Tim Bradner

Congress cuts funding for Alaska federal gas coordinator by 75%

The budget for the Alaska federal pipeline coordinator has been reduced by 75 percent to $1 million for federal fiscal year 2012, Larry Persily, director of the office said Jan. 4. The action was taken in the House-Senate budget conference committee. It is an indication that some in Congress doubt a proposed $40 billion-plus Alaska natural gas pipeline will be built anytime soon. Persily said the office has $2.25 million in funds remaining from its fiscal 2011 appropriation, and those funds, along with the $1 million for fiscal 2012, is sufficient to cover the expected workload for the office over the next two to three years. There will have to be some reductions in the 10-person office staff, he said. The federal coordinator’s office was established to oversee federal agencies’ responses to permit applications for the pipeline, which would deliver 4 billion cubic feet a day of gas to Alberta, from where it would be shipped on through other pipelines to the continental U.S. “Whether the federal coordinator’s office has $1 million, $2 million or $3 million, or whether it has eight employees or 10, isn’t going to affect the project. What is going to determine the future of the Alaska gas line is the state’s fiscal system on oil and gas, and the natural gas market,” Persily said. A glut of shale gas in North American markets has dampened prospects for the large Alaska pipeline. In addition, North Slope gas producers are seeking a long-term fiscal agreement with the state of Alaska before committing to ship gas through a pipeline. Persily said his plan assumes TransCanada Corp. and ExxonMobil Corp. will proceed with the filing of an application with the U.S. Federal Energy Regulatory Commission for their proposed 48-inch pipeline from Alaska to Alberta next October, as the two companies are required to do under a contract with the state of Alaska, Persily said. The state of Alaska is contributing $500 million to preliminary engineering and environmental work for the project on the condition that TransCanada and ExxonMobil meet certain performance benchmarks, the most important being the filing of the application to FERC in late 2012. Although the two companies are contractually committed to continue work on the pipeline to Alberta Alaska, Gov. Sean Parnell has asked TransCanada and ExxonMobil and other North Slope producers to consider a pipeline to a southern Alaska port and an LNG project that would export Alaska gas to Asia. The alternative LNG project could be done under terms of the existing contract the companies have with the state, which includes the option of LNG instead of an all-land pipeline. Cost-saving moves will include vacating the federal coordinator’s 13,000-square-foot office in Washington, D.C., which costs $750,000 a year in lease fees, Persily said. The office in Washington will not close, however, and the office in Anchorage will also remain open, he said. “I expect layoffs and other spending cuts,” Persily said, although there are as yet no details of reductions. “I don’t think Congress was trying to send a particular message with the cut. They are starting to wonder what is going on, however. Congress passed the loan guarantees, tax breaks, expedited FERC schedule and establishment of our enabling office in 2004. The $1 million, plus our reserves, will get us by until something happens, or not,” Persily said.

Judge dismisses government's move to revoke BP's probation

U.S. District Court Judge Ralph Beistline dismissed a claim by the U.S. Justice Department that BP had violated terms of a probation order when a field pipeline ruptured and spilled oil in 2009. BP was on probation over a series of spills in 2006 from Prudhoe Bay field pipelines that were caused by corrosion. The company paid a $20 million penalty over violations resulting from the spills. The probation had been scheduled to end Nov. 30, 2010. The Justice Department filed its petition for a revocation of the probation Nov. 16, 2010. In a decision released Dec. 27, Beistline found that BP did not violate terms of the probation and also released the company from probation, which had been scheduled. Beistline held proceedings in Anchorage from Nov. 29 to Dec. 7 to hear evidence. The 2009 spill occurred when an 18-inch field pipeline that was not in service but still containing a mixture of produced water and oil froze and ruptured, spilling an oil-water mixture on the tundra. BP cleaned up the oil spill, estimated at 362 barrels, and subsequently repaired the pipe. In its petition the Justice Department contended that BP should have known about the freezing and blockage earlier than it did, citing a similar problem with a pipeline in 2001, and that better positioning and monitoring of sensors on the L-3 pipeline would have alerted BP to the freeze-up problem. BP responded that the sensors were installed in 1993 for a different reason — to monitor for problems with handling natural gas in the pipeline. The government had also claimed BP failed to adequately respond when the no-flow condition of the pipeline was discovered on Nov, 14 and the rupture and spill occurred on Nov. 29. In his decision, Beistline wrote, “the government has failed to establish by a preponderance of the evidence that BP committed criminal negligence. While the court would prefer a failsafe system where accidents never happen, it recognized that human beings and engineering practices are not perfect and that, on occasion, unexpected or unanticipated accidents can and will happen.” Beistline concluded BP was in compliance with industry standards in its operation of the L-3 line and that the pipeline alarm systems were operating in line with accepted standards. The judge also noted that BP conducted a thorough investigation of the 2009 pipe rupture and had shared it with the government. BP spokesman Steve Rinehart said, “We are pleased with the decision and appreciate the court’s attention. We know that the privilege of working in Alaska comes with a responsibility to maintain high standards. We will continue our commitment to running safe and compliant operations.” Tim Bradner can be reached at [email protected]

