including Trout Unlimited Alaska and the United Tribes of Bristol Bay prove the agency had a predetermined agenda to block the mine. The EPA Inspector General’s Office initiated a review of the Bristol Bay Watershed Assessment earlier this year. That review is ongoing. Pebble attorney Roger Yoerges argued anti-mine groups and the agency worked together to form the assessment. “The EPA specifically reached out to groups who it knew what their opinion was,” Yoerges said. The agency was seeking advice to advance a common agenda, he said. Department of Justice civil division attorney Brad Rosenberg for the EPA said the agency had an “open door” policy to groups on both sides of the issue and did not shun Pebble while it developed the assessment, as the mine developers claim. “The fact that EPA was receptive to the belief of multiple environmental groups should not be a surprise to anyone,” Rosenberg said. Pebble’s Collier said after the ruling that the company’s accusation that the EPA colluded with environmental groups is based on documents disclosed in Freedom of Information Act requests. “The documents we have been able to review thus far disclose more than 500 contacts between EPA and activists,” he said. “We fully expect that once we have access to all documents that there may be many times that number.” Holland also said Pebble is likely to suffer irreparable harm if it is not allowed to litigate the case because, “The 404(c) action underway now could result in ‘no action,’ but it isn’t headed that way,” Holland said in preparation to issue his ruling. He ruled against Pebble’s claims that it faced economic hardship as a result of the EPA’s actions. The preliminary injunction would only lead to a temporary delay in the agency’s actions at this point, he said, as public testimony on the Pebble 404(c) process has closed. After issuing his ruling, Holland ordered Pebble to file an amended complaint. He called its original 138-page complaint an “outrageous violation” of court procedure guidelines. Whether the EPA would suspend its motion to dismiss and file a second dismissal motion based on a revised complaint, Holland asked the parties to meet and agree on a procedural path forward by Dec. 2. Elwood Brehmer can be reached at [email protected]

Refurbished Port of Anchorage cost estimated at $485M

It will likely cost nearly another half a billion dollars to upgrade the Port of Anchorage according to the project managers. The Anchorage Port Modernization Project team revealed its concept design selection to Anchorage Assembly members at a Nov. 21 work session. “This is an out-the-door cost; it’s everything,” CH2M Hill project lead Lon Elledge told the Assembly. Selected by Mayor Dan Sullivan and the Assembly last spring, engineering and consulting giant CH2M Hill is the latest management firm for the port construction project. The U.S. Maritime Administration, or MARAD, led the previous iteration, the Port of Anchorage Intermodal Expansion Project, for nine years. The municipality cut ties with MARAD in 2012 after major construction damage was discovered. No significant work has been done to Alaska’s largest marine hub since 2010.  The group of CH2M Hill project and port leaders said the concept design was selected unanimously — one of four that came out of a weeklong design charette with stakeholders held in August. Done to high-level, 15 percent completion, the project team has a 60 percent confidence that the overall cost will come in under $461 million and is completely confident it can be done for less than $628 million, Elledge said. The cost estimates are based on construction beginning in 2016. With full funding it would be finished in 2022, he said, nearly 20 years after work began. Port Engineer Todd Cowles said the main goal of the new project is simple. “We’re focusing on our existing business and expansion of that business,” Cowles said. At more than 50 years old, the steel piles that support the dock structures are badly corroded. The port spends more than $1 million per year maintaining them. The latest design uses traditional pile-supported docks and eliminates the sheet pile used in the earlier design. At $485 million, the municipality would need to secure an additional $355 million; it has about $130 million remaining from prior funding. Since 2002, nearly $439 million of municipal, state and federal money has gone towards Port of Anchorage construction and a little more than $300 million of that has been spent. The State of Alaska contributed $220 million in bonds and direct appropriations through 2012. Sullivan said in an interview the state would be the focal point of the municipality’s hunt for additional funding, but also said federal transportation loans and the Defense Department could be other options. The Port of Anchorage is listed as a strategic port by the Department of Defense, a factor that has played into some design considerations. He noted that the port benefits all of Alaska — roughly 85 percent of goods to the state enter through the Port of Anchorage — and that the municipality has already financed $80 million of work. As oil prices fall and the state budget situation worsens, Sullivan said he is aware large direct appropriations will be hard to come by. “Remember, the state and the municipality still have AAA bond ratings,” he said. Incoming Gov. Bill Walker has said repeatedly he would focus on finishing important infrastructure projects across the state rather than starting new ones. If there is one that needs to be finished, it’s the Port of Anchorage. All of the designs remove nearly half of the 35-acre North Extension backlands created during construction of the earlier, discontinued project. Cutting back the filled area will allow for more direct current flow past the existing and future port terminals and subsequently improve scouring, which would reduce some of the need for dredging. The U.S. Army Corps of Engineers spends up to $10 million per year to dredge the area around the Port of Anchorage. After cutting the North Extension, Phase 1 of the project entails demolishing the port administration building, which currently sits near the water and the main terminals, and building a new one near the security office. It also includes construction of a new point of loading, or POL, dock at the southern end of the port near the cement area. Phase 2 would involve filling a small area behind Terminal 1 and moving Terminal 1 out to where a depth of 45 feet can be achieved. The current dock is at roughly 35 feet. During phases three through five terminals two and three would be demolished and subsequently pushed out 100 feet or more to be in line with Terminal 1. The port’s main tenants, Totem Ocean Trailer Express and Horizon Lines, would be moved just once under the concept, a big advantage to it, the team members said. “(The concept) gets a thumbs up from us,” TOTE Alaska Director George Lowery said. In the final phase, existing POL 2 would be pushed out to be in congruence with the other terminals. When CH2M Hill was selected as project manager Sullivan said the company would not be involved in new designs. CH2M Hill, which conducted the study that found the sheet pile design unsuitable for the port and led to lawsuits against former project players, will lead design to the 35 percent level. That work should be done by May 2015. From there a design-build team will be secured over the summer and the final design elements will be developed. CH2M Hill will not be the designer of record, Sullivan said. Environmental permits from the previous project will have expired by the time construction starts and will have to be secured as well. Elwood Brehmer can be reached at [email protected]

Caelus' Nuna plan to advance with lower royalty rates

Caelus Energy’s Nuna development can move forward with lower royalties on production. Alaska Department of Natural Resources Commissioner Joe Balash approved a 5 percent royalty rate for five Nuna leases Oct. 29. The 5 percent rate will remain until Caelus grosses $1.25 billion from production at Nuna, the company’s projected investment cost, according to the royalty modification application. Nuna is on an onshore Torok sand formation wholly owned by Caelus. The independent also is a 70 percent owner and operator in the nearby Oooguruk offshore island development. Once payout is reached, the original terms will be put back in place. The original royalty terms on four of the leases call for a 30 percent net profit share and a 12.5 percent royalty. The remaining seven had a 16.7 percent royalty rate. Caelus Alaska Senior Vice President Pat Foley said Nov. 20 that while there could be up to 100 million barrels of oil in Nuna, it would be a challenge to get it out of the ground. “The question on Torok is what is the recoverable portion,” Foley said. DNR justified the modification because Nuna production should provide the state with $1.4 billion in overall net present value. Caelus agreed to purchase the Oooguruk leases from Pioneer Energy Resources in Oct. 2013. The $550 million sale was finalized in April of this year. It applied for the royalty modification July 1. Caelus claims the modification is necessary to make recovering the oil economically feasible. The company told DNR it would not advance Nuna without the royalty adjustment, according to the approval document. Caelus had applied for modifications to 11 leases, but because only five are anticipated to be produced, they are the five approved for royalty reduction, DNR states. Foley said the company is working on a “super quick” timeline to develop Nuna. Gravel will be laid this winter and two large 3D seismic acquisition programs are expected as well. First oil is tentatively scheduled for fall 2016, he said. DNR is requiring Caelus to invest at least $260 million in Nuna facilities by March 31, 2017, as a major term of the royalty modification. The department set the same deadline for initial production or the modification will be rescinded, among other terms. Nuna production facilities will be installed next winter and a total of 30 wells will be drilled — half production and half injection. All of Caelus’ wells are fracked. “We are the leading fracking company on the Slope right now,” Foley said. The company is working to find the “sweet spot,” he said, when it comes to how much sand should be injected into fracked wells on the Slope. Caelus is looking to expand the Oooguruk island by about 30 percent as well, he said. Growing the gravel island should allow for 12 new well bays to reach additional resources, Foley said. Between Nuna and Oooguruk, the company has a $500 million-plus capital budget for Alaska in 2015, he said. Permits to expand Oooguruk have been secured from the state and North Slope Borough and discussion are ongoing with federal agencies, according to Foley. Caelus was the largest acreage bidder on state North Slope leases, he said. Winning bids were announced Nov. 19 and the company secured 126 tracts totaling 325,000 acres. Its total bid was about $15 million. “One thing about Caelus is we’re not going to let the grass grow under our feet; pace is everything,” Foley said. “We’re not going to be careless but we’re going to move as fast as we can.” Elwood Brehmer can be reached at [email protected]

ConocoPhillips targeting 62,000 new barrels by 2017

ConocoPhillips’ North Slope work could add up to 62,000 barrels of oil per day to its production by late 2017, according to Alaska President Trond-Erik Johansen. The production would come from four projects on the western Slope, where ConocoPhillips is the primary operator. Early work to get to the reserves pushed the company’s capital investment on the North Slope to more than $1.6 billion this year, Johansen said. That’s up from just more than $1 billion in 2013. “This year we are going to spend about twice the amount we have done on average (on the Slope) since 2008,” he said to Resource Development Council for Alaska conference attendees Nov. 19. The developments will require about 1,450 construction jobs as well, he noted. ConocoPhillips’ biggest project in terms of projected production is its Greater Moose’s Tooth-1 in the National Petroleum Reserve-Alaska, at about 30,000 barrels per day of peak oil with initial production by late 2017. Johansen said the company is doing detailed engineering work on the 8.6-mile gravel road needed to get to the pad site. The Bureau of Land Management issued a final supplemental environmental impact statement for the road Oct. 29. Wetlands permits are being pursued through the U.S. Army Corps of Engineers and Johansen said he hopes BLM will sanction the project so construction can begin by early February at the latest. “If it takes longer this project will be delayed a year because of the ice road seasons,” he said. GMT-1 will cost about $900 million to fully develop, according to Johansen. The company’s $1 billion CD-5 development is on its way to first oil a year from now. Johansen said production should peak at 16,000 barrels per day sometime in 2016. “CD-5 is going to be the first element in the fight against (production) decline,” he said. A six-mile road to the drill site and the gravel pad have been completed and work on a 1,400-foot bridge over the Nigliq Channel of the Colville River is underway. Johansen said the bridge sections are being skidded out on rails to the nine supporting piers rather than being put in place with a crane to maximize safety and minimize environmental impact. Installation of a pipeline, power and production facilities along with drilling activity are all on tap for the coming year, he said. Smaller developments, Shark Tooth-1 and 1H NEWS (Northeast West Sak), in the Kuparuk Field will add about 8,000 barrels per day each, he said. ConocoPhillips is about a 55 percent working interest owner in Kuparuk. Shark Tooth-1 is a new drill site on the southern tip of Kuparuk. The target there is thin sands on the edge of the field, Johansen said, that were previously undiscovered. With $500 million of total investment, first oil should come in late 2015 from Shark Tooth-1. A challenging viscous oil development is the 1H NEWS that will require some ingenuity. “We are going after it with some very smart but very expensive technology,” Johansen said. The plan is to drill five horizontal production wells and 14 vertical injection wells. The injection wells will have chokes on them to regulate water flow to optimize specific areas of production, he said. Funding approval for 1H NEWS is expected early next year with first oil in early 2017. The larger projects are on top of increased drilling activity throughout Kuparuk with new rigs. Since mid-2013 ConocoPhillips has added two Nabors drill rigs to the field and increased production through workovers and new wells. “Through September we added 8,000 barrels per day just on this rig program from these two rigs,” Johansen said. “That was just through September; I think the latest number I saw was closer to 9,000 barrels a day now.” Johansen also announced Nov. 19 that ConocoPhillips agreed to add another Nabors rig to the field. In July, the company announced a contract with Doyon Drilling to build a new rig for the field. Each new drill rig requires a direct and secondary workforce of about 100 people. The added drilling and subsequent production has helped slowed Kuparuk’s annual production decline from about 7 percent in to 1 percent over the last two years, Johansen said. “Stop the decline; that’s what it’s all about isn’t it?” he said. Elwood Brehmer can be reached at [email protected]

Hearing set in state lawsuit seeking new ANWR exploration

The State of Alaska will have its day in court to push for oil and gas exploration in the Arctic National Wildlife Refuge. Alaska U.S. District Court Judge Sharon Gleason granted a motion for oral argument Nov. 21 on the state’s motion for summary judgment in its case lawsuit to force the Interior Department to approve a state exploration plan for ANWR. The hearing will be held Jan. 20 at the federal courthouse in Anchorage. U.S. Fish and Wildlife Service Director Daniel Ashe denied the exploration proposal, submitted in July 2013, in September of that year. His decision was based on a 2001 Interior Department solicitor general opinion that the department’s authority to permit activity in the refuge expired in 1987 when a report on previous 2-D seismic exploration of ANWR’s coastal plain was completed. The state is proposing a higher quality, 3-D seismic survey and has said it would put $50 million towards the effort. If results from a first year of work were encouraging, the state would seek partners for a second year. Modern seismic imaging can greatly increase the success rate of subsequent exploratory drilling. Any drilling program would still have to be approved by Congress. The state’s case is centered on language in the 1980 Alaska National Interest Lands Conservation Act. ANILCA designated most of the 19.2 million-acre refuge as wilderness, except for the 1.5 million acres of coastal plain known as the 1002 area. The Interior Department has argued that Section 1002 of ANILCA, which lays out oil and gas activity guidelines in the refuge, is silent on when its authority to allow exploration expires. According to the State of Alaska, the wording is clear that the Interior secretary “shall,” as the law states, approve a plan within 120 days of submittal if it meets environmental guidelines. The only timeline restriction in ANILCA was a two-year moratorium on exploration that began immediately after it was passed, the state contends. In its reply to Interior’s opposition to summary judgment filed Nov. 11, the state says the department is wrong in its assertion that ANILCA is ambiguous regarding a sunset provision because it ignores parts of Section 1002. The Interior Department claimed in its Oct. 14 opposition to summary judgment motion that Congress “implicitly left a gap for the agency to fill” in the wording of ANILCA. Interior’s interpretation of Section 1002 is that it cannot authorize any further exploratory activity after the 1987 report to Congress was submitted. “On its face, ANILCA is silent as to the deadline by which exploration plans must be submitted to the (Interior) secretary,” the department’s motion states. The Alaska Native Gwich’in Steering Committee, Resisting Environmental Destruction on Indigenous Lands, Alaska Wilderness League, Center for Biological Diversity, Sierra Club and other environmental groups have joined the Interior Department as intervenor defendants in the case. Elwood Brehmer can be reached at [email protected]