China top market for Alaska exports

China will emerge as Alaska’s top export customer for 2011 when final trade statistics are counted for the last two months of the year, state officials say. As of Nov. 1, the value of Alaska exports to the Asian giant had reached $1.3 billion, a 52.5 percent increase over the same 10-month, January-October period for 2010, U.S. exports statistics show. The numbers will change when November and December figures are added but those will not change the overall trend, according to Patricia Eckert, associate director for International Trade in the governor’s office. Susan Bell, State Commissioner of Commerce said China’s domestic consumption of seafood is increasing, and this includes higher-value products. “We really saw this when we accompanied Alaska Seafood Marketing Institute people to the China Seafood Expo in late October. We saw snow crab, Pacific cod and sole from Alaska as well as other products like sea cucumbers and geoduck,” Bell said. Total Alaska exports are likely to pass the $5 billion mark for 2011 assuming the trend holds. As of Nov. 1 total export values totaled $4.73 billion, according to the U.S. data. Export values to Japan, another major Alaska trading partner, totaled $967.9 million for the first 10 months of the year, down 9.8 percent for the $1.07 billion in same period of 2010. However, the bulk of the decrease came in declining purchases of energy, primarily liquefied natural gas shipped from ConocoPhillips’ LNG plant near Kenai. ConocoPhillips had made regular LNG shipments to utilities in Japan through early 2011 under long-term contracts. When those contracts ended in early 2011 the company still made periodic shipments of spot cargoes of LNG but also made shipments to other Asian nations including China. Japan’s purchases of other commodities from Alaska, such as seafood and timber, both showed increases. Japan imported $527.3 million in seafood for the January-through-November period compared with $464.83 million in seafood for the same period of 2010. Forest products sales from Alaska to Japan, although small, also showed an increase, from $11.5 million in the first 10 months of 2010 to $21.4 million in the same period of 2011. Alaska exports to Korea totaled $576.4 million for the first 10 months of 2011, up 29.6 percent from $444.7 million for the same period of 2010. There were increases in exports of all major Alaska commodities including seafood, mineral ores and forest products in 2011, according to the export data. For China, seafood accounted for the majority of 2011 Alaska exports to that nation, totaling $762.8 million in value, about 58 percent of total exports to the Asian nation for the first 10 months of the year. Mineral ore concentrates, primarily zinc, lead and gold from mines operating in Alaska, accounted for much of the rest, totaling $439.1 million, according to the data. China also imported $11.9 million in energy products from Alaska in the first 10 months of the year, marking the first year China imported energy from Alaska. The types of energy purchased were not identified but it is known that ConocoPhillips sent at least one, and possibly more, cargoes of LNG from its plant near Kenai to China during the year. The company would not identify its LNG customers but has said that LNG shipments were made to China, Japan and Korea in 2011. Much of the seafood exported was frozen fish shipped unprocessed from Alaska and processed in China, Eckert said. Much of that is exported from China to other nations, much of it in Asia but some back to the U.S. in the form of seafood products, she said. However, increasing amounts of the Alaska seafood is being consumed in China itself as consumers in the nation become more prosperous and seek to improve the protein in their diet. There is no firm data on how much of the imported seafood in consumed within China but estimates by the Alaska Seafood Marketing Institute put the figure at 30 percent, Eckert said. The trend is up, however. “It used to be 10 percent,” she said. In terms of value, Alaska seafood and mineral concentrate exports to China increased more than 50 percent between 2010 and 2011, increasing from $484.9 million in seafood purchases in 2010 to $762.8 million in 2011, and although part of the increase in sales value was a result of increased prices for seafood and changes in currency values, an increased volume of seafood exports clearly played a major part, Eckhart said. In the case of mineral concentrates, metal prices and currency changes likely played a dominant role in the 34 percent increase in export values to all Alaska trading partners on the first 10 months of 2010 and 2011 because the price of zinc and gold, the most important metals in the export data, both rose during the year. Mineral ore exports to China totaled $291.9 million in 2010 for the January-through-October period but increased to $439.1 million in 2010 for the same period of 2011. The Red Dog Mine north of Kotzebue and the Greens Creek Mine near Juneau are major producers of zinc, and both mines well in international markets. China also purchases gold from the Kensington Mine near Juneau under a contract with its owner, Coeur d’Alene Mines.