Hilcorp buys Point Mac LNG plant

Hilcorp Energy has agreed to purchase the Southcentral liquefied natural gas plant that supplies Fairbanks Natural Gas. Fairbanks Natural Gas President and CEO Dan Britton said the prospect of the sale was spawned from discussions between the companies on how longer-term gas supplies could be secured. Titan Alaska LNG, a partner company to Fairbanks Natural Gas under Pentex Natural Gas Co., operates the Point MacKenzie LNG plant. Britton is also president of Titan. There is currently a gas contract in place from Hilcorp through 2018 to supply the plant. Hilcorp Alaska Vice President Kurt Gibson said Nov. 21 that the sale agreements were signed “several days ago.” The sale is tentative pending approval from the Regulatory Commission of Alaska. Hilcorp spokeswoman Lori Nelson said acquisition of the plant would mark the company’s first foray into LNG. “The Titan plant basically represents an opportunity for us to expand within the state to Fairbanks where less expensive energy is certainly something they are looking for and we have the opportunity to provide,” Nelson said. Financial terms of the sale were not disclosed. The plant will be operated by Hilcorp’s subsidiary Harvest Alaska because it is a midstream asset. Britton said Hilcorp has the resources and the will to expand LNG processing, another reason for the sale. “We were having ongoing discussions around expansion of the facility and how we might facilitate that,” he said. “Those discussions led to the transaction that we have today.” Expansion plans won’t be formalized until the sale is approved, according to Nelson. She said Hilcorp is working to secure equipment necessary to grow the plant. Titan’s LNG trailers and two LNG-powered trucks are included in the sale, Britton said. The company’s also put in place a 10-year LNG supply agreement for up to the equivalent of 0.95 billion cubic feet, or bcf, of gas annually, which covers what the utility’s current customer base demands, according to Britton. The plant has the peak production capacity to process slightly more than 1 bcf of gas per year. Fairbanks Natural Gas has about 1,100 mixed residential and commercial customers in the city’s core. It is in the midst of a multi-year expansion to its gas distribution network. The first phase of distribution construction was financed by the Alaska Industrial Development and Export Authority as part of the state-sponsored Interior Energy Project — a plan to truck North Slope LNG south to the Interior by late 2016. Gibson said the 10-year supply agreement is essential because the Point MacKenzie plant is the only option for getting gas to the Interior now. “For now, (Fairbanks Natural Gas) needs to know they’ve got a secure supply and turning loose of the plant from their perspective, I think, was conditioned on making sure that they have a long-terms supply of natural gas,” Gibson said. The producer has recently signed five-year supply contracts with larger Southcentral utilities. An integral part of the plan, Britton said his company is still committed to the Interior Energy Project. “(The Interior Energy Project) has challenges that the parties are all trying to overcome,” he said. “For Fairbanks Natural Gas, what we want is LNG available for expansion. We want that available in the most secure and cost effective manner as we can and this transaction with Harvest Alaska I think opens up an alternative opportunity.” Hilcorp has discussed its plans with AIDEA and is not looking to compete with the Interior Energy Project, Gibson said. No decisions have been made as to what will happen to Titan, but given the current situation the company “essentially goes away,” according to Britton. Elwood Brehmer can be reached at [email protected]

LNG Project team ready to work with Walker

It’s full steam ahead on the Alaska LNG Project as the state prepares for a change in leadership at the capital. ConocoPhillips Project Manager Mike Britton said more than 255 people participated in more than $30 million worth of fieldwork on the project during the 2014 season. There are about 130 people working at offices in Anchorage, Houston and Calgary, Alberta, on the plan to export liquefied North Slope gas. Britton is stationed in the Houston office. “This is a marathon, not a 100-yard dash,” he said. The Alaska LNG consortium filed for its export permit with the U.S. Department of Energy in July. It filed its first application with the Federal Energy Regulatory Commission to begin the pre-filing process in early September. “The document filing with FERC will be ongoing for the next three years,” Britton said in a speech Nov. 18 before a gathering of the Export Council of Alaska and World Trade Center Anchorage members. The group also purchased about 300 acres over the summer on the Kenai Peninsula for the possible LNG plant site. In the near term, the pre-front end engineering and design, or pre-FEED, work will continue for at least another year and a half. This stage of the project will cost about $400 million to $500 million. During his unsuccessful campaign for reelection, Gov. Sean Parnell warned that opponent Bill Walker’s skepticism of the deal Parnell championed could delay or even halt the effort. Walker, who has advocated LNG exports for decades in various roles, told the Journal in October that he is pleased with what has been done, but that the confidentiality of the agreements concerns him. Walker also said he is skeptical of ExxonMobil’s lead role in the project, a sentiment based on previous dealings with the company. Britton made note of the fact that all of the FERC filings will be available for public review on the project’s website. World Trade Center Anchorage Executive Director Greg Wolf said he does not want to see the momentum lost. “We’re hopeful that the new governor will recognize that we truly have made historic progress on the Alaska LNG project,” Wolf said. The Alaska LNG team will have to work with multiple administrations through the development of the project and it is prepared to bring Walker and his team up to speed, Britton said. He also said confidentiality agreements are being signed by the involved parties so key project information can be transferred to the Alaska Gasline Development Corp. if the large export plan falls apart. AGDC could then use what has been done on the Alaska LNG Project to further its state-sponsored Alaska Stand Alone Pipeline, or ASAP, to provide gas to Alaskans. Britton noted that this project is the first one that all three major North Slope producers have bought into. Along with BP, ExxonMobil and ConocoPhillips, TransCanada, a Calgary-based pipeline company, would share ownership of the North Slope processing facility and the 800-mile pipeline to Nikiski. The State of Alaska would own 25 percent of the LNG plant at Nikiski through the Alaska Gasline Development Corp. and the producers would share in the remainder of the plant. The entire project is estimated to cost between $45 billion and $65 billion. The state has an option to purchase 40 percent of TransCanada’s interest in the pipeline, but it must do so by 2016, before construction. On the current timeline first gas is expected sometime in 2024. Britton said the group is continually working to drive down the cost of the gas supply. Most mega LNG projects around the world to not require the major pipeline that this one does, which adds billions of dollars to the project. “We looked at the economics, and whilst they’re not robust, if we’re able to control cost and reduce risk they’re in range of being acceptable,” he said. The large project currently has plans for five off-take points, the exact locations of which need to be worked out with the state, Britton said. Walker has said he would kill the ASAP work to put limited state resources on one project. AGDC received $355 million for the pipeline projects in the last fiscal year. Britton said the Alaska LNG group is largely indifferent to what happens with the ASAP project, but understands the state’s position and will support it as a fallback measure. Elwood Brehmer can be reached at [email protected]

DOD spending down, Corps finds other work

Military construction activity continues to decline across Alaska, but work with other federal agencies should keep government contractors busy. Overall, the U.S. Army Corps of Engineers expects to have $410 million worth of work available on more than 400 projects in the state during the federal fiscal year 2015, which runs from Oct. 1 to Sept. 30, according to Alaska Contracting Division Chief Chris Tew. That is about flat compared to the $416 million spent in fiscal year 2014. Not long ago that spending would likely have been driven by construction at military installations across the state; that’s not the case anymore. Tew said the Corps of Engineers has $144 million worth of military construction lined up on 15 projects, a decrease of 11 percent from the $162 million spent in the last fiscal year. Much of that work was done at Fort Wainwright. As recently as 2012, the Corps’ military construction budget was nearly $270 million. Tew said the decline in Defense Department work has been offset by work other federal agencies do not have the capacity to do on there own, such as the Federal Aviation Administration, the Bureau of Land Management and the National Oceanic and Atmospheric Administration. While much of the decline can be attributed to an overall directive to trim Defense Department spending, some of it is also a result of simply less needs at Alaska bases. “We sort of worked ourselves out of a lot of mission,” Tew said. At Joint Base Elmendorf-Richardson, the sole construction project is about $2 million of work on an access gate, said Al Lucht, with the Corps of Engineers 673rd Civil Engineer Group. Of $300 million appropriated for air base maintenance nationwide, Lucht said Elmendorf Air Force Base received about $20 million, and about half of that will likely go to paving the airfield and work on hangar doors. After an explosion of military investment that started in the early 2000s, the annual dollar figures are returning to the historical workload, Tew said. He added that he doesn’t see the contraction changing in the near term. The contracts with other agencies also tend to be smaller annual appropriations as opposed to the large, multi-year contracts available through DOD work, he said, which can present challenges but are much better than no work at all. “We’re in a lot better place than we thought we’d be in a year ago,” Tew told the audience at the Associated General Contractors of Alaska conference Nov. 13. Work often comes up after initial projections are made as well. He said the Corps of Engineers led about $75 million more work than it first contracted for in 2014. “There’s a lot more volatility within the Defense Department and federal government programs and projects than there previously was,” he said. At $130 million, environmental work is more than a third of the total fiscal 2015 budget for Alaska and makes up about half of the overall projects. Tew said the Alaska Division continually wins Army and DOD awards for its environmental program. He also said work in some of the state’s most remote communities needs to be coordinated with other projects to make them viable. “It’s just very cost prohibitive to make investments in some of these communities unless you try to group them together and get all the federal agencies to cooperate,” he said. The Corps of Engineers manages about $15 million of dredging and maintenance work annually across Alaska. Roughly two-thirds of that is at the Port of Anchorage. Corps of Engineers Alaska Construction and Operations Division Chief Pat Coullahan said the Municipality of Anchorage’s construction project at the port will require additional dredging in coming years. He also said the Corps will be announcing about 40 “one-off” dredging projects at ports and harbors across the state that typically don’t require maintenance, largely a result of changing weather patterns. When the Air Force announced Eielson Air Force Base as it preferred location for two Pacific squadrons of  F-35 fighters in August, Sen. Mark Begich said upwards of $170 million of construction could be expected at the base in preparation for the arrival of the 48 fighters in 2019. Coullahan said the beginning of that work won’t be seen for a year or two. “(In 2016 and 2017) some of the design work will be starting on simulators and other support facilities associated with the proposed F-35 bed down,” he said. Elwood Brehmer can be reached at [email protected]

Rare cargo options offered at Stevens Airport

Oh, the possibilities. Thanks to a little two-paragraph amendment by the late Sen. Ted Stevens to the 2004 Century of Aviation Reauthorization Act, the airport now named after the senator is open to more business opportunities than virtually any other hub on Earth. What can be done at Ted Stevens Anchorage International Airport would be cabotage other places — a federal crime. Airport leadership prefers to describe it differently. “What we’re doing is trying to find ways to contribute to the efficiency of the overall global supply, specifically the supply chain that connects Asia and North America,” Anchorage Airport Manager John Parrott said. A U.S. Department of Transportation exemption for Alaska in the Federal Aviation Administration authorization passed in 2004 allows cargo landed in the state on its way to and from the Lower 48 to be shuffled among planes and carriers at that time without being subject to federal regulations. It is still considered to be on its international journey. “Nowhere else in the world, in a significant country, is a foreign carrier allowed to pick up cargo within a country, take it to another place in that country and offload it,” he said. While the exemption must be renewed every two years, it’s understood that it won’t be vacated for the foreseeable future. “The U.S. Department of Transportation recognizes that Alaska is part of the United States, but it is so different geographically that it can in some cases be treated as a separate country,” Parrott said. The options are also available at Fairbanks International Airport. However, being the much larger of the two, Anchorage attracts the cargo flights. Ask Parrott to describe the cargo transfer options only if time is abundant. A simple question can spur an hour-long onslaught of information that is a history, economics and logistics lesson wrapped in one. A white board is helpful. He is eager to market his airport and its potential. Parrott begins his lesson in the early 1970s, when international passenger traffic was king in Anchorage. Before the Soviet Union opened its airspace, planes flying between Europe and Asia made a technical stop in Anchorage to refuel while on the circumpolar route. “I skipped the part where the earth cooled and dinosaurs roamed,” he quipped. As Boeing’s 747 became the de facto choice for trans-ocean travel later in the decade, it was believed the stop in Anchorage would become obsolete, Parrott said, but that didn’t happen. Rather, the passenger business in Anchorage collapsed with the Berlin Wall and the opening of Russia’s skies.  Fortuitously, Asia’s manufacturing industry and FedEx were growing rapidly at about the same time and Anchorage International Airport quickly transitioned from a passenger stop to one of the world’s busiest cargo hubs — a title it retains today. Anchorage was the fifth-busiest cargo airport in the world over the last year, according to the Airports Council International, with nearly 2.5 million metric tons of freight landing at the airport. Domestically, it was second behind Memphis International, FedEx’s homeport. Cargo vs. fuel The cargo business is a result of basic economics. Even with most major cargo airlines flying the latest and long range capable 747-8s, it makes economic sense for the jumbo jets to carry more cargo and less fuel — thus making a technical stop in Anchorage — on their way from Asia to North America, rather than sacrifice carrying capacity to fly direct. Parrott said the latest 747s can make a trans-Pacific flight if about 100,000 pounds of cargo capacity is sacrificed. “At a dollar a pound, that’s $100,000 for stopping here” per flight, he said. Extrapolated out to multiple flights per day it can man hundreds of millions of dollars per year for some of the major carriers. While the stop isn’t free, the roughly $10,000 in landing fees and extra crew costs still easily pencil out, according to Parrott. If they didn’t, one wouldn’t see a mix of Cathay Pacific, Eva Air, Korean Air, China Airlines, FedEx and UPS cargo planes among others in Anchorage at any given time. It’s here where the cargo transfer possibilities begin to take off. Almost all of the dedicated cargo traffic headed to the Lower 48 through Anchorage is destined for another major cargo hub, likely Chicago, New York City or Los Angeles. From there, the goods are sent out by land in a web of distribution networks. As Parrott put it: “Wouldn’t it be cool if we could have (goods) land somewhere near their final destination to start with rather than going to Chicago, then getting on a train or truck and then getting on a smaller vehicle? The fewer steps you have, the less handling you have, the less chance for breakage, pilferage, shrinkage and time, if you’re paying for air cargo time, is probably a part of that equation.” The U.S. Department of Transportation first expanded cargo transfer rights at then-Anchorage International Airport to on line transfers between flights by domestic and foreign carriers in 1996. It also permitted commingling of domestic-bound cargo with that ultimately bound for elsewhere on a single flight. Last, it allowed for change of gauge, or starburst, movement — the transfer of cargo from one plane to another with the same flight number. The Stevens Amendment liberalized those allowances even further. Now, domestic freight forwarders can purchase space on flights and act as the domestic carrier because they “own” the cargo. It can all be done without prior approval at any time. “The ultimate in cargo transfer we talk to folks is: ‘What if you fly, even on a small basis, you fly a 747 to Alaska and you have three (Boeing) 767s and you load up your 767s with the cargo and you fly one to Chicago, one to Atlanta and one to New York?’” Parrott said. “The 767s could be foreign flagged and never go back to their home country. They could spend their entire lives here until they were worn out doing nothing but connecting for a foreign air carrier in the Lower 48.” Such a starburst operation would likely require the carrier to have an office in Anchorage and foreign aircraft certification, he said, but little more. On its face, the logistical freedoms should encourage shippers to take advantage of the efficiencies that can be gained when they stop in Alaska and encourage those who aren’t stopping here to try to do so. Rarely is something that simple, and this case is not an exception. Making the sale Parrott said when the airport’s marketing team — himself and operations manager Trudy Wassel — explain to carriers what can be done in Alaska, they are met with consistent skepticism about the legality of the opportunities. “One of our challenges is the uniqueness of this and the lack of any approval required is such a strange business concept that it’s difficult for the carriers to believe at first,” he said. “They look at you like you have a third eyeball.” Carriers have come close to starburst operations, but no one has taken the leap. The key is building up a corporate memory about the cargo transfer options by continuing to drive home the message, Parrott believes. Other challenges include a lack of trust between competitors. Getting two carriers to agree to meet in Anchorage to swap cargo is inherently difficult. “Both airlines when you talk to them will tell you the idea’s great but ‘Those guys are never on time. We’re always on time, but those other guys are never on time,’” Parrott said. In the past, Northwest Airlines partnered with Korea Air when the latter could not fly in China to transfer cargo in Anchorage. The pair would swap cargo and send planes off to Chicago and Atlanta several days per week, he said. When Delta Air Lines absorbed Northwest, that went away. Japan Airlines also mingled cargo in Anchorage on flights coming from different cities inside its home country until it got out of the cargo business, so it has been done. Going forward, airport officials are partnering with the Anchorage Economic Development Corp. on ways to attract business to Alaska that could benefit from the Foreign Trade Zone at the international airports. AEDC President and CEO Bill Popp said his group managed a study that determined four industries — aerospace-aviation, electronics, auto parts and pharmaceuticals — could find Alaska’s opportunities advantageous. A business in one of these industries could fly its product to Alaska from the Lower 48 or elsewhere, conduct simple value-added manufacturing at a facility at the airport and then fly it directly to its destination, thereby cutting out a transportation leg. Popp said AEDC and the airport team are planning a three- to four-year effort to “mitigate the unknown” for prospective businesses. “Right now, we face what seems to be a first mover disadvantage; nobody wants to be the first to try this,” UAA Logistics Professor Darren Prokop said. If the numbers pencil out for someone, Popp said even one new business could be a big deal to a small market like Anchorage. “Twenty to 30 jobs relating to this could be a big deal. If that’s what the number is those are good paying jobs,” he said. “They have the economic multiplier that we seek in the job attractor work that we do.” Elwood Brehmer can be reached at [email protected]