Conoco sees construction of CD-5 project in 2014, production in 2015

ConocoPhillips Alaska Inc. will  seek corporate approval in the second half of 2012 to proceed with development of the long-delayed $600 million CD-5 project following the U.S. Army Corps of Engineers’ approval of a Colville River bridge permit Dec. 19. The bridge crossing of the river will allow the company to develop the CD-5 oil accumulation in the National Petroleum Reserve-Alaska. There were a stipulations attached to the permit. “We will be evaluating the permit and the stipulations over the next couple of months, and we will then have to incorporate the stipulations into our CD-5 work plan,” ConocoPhillips spokeswoman Natalie Lowman said. The company will seek corporate approval in the last half of the year, and will then spend about a year in engineering and planning, Lowman said. The schedule would have construction under way in 2014 and the first production from CD-5 – the first commercial oil production from the NPR-A since it was created in 1923 –  toward the end of 2015, she said. CD-5 is expected to produce between 10,000 and 18,000 barrels per day. ConocoPhillips owns 78 percent of the Alpine field, including the CD-5 project, with a 22 percent minority holding by Anadarko Petroleum Co. Although CD-5 is within NPR-A the subsurface mineral rights are owned by Arctic Slope Regional Corp., the Alaska Native regional corporation owned by Inuit people on the Arctic Slope, which would receive production royalties. Under federal law, however, those are shared 50-50 with the state of Alaska. An important element in the Corps’ CD-5 decision is that the bridge and road infrastructure would ease the extension of road infrastructure to two other ConocoPhillips oil and gas discoveries farther west in NPR-A that are now part of the Mooth’s Tooth Unit in the reserve. Phillips said the development of the two NPR-A discoveries farther west would depend on the state of Alaska’s modification of its oil production tax. Although the federal government owns the petroleum reserve, the state’s petroleum tax applies to production from the area. In a statement issued Dec. 20, Alaska state U.S. Bureau of Land Management Director Bud Cribley hailed the Corps’ decision on the bridge permit, which was originally contested by Interior Department wildlife agencies and the U.S. Environmental Protection Agency, as an example of government and industry working together to find solutions to complex environmental permitting problems. CD-5 was discovered in 2001 and an Environmental Impact Statement for its development, including the bridge, was approved in 2004. The project went on hold for several years while there were negotiations with local Inuit villagers over the location of the bridge. An agreement was eventually reached to change the bridge location so it would not affect subsistence fishing by the villagers. The project was then delayed further by the Corps’ decision against the bridge permit, although it had been approved earlier in the EIS. The concern expressed to the Corps by the U.S. Fish and Wildlife Service and the EPA was that the bridge would require extensive gravel placement that could impair wetlands and sensitive regional waterfowl habitat. Also, the environmental agencies worried that an east-west road configuration that would result in further NPR-A development west of CD-5 would cut laterally across the northward flow of water in the wetland area, further impairing habitat. At the urging of the two agencies, the Corps blocked the bridge permit and suggested ConocoPhillips build an underground river crossing for a pipeline and to provide support for CD-5 development by ice road in winter and by air in summer, similar to the way ConocoPhillips has developed other drillsites in the region that are cut off from road access by river channels. ConocoPhillips and state of Alaska agencies protested the Corps’ decision, arguing that an underground pipeline crossing would create more potential hazard because of the three-phase flow through the pipeline of raw crude, gas and water could create corrosion. Above-ground pipeline on a bridge would be easier to inspect and maintain, it was argued. After a lengthy review, the Corps agreed with that argument, along with the EPA and U.S. Fish and Wildlife Service. Among conditions attached to the permit is a requirement that other companies be able to use the bridge for NPR-A development. “Over the long term, the bridge at CD-5 will minimize environmental impacts in the area because it allows other companies that develop leases in the NPR-A to use the same crossing, rather than seek approval for additional channel crossings in the area,” BLM Director Cribley said in his statement. Tim Bradner can be reached at [email protected]