AIDEA sells interest in jack-up rig for $25.6 million

The Alaska Industrial Development and Export Authority sold its stake in Kenai Offshore Ventures for $25.6 million and the Endeavour jack-up rig is on its way out of Cook Inlet, the authority announced Nov. 14. Ezion Holdings Ltd. and its subsidiary Teras Investments approached AIDEA to purchase its share of Kenai Offshore Ventures after the joint-venture company was unable to secure long-term work for the Endeavour in the Inlet. “The Endeavour helped spur a renaissance of exploration in Cook Inlet, and was key in the discovery of a major oil and gas find in the Cosmopolitan unit. The rig’s presence in Alaska promoted significant job creation and economic activity in Cook Inlet,” AIDEA Executive Director Ted Leonard said in a release. The sale price includes the original investment and a remaining dividend due to the authority, according to spokesman Karsten Rodvik. With just more than $4 million of dividends in 2013 and 2014, AIDEA will clear about $5 million when the sale closes on Jan. 31, 2015, Rodvik wrote in an email. AIDEA bought into Kenai Offshore Ventures as a preferred investor for $23.6 million in 2011. The state development authority is a self-supporting enterprise that pays an annual dividend to the State of Alaska. The Endeavour will head to South Africa on a heavy lift vessel pending final AIDEA approval, the release states. AIDEA Director of Asset Management Jim Hemsath said the partnership in the Endeavour helped spur another joint financing of a North Slope oil and gas processing facility at the developing Mustang Field, along with being a part of the recent Cook Inlet rejuvenation. He also noted that AIDEA is in discussions about the potential of new oil and gas facilities and bringing a new drill rig to the Inlet. “We remain bullish on Cook Inlet,” Hemsath said. Originally, now-bankrupt Buccaneer Energy Ltd. partnered with AIDEA and Ezion to bring the jack-up rig to Alaska. Buccaneer sold its 50 percent share in Kenai Offshore Ventures to Ezion for $23.9 million in January. At the time Buccaneer said the proceeds form the sale would be used to finance capital expenses and repay debt. Elwood Brehmer can be reached at [email protected]

Port Mac rail extension needs $120M more from state

The state will need to pony up nearly $120 million to finish the Port MacKenzie rail extension to keep business opportunities alive, according to Matanuska-Susitna Borough leaders. The borough will officially request a $119.5 million capital appropriation from the Legislature during the upcoming session. Overall, the 32-mile rail spur from Houston to Port MacKenzie will end up costing $303.5 million, or $31 million more than the $272.5 million price tag once affixed to the project. Borough Manager John Moosey said the cost increase — just more than 11 percent — is due primarily to earlier funding delays. Last legislative session, the Mat-Su Borough got $13 million for the project after asking for $60 million. He noted that the estimate near $300 million is in line with the project’s earliest cost forecasts. Those were paired down to the $272.5 million projection in 2008, a figure borough officials used as late as this past summer. If the project would have been fully funded from the beginning it would have been done in 2013, Moosey said. “When the funding started rolling in we thought the rail would already be completed and traffic would already be on it,” he said in an interview. The funding delays continue to slow the project. Recent estimates of a late 2016 completion have been pushed back a year or more. If the borough gets its ask in the next two sessions the project could be complete by the end of 2017, according to Moosey. Borough spokeswoman Patty Sullivan wrote in an email that a 2.5 percent inflation increase needs to be added to the overall cost every year the project is delayed. The rail line is currently about two-thirds done. The bed needs to be completed on two sections and then the track can be laid, Moosey said. Work also came to a halt in 2012 when a court-ordered stoppage was in place while environmental groups challenged the project. Borough assembly members discussed the importance of collaborating on legislative requests at a joint meeting Nov. 14 with Municipality of Anchorage assembly members. Anchorage leaders are preparing to go on the hunt for at least $300 million once again to improve their port. Members of both groups agreed their respective ports are complimentary to each other in terms of what interests they serve, meaning everyone benefits if each project is funded. “We have to fix what we have first rather than try to put something we don’t have at the head of the game. We’re going to be in for some lean times for state funding,” Anchorage Assemblyman Paul Honeman said. Honeman’s comments largely echoed what Governor-elect Bill Walker said throughout his campaign; that he would focus on completing infrastructure projects rather than starting new work. At the same time, funding for ongoing work will also be at a premium. Walker has talked of aggressively cutting the state budget to reduce projected annual deficits, which could get worse if oil prices continue to decline. Getting the rail done on the borough’s timeline would fit nearly perfectly with a proposal to develop a liquefied natural gas facility at the port. WesPac Midstream LLC, an Irvine, Calif.-based energy infrastructure company, is in negotiations with the borough to develop a $600 million LNG plant at Port MacKenzie. WesPac Senior Vice President Brad Barnds has said the fuel would be sold to in-state markets and it would not initially be used as an export facility. Phase 1 of the LNG project would process about 7.5 billion cubic feet of gas per year, about the same amount Fairbanks-area utilities are expected to demand once distribution infrastructure is built out. The rail extension would allow gas to be put on an Alaska Railroad train — the most efficient overland transportation going — and sent north. If Fairbanks LNG demand is met from the North Slope through the state-sponsored Interior Energy Project, WesPac will continue to develop its plant and sell to other, rural communities, according to the company. The second phase of WesPac’s proposal is for a dedicated LNG export dock once state markets are supplied and the processing facility is expanded after several years, according to Barnds. At a presentation to the Alaska Industrial Development and Export Authority, Barnds said WesPac would be open to helping the Mat-Su Borough finance the rail extension to ensure its completion. Moosey said the borough is focused on state money. “We’ve been saying all along this is not just a Mat-Su Borough project; it benefits the state. If the rail is done and WesPac occurs — what we’re doing is driving down the cost of fuel and energy in Interior Alaska, for our friends in Fairbanks. We’re putting important cargo on the Alaska Railroad and increasing their revenue,” Moosey said. Additionally, he said other opportunities to support resource development in the state, whether it is through exporting ore and coal or importing building materials, require the industrial Port MacKenzie to be open to more than just energy exports. The port would need a second dock if WesPac’s Phase 2 comes to fruition. “The port is not going to be a one trick pony with LNG. We have many other opportunities,” he said. Aside from other business opportunities, Moosey said state and federal money went into the port development and those investments need to be honored by keeping Port MacKenzie open to all possibilities. Elwood Brehmer can be reached at [email protected]

ConocoPhillips contracts with Nabors for new drill rig

ConocoPhillips is adding another drill rig to the North Slope. Alaska President Trond-Erik Johansen said the producer signed a contract with Nabors Alaska Drilling Inc. on Nov. 17 to construct a coiled tubing drilling rig that will be used at the Kuparuk River Field. The Nabors CDR3 rig should be ready to drill in late 2016, according to ConocoPhillips. Coiled tubing drilling is a more effective way to work over old wells and boost production, Johansen said. Spools of tubing are sent down the well and then disperse horizontally in a “spider web,” he said; it’s a way to pull thin layers of oil out of an existing reservoir that would be unreachable with traditional techniques. Johansen made his comments at the Resource Development Council of Alaska annual conference on Nov. 19 in Anchorage. “Doubling our Kuparuk (coiled tubing drilling) capacity will allow us to access more challenged oil and help stem North Slope production decline,” he said in a formal statement. The agreement with Nabors is ConocoPhillips’ second commitment to a new drill rig for the Slope this year. In July, it contracted with Doyon Drilling Inc. to build a rig that is scheduled to begin drilling in early 2016. Each rig requires about 100 direct and indirect workers to support it during operation. Johansen also said the company’s Alaska capital expenditures will total about $1.6 billion in 2014, which continues a general yearly increase since it spent $680 million on projects in 2010. He, and BP Alaska President Janet Weiss attributed increased investment on the Slope to the passage oil tax reform, which was upheld by voters during a statewide August referendum. “I think we are now finally at a place where we are moving forward,” he said. Elwood Brehmer can be reached at [email protected]

ConocoPhillips contracts with Nabors for new rig

ConocoPhillips is adding another drill rig to the North Slope. Alaska President Trond-Erik Johansen said the producer signed a contract with Nabors Alaska Drilling Inc. on Nov. 17 to construct a coiled tubing drilling rig that will be used at the Kuparuk River Field. The Nabors CDR3 rig should be ready to drill in late 2016, according to ConocoPhillips. Coiled tubing drilling is a more effective way to work over old wells and boost production, Johansen said. Spools of tubing are sent down the well and then disperse horizontally in a “spider web,” he said; it’s a way to pull thin layers of oil out of an existing reservoir that would be unreachable with traditional techniques. Johansen made his comments at the Resource Development Council of Alaska annual conference on Nov. 19 in Anchorage. “Doubling our Kuparuk (coiled tubing drilling) capacity will allow us to access more challenged oil and help stem North Slope production decline,” he said in a formal statement. The agreement with Nabors is ConocoPhillips’ second commitment to a new drill rig for the Slope this year. In July, it contracted with Doyon Drilling Inc. to build a rig that is scheduled to begin drilling in early 2016. Each rig requires about 100 direct and indirect workers to support it during operation. Johansen also said the company’s Alaska capital expenditures will total about $1.6 billion in 2014, which continues a general yearly increase since it spent $680 million on projects in 2010. He, and BP Alaska President Janet Weiss attributed increased investment on the Slope to the passage oil tax reform, which was upheld by voters during a statewide August referendum. “I think we are now finally at a place where we are moving forward,” he said. Elwood Brehmer can be reached at [email protected]

AIDEA sells interest in jack-up rig for $25.6 million

The Alaska Industrial Development and Export Authority sold its stake in Kenai Offshore Ventures for $25.6 million and the Endeavour jack-up rig is on its way out of Cook Inlet, the authority announced Nov. 14. Ezion Holdings Ltd. and its subsidiary Teras Investments approached AIDEA to purchase its share of Kenai Offshore Ventures after the joint-venture company was unable to secure long-term work for the Endeavour in the Inlet. “The Endeavour helped spur a renaissance of exploration in Cook Inlet, and was key in the discovery of a major oil and gas find in the Cosmopolitan unit. The rig’s presence in Alaska promoted significant job creation and economic activity in Cook Inlet,” AIDEA Executive Director Ted Leonard said in a release. The sale price includes the original investment and a remaining dividend due to the authority, according to spokesman Karsten Rodvik. With just more than $4 million of dividends in 2013 and 2014, AIDEA will clear about $5 million when the sale closes on Jan. 31, 2015, Rodvik wrote in an email. AIDEA bought into Kenai Offshore Ventures as a preferred investor for $23.6 million in 2011. The state development authority is a self-supporting enterprise that pays an annual dividend to the State of Alaska. The Endeavour will head to South Africa on a heavy lift vessel pending final AIDEA approval, the release states. AIDEA Director of Asset Management Jim Hemsath said the partnership in the Endeavour helped spur another joint financing of a North Slope oil and gas processing facility at the developing Mustang Field, along with being a part of the recent Cook Inlet rejuvenation. He also noted that AIDEA is in discussions about the potential of new oil and gas facilities and bringing a new drill rig to the Inlet. “We remain bullish on Cook Inlet,” Hemsath said. Originally, now-bankrupt Buccaneer Energy Ltd. partnered with AIDEA and Ezion to bring the jack-up rig to Alaska. Buccaneer sold its 50 percent share in Kenai Offshore Ventures to Ezion for $23.9 million in January. At the time Buccaneer said the proceeds form the sale would be used to finance capital expenses and repay debt. Elwood Brehmer can be reached at [email protected]

IEP gas contract, plant cost still uncertain

Crucial elements of the state’s plan to relieve Interior residents of burdensome energy costs are up in the air less than six weeks before everything is supposed to come together. Alaska Industrial Development and Export Authority staff and their Interior Energy Project partners from MWH Global Inc. said at the Nov. 6 AIDEA board meeting that a gas supply contract should be in place by early December. Their goal is to financially close on the project at the Dec. 16 board meeting. “The gas supply agreement is the foundation” of the Interior Energy Project, MWH Chief Corporate Officer Jim Kuiken said. A wholesale contract with BP for North Slope gas offered up by Golden Valley Electric Association, which at one time had hopes of leading the project, will likely be used to supply the Interior Energy Project, or IEP. The term of the contract needs to be extended from 20 years to 30 years to align with the operating agreement for the gas liquefaction plant, Kuiken said. Permission to connect to BP’s supply line also needs to be secured. Several team leaders said the terms have been agreed to in principle but a mid-October meeting with BP to draft the contract amendments was postponed by the producer. Within the last month, AIDEA has shifted from originally seeking its own gas contract to using Golden Valley’s. The gas price remains confidential, but AIDEA has assumed a price of $3.30 per thousand cubic feet, or mcf, in its presentations. Authority board member and former Fairbanks state senator Gary Wilken expressed frustration that the supply agreement hasn’t been nailed down when talks of resolving the issue began in spring. “Here we sit six months later with the same thing. ‘It’s not quite done but it’s going to get done next week; it’s going to get done next week,’” Wilken said. He noted that he did not seek to blame anyone specifically, but that the lack of progress worries him. “From one board member this doesn’t give me any confidence at all in the rest of the project,” he said. “These are the things that keep me up at night.” Wilken has been the most vocal board member when the Interior Energy Project is discussed at the meetings and has regularly expressed his concern over the complex project’s inherent challenges. AIDEA Deputy Director Mark Davis said the state will continue to push for the best possible gas contract. “We haven’t given up our right later on to seek a different term if that’s beneficial to the consumers of this state,” Davis said. The Interior Energy Project is the state-financed plan to cut heating costs in the Fairbanks area by up to 50 percent through trucking LNG from the North Slope. It is thought that if gas can be delivered to homes at a low enough price it will encourage residents and businesses to convert their heating systems from fuel oil to gas and further drive down the price of gas. Since late October, Golden Valley CEO Cory Borgeson and Interior Gas Utility chair Bob Shefchik have predicted the initial gas price will be significantly higher than AIDEA’s goal, at $20 per mcf or higher. AIDEA and MWH have disputed those predictions and said the target of $15 to $18 per mcf is still within reach. One of the major variables to the final cost of gas is the price of the North Slope plant. MWH’s Kuiken said the 6 billion cubic feet per year plant being modeled should come in at less than $235 million, but he doesn’t know by how much. The drivers to the plant cost fall into three categories: risk, engineering and margin, he said. “They’re all interrelated,” he said. “We’ve got to resolve who shares what risk; we’ve got to resolve what level of design is appropriate and then we can talk about what margin goes on that.” When AIDEA awarded it the consulting work, MWH’s original term sheet projected a 9-bcf plant to cost between $165 million and $200 million. The concession agreement between AIDEA and MWH has the latter operating the LNG plant under Northern Lights Energy LLC, a joint venture between MWH and AIDEA. It also allows for a maximum return to Northleaf Capital Partners, the plant’s private investor, of up to 12.5 percent. The cost of trucking the LNG from the Slope has been projected at $5 to $6 per mcf throughout the project. MWH Alaska Regional Manager Chris Brown said current models put trucking costs lower — less than $5 per mcf — based on a couple assumptions. The single biggest assumption is that larger trailers will be used. “If they can transport LNG in 13,500-gallon trailers down the Dalton Highway that has a material impact on cost; it brings it down significantly compared to, say, a 10,000-gallon trailer,” Brown said. Fairbanks Natural Gas President and CEO Dan Britton said the savings could be 20 percent or more simply because of the added volume on each trip. “Your maintenance costs go up a little but you have significant savings,” he said. Fairbanks Natural Gas currently trucks LNG from Point MacKenzie to Fairbanks to feed its small but growing service area in the heart of Fairbanks. AIDEA and Fairbanks Natural Gas are working on a pilot project to determine the feasibility of the larger trailers, which would require added axles and a new design, Brown said. Elwood Brehmer can be reached at [email protected]