Heinze steps down at ANGDA; group's future is uncertain

Harold Heinze announced his resignation as chief executive officer of the Alaska Natural Gas Development Authority, Nov. 21, marking an important transition not only for Heinze, who has had several careers in the state, but also for the independent state gas corporation. Heinze doesn’t leave the job until Jan. 23 to allow for transition. He will be working to help Matanuska Electric Association develop its planned new gas-fired power generation plant. Still, there is a lot of uncertainty about a replacement and also the future of ANGDA. Heinze’s  career in Alaska reaches back decades. Named engineering manager during the initial development of Prudhoe Bay, Heinze went on to become president of ARCO Alaska and ARCO Transportation in Los Angeles. Considered an “engineer’s engineer,” Heinze had more than 30 years of leadership roles in Alaska’s oil and gas industry before taking on the CEO position at ANGDA. When Heinze left ARCO then-Gov. Walter Hickel appointed him commissioner of Natural Resources to finalize the land selection of 100 million acres granted to Alaska at statehood. Heinze later became Hickel’s special envoy to Asian gas markets to work on LNG export options. Reflecting back on almost nine years at ANGDA, Heinze said, “We have stayed consistent with the people’s directive – the initiative creating ANGDA passed two to one – and ANGDA has always championed bringing natural gas in a spur line from Glennallen into the Cook Inlet area. That linkage is a key part of any Valdez natural gas export (LNG) project and one that I worked on with Governor Hickel.” Scott Heyworth, ANDGA’s board chairman who also spearheaded the 2002 ballot initiatives, said, “Harold’s vision and guidance is unsurpassed. He has served the people of Alaska, through the ANGDA initiative, with exemplary leadership and he has always acted in the best interest of Alaskans. His departure will leave a void. His knowledge and intellect will be sorely missed by the board of directors,” Heyworth said.  Pipeline competition There are two state entities formed to pursue gas projects, which has created confusion in the public and even the Legislature and the state administration. ANGDA was created by a 2002 ballot initiative with a broad grant of authority that including an initial objective of developing a large Valdez-based natural gas liquefaction (LNG) project and a secondary objective of enhancing access to natural gas for Alaska communities. Another state gas corporation now active, the Alaska Gas Development Corp., was formed by state legislation in 2010. House Bill 369 gave the AGDC specific direction to develop a plan for a small gas pipeline by the most economical route from the North Slope to Southcentral Alaska. Unlike ANGDA’s broad grant of authority, ADGC is directed to focus only on the so-called bullet line from the Slope. The distinctions between the two are important. ANGDA’s broad grant of authority in the language of the ballot initiative gives the organization a great deal of flexibility. Its board can approve the purchase and sale of gas, for example, and ANGDA also can sell revenue bonds, possibly tax-exempt bonds in some cases, to finance projects or purchases, although repayment of any bonds must be linked to the projects with no recourse to the state itself. AGDC, in contrast, does not have this kind of flexibility. Its charge is narrowly focused to planning of the bullet line. That could always be changed by the Legislature, but the same is true for ANGDA’s enabling statute. There are also some political distinctions between the two corporations, mainly resulting from the manner in which they were created. ANGDA was crated by a citizen initiative, while AGDC was created by the Legislature. In political terms, this means that because the politicians didn’t create ANGDA, there is less “buy in” from the political establishment, the executive and legislative branches. Also, the administrations and Legislatures that have come and gone since ANGDA was created in 2002 have been wary of the independence of the authority, although the governor does appoint the board and the Legislature must approve ANGDA’s annual budget. At the outset, former Gov. Frank Murkowski was hostile to ANGDA because he wanted all of the state’s attention focused on the large Alaska Highway gas project. The small-diameter bullet line on the Parks Highway, as a state project (it was originally proposed by Enstar Natural Gas Co.) was initiated by former Gov. Sarah Palin. Palin was irritated when Heinze and ANGDA stuck with their recommendation of a Glennallen spur line and came close to replacing ANGDA’s board, but