DOT hones social media strategy to keep public informed

The art of social media is becoming a science. Engaging with the public through Facebook, Twitter, YouTube and smaller but growing platforms is a daily practice at the Alaska Department of Transportation and Public Facilities. Jeremy Woodrow, a communications officer for department said social media allows DOT to respond to what would otherwise be said or wrote without the department’s knowledge. “It’s important to be on there so we can listen to the conversation,” he said. Woodrow and DOT Public Information Officer Meadow Bailey shared the department’s social media strategy and discussed the intricacies of the realm at the Associated General Contractors of Alaska conference Nov. 12. Harnessing the instant response power of social media can be beneficial in an industry that impacts large segments of the public, such as construction and transportation, as Bailey noted. She said DOT first learned of a recent incident problem on the Glenn Highway via social media posts from affected drivers. Incorrect lane closures near Eagle River caused significant traffic delays during the peak of rush hour. “If we hadn’t seen that it would have been a few more hours before we would have been able to respond,” Bailey said. The department’s communications team typically tries to use social media — Facebook is the most popular in Alaska — to prevent problems by forecasting potential issues to the public. In order to do that successfully, a devoted following must already be in place, Woodrow said. “Part of our strategy is building a followership so when an emergency does happen we already have an audience,” he said. A YouTube video posted by the department of the Keystone Canyon avalanche that closed the Richardson Highway for about a week near Valdez last year has more than 31,000 views now. Woodrow said that video, which can be linked to through Facebook and Twitter, was likely seen 29,000 times in the first week it was up. Facebook is an effective way to keep rural Alaskans updated on department work as well, particularly in areas that are outside of daily or even weekly media coverage, he noted. DOT began using social media four years ago and led development of the state’s social media policy, Bailey said. The Department of Law required a policy be drafted before the state entered the interactive Worldwide Web. The principles in the State of Alaska’s policy could be applied to most any business, she said. Bailey suggested a few things to consider when drafting a social media policy or guidelines: Who will be administrators allowed to post to the site? During what hours will content be posted? How fast will comments be responded to, if at all? Will employees be allowed to access social media at work? How will “what-if” scenarios, such as inappropriate content posted to a site, be handled? At DOT, content is generally discussed among communications officials to eliminate redundant or conflicting information, she said. When wrong information relating to the department is noticed, Bailey said choosing to respond carefully takes advantage of the social media “conversation.” However, site administrators need to always keep in mind the organization they are representing. “We post about the things we know,” as an agency, she said. State employees are required to get a waiver to access social media on their work computers, Woodrow said, but also noted nearly everyone has access via their smart phones, something to consider when implementing a strict policy. DOT does not have a policy regarding employees commenting on department pages, he said, because one hasn’t been necessary yet. “We don’t want to create policies just to create policies,” Woodrow said. Encouraging employees to be active on the sites in some ways allows them to share their insight as subject matter experts. Bailey described many young employees as “digital natives” who have grown up with social media and know how to use it effectively. It also helps keep them engaged with their employer. To that end, Bailey said DOT profiles employees and highlights their work on social media, ways to recognize often difficult and important work in remote locations across Alaska. Woodrow added that things people in a specific job or industry find commonplace might be intriguing and unique to the public and help drive traffic to your site. Dealing with inappropriate or negative content is not something DOT has dealt with often, the pair said, but contacting an individual directly regarding an incident and or blocking them per company policy can resolve problems quickly. Facebook includes software that alerts administrators before a post containing inappropriate language is made public. Advertising on social media provides ways to target a specific audience that other mediums don’t have, Bailey said, for a relatively small cost. Age, gender, special interests, political affiliation and location are just a few of the ways Facebook can narrow a demographic a business wants to reach. Bailey said the most common viewers of DOT’s page are females age 35 to 55. “I’m always amazed and maybe a little frightened about what Facebook claims it can deliver,” Bailey said. Taking advantage of companies and software that analyzes who a message is reaching can keep social media content and effort effective and efficient, Woodrow said. “For us, the analytics help us sell the importance of social media to upper management,” he said. Elwood Brehmer can be reached at [email protected]

Alaska and British Columbia cooperate quietly on transboundary issues

Alaskans concerned with mining in transboundary watersheds often aren’t aware of the cooperation between the state and provincial governments, according to a British Columbia resource official. “I’m not sure if there’s any elected person in the state of Alaska that really knows the extent to which we engage Alaska on northwest (British Columbia) mining projects and that’s on us. We need to do a better job,” British Columbia Minister of Energy and Mines Bill Bennett said. Specifically to the proposed Kerr Sulphurets Mitchell, or KSM, porphyry copper-gold mine near the headwaters of the Unuk River drainage in British Columbia, Bennett said the province has held “dozens and dozens” of meetings with representatives from the Alaska and U.S. governments since 2008. The Unuk River empties into the Pacific between Wrangell and Ketchikan. Kyle Moselle, a large project coordinator for the Alaska Department of Natural Resources said the Large Mine Permitting Team, or LMPT, system used by the state to coordinate the permitting process between agencies for in-state mines provides a “plug and play” model in discussions with Canadian officials about British Columbia mines that could affect transboundary fisheries. Enacting the LMPT system is done by the mine proponent, he said, which also pays for the resources dedicated to the process. A DNR official is devoted to the project as a coordinator between the departments of Environmental Conservation, Fish and Game, Natural Resources and any others that need to be involved. Moselle said the coordinator works to assure processes are followed but not unnecessarily duplicated among departments. “Issues or areas of concern are usually ID’d earlier in the review process and communicated among the agencies and back to the project proponent more effectively,” Moselle said. He made his comments during a presentation at the Alaska Miners Association conference Nov. 6 in Anchorage. Federal and provincial Canadian agencies easily fit in to the system when their environmental assessment process is at hand, he said. Agency representatives form a technical working group that allows the state to address any concerns as the environmental assessment plays out. The DNR coordinator then acts as a liaison to consolidate formal comments from the state working group to British Columbia officials, according to Moselle. It all leads to a “strong working relationship” between the neighboring governments, he said. The Aug. 4 tailings dam failure at the Mount Polley copper mine in British Columbia’s Fraser River drainage has caused the public to make incorrect assumptions about the province’s environmental requirements, Bennett said. “The conclusion, for example, that I’ve read in Alaska media that Canada and (British Columbia) have weak environmental standards and poor processes, and we’re under-resourced in our ministries and so forth, that’s just not right; that’s just not correct,” he said. Such conclusions are the easy answer, according to Bennett. It’s still unclear as to why the earthen dam failed and poured tailings slurry into nearby waters, he said. Bennett suspects there was an engineering mistake in the initial design or construction, or in the subsequent additions to the dam. An independent investigative team has been formed to get to the bottom of the issue. “Mount Polley didn’t happen because we have poor processes in my view,” Bennett said. “This will be determined; if I’m wrong the independent panel will point that out.” British Columbia relies on engineering reports — like all jurisdictions do — to determine if a major infrastructure design like a tailings dam is sound, he said. Ultimately, Bennett said he wants Alaskans to know that the salmon returning to transboundary rivers are as important to British Columbia as they are to the state. “The Alaskan fisherman catch those salmon but they spawn in our rivers,” he said. “Our First Nations, what you call Tribes, depend on those salmon. The last thing in the world we would ever do is put at risk the salmon that swim in (British Columbia) rivers.” KSM Seabridge Gold Inc. Vice President for Environmental Affairs Brent Murphy said the Kerr Sulphurets Mitchell, or KSM, project his company is proposing would be a combined surface-underground mine typical of other porphyry mines in the region. KSM would have an initial mine life of 52 years. While the mine site is 22 miles upstream of the Canada-Alaska border near the Unuk River, the tailings management facility would be 18 miles away in the Bell Irving River drainage. The Bell Irving River feeds the Nass River, which flows south of Alaska and is not a transboundary watershed. Ore from the mine would be sent to the tailings facility via a conveyor and tunnel system and processed there, Murphy said. “All water that comes in contact with the proposed mining operations will be retained by a proposed water storage dam,” he said. After going through a treatment plant the mine water would also go through the 18-mile tunnel to the tailings pond. Murphy said mine dams are being “rightly” scrutinized after the Mount Polley incident and that KSM’s designs have been reviewed by experts from British Columbia, the Canadian government, the State of Alaska and First Nations. “Following the Mount Polley situation, Seabridge, on its own initiative, also committed to establish an independent third-party review panel to actively participate in the future design, construction, operation and maintenance of the dams throughout the life of the KSM project,” Murphy said. Elwood Brehmer can be reached at [email protected]

Hawaii company buys Horizon Alaska operations for $456M

Matson Inc. announced Nov. 11 it has agreed to purchase Horizon Lines Inc. Alaska operations for $456.1 million. Horizon uses three vessels to provide twice-weekly containership service to Anchorage and Kodiak and once-per-week service to Dutch Harbor from Tacoma, Wash. “The acquisition of Horizon’s Alaska operations is a rare opportunity to substantially grow our Jones Act (domestic) business,” Matson President and CEO Matt Cox said in a release. “Horizon’s Alaska business represents a natural geographic extension of our platform as a leader serving our customers in the Pacific.” The Jones Act is a federal law protecting the domestic marine shipping market that requires vessels traveling between U.S. ports to be built in America and crewed by Americans. Matson Chief Financial Officer Joel Wine said in a call with investors that the shipping company is very encouraged by the long-term opportunity of the Alaska business and that 80 percent of the business overlaps with customers Matson has through its customers in Hawaii. “We view this to be a leading Jones Act franchise in an attractive market,” Wine said. Matson executives said to investors they are aware of increased investment in North Slope oil and gas activity resulting from oil tax reform, which ultimately could help their shipping business. “Just like tourism is a long-term (business) driver to always watch in Hawaii, energy investing is a long-term driver to watch in Alaska,” Wine said. The transaction is contingent on Horizon’s sale of its Hawaii operations to The Pasha Group for $141.5 million, according to a joint release. After Horizon’s outstanding debt is paid, the cash acquisition of its outstanding shares is for $69.2 million, or $0.72 per diluted share. Headquartered in Honolulu, Matson is an international shipping and logistics company that also has domestic rail, freight forwarding and warehousing operations. The company had $1.6 billion in revenue in 2013, and its shares rose $2.28 in after hours trading to $31.51. The sale is expected to close sometime in 2015, according to Matson. “This transaction provides value for our shareholders while upholding our financial commitments,” Horizon President and CEO Steve Rubin said in a formal statement. “We wish the Matson team continued success in their new Alaska trade and we look forward to working with them to close the transaction and provide a seamless transition for our customers.” Wine called Horizon’s operations in Alaska “bolt on business” to Matson’s current Pacific business. Late next year Matson will add main engine scrubbers to the three vessels used in Alaska to comply with tightening Emission Control Area standards at a total cost of $18 million to $24 million, Wine said. A reserve steam ship will be deployed to fill in service gaps while the other ships are outfitted with the scrubbers. The work is expected to take about a year. The sale was unanimously approved by both companies’ boards of directors and will require majority approval from Horizon shareholders. Shareholders representing 55 percent of Horizon’s equity have agreed to the sale, according to the joint release. Horizon also announced it will shut down its Puerto Rico operations by the end of the year regardless of whether the sale of its Alaska business is closed. Elwood Brehmer can be reached at [email protected]

Sullivan poised to knock off Begich

A replacement for Alaska’s junior senator seat appears imminent, but neither side was willing to admit it as of the morning following the general election. “I don’t want to jinx it,” Republican candidate Dan Sullivan said as the calendar changed from Nov. 4 to Nov. 5. Sullivan held a remarkably steady lead over incumbent Democrat Sen. Mark Begich all election night. When the first round of precincts reported in shortly after 9 p.m. he had 49.4 percent of the vote to Begich’s 44.4 percent. By the time all precincts were in early Nov. 5, little had changed. Sullivan’s lead had diminished but only slightly, he had 48.7 percent of the votes to 45.1 percent for Begich. Begich was confident at 10 p.m. during a speech to supporters at his election night party at Flattop Pizza in Downtown Anchorage, but there was a tangible uneasiness among the crowd prior to his arrival. “It’s going to be a long night. It might be a long week,” Begich said at the time. “We have seen this play before. I’d just like to win on election night for once,” he said, referencing 2008 when absentee and early votes helped him eek out a victory over the late Republican Sen. Ted Stevens. In that race, Begich trailed by about 3,000 votes on election night and ended up winning by 4,000. Early in the night Begich said that none of the votes from rural Alaska were yet tallied. “Those are our people,” he told his supporters. For Begich to have a shot at a very late comeback he will need immense support from rural Alaskans. He needs to make up an 8,149-vote difference with an estimated 20,000-plus absentee and early ballots left to be counted as of Nov. 5. The state Division of Elections will accept ballots mailed from within the country through Nov. 14 and those coming from outside the U.S. until Nov. 19, meaning the future of the Senate seat could be up in the air for another couple weeks. “Inspired by stories of village elders being lifted onto four wheelers to go vote and Alaskans traveling up and down river to cast their ballots, Alaskans for Begich is anxious for a final count of all of Alaskans’ ballots and respects the procedures, process and timetable of the Alaska Division of Elections,” Begich’s Campaign Manager Susanne Fleek-Green said in an email disbursed the morning of Nov. 5. The division’s target date for certifying the election results is Nov. 28. Outside money poured into the race on both sides and pushed total spending to an Alaska record of nearly $50 million for the Senate seat. Sen. Lisa Murkowski was all smiles at Sullivan’s election party at the Hotel Captain Cook. She talked to his supporters as though he had officially won, despite the fact that Sullivan himself wouldn’t. “Tonight I’m just so pleased that I’m moving forward and I’ve got a friend and a partner like Dan,” Murkowski said. In an interview with the Journal she said attacks on Sullivan during the race, which focused heavily on his Alaska residency, backfired. “(Alaskans) want to know the positives. They can see through the lies and the misperceptions, the deceptions, and they don’t like it,” Murkowski said. “Alaskans are pretty straight-up. If you treat them straight-up, they’re going to be respectful back to you. I think what we saw in this campaign, unfortunately, was a lot of disrespect.” If Sullivan’s lead holds, and even if it doesn’t, the U.S. Senate will have a new, red look when it convenes in January. Republican wins in Colorado, Montana, South Dakota, Iowa, Arkansas, West Virginia and North Carolina give the GOP 52 seats, with Senate races in Louisiana and Virginia still up in the air along with Alaska. Sullivan said that the Republican surge after eight years of a Democrat stronghold on the Senate will allow Congress to make big decisions on the country’s energy future, a topic he campaigned heavily on. He used the phrase “energy superpower” several times in a brief interview with the Journal. Votes to approve the cross-country Keystone XL oil pipeline and open the Arctic National Wildlife Refuge for drilling, topics Senate Majority Leader Harry Reid has avoided, will be top priorities, he said. Being a world leader in energy production is a way to influence foreign policy, according to Sullivan. “The best way to thwart (Russia President Vladimir) Putin and the long game he plays is to become the world’s energy superpower again,” he said. Elwood Brehmer can be reached at [email protected]

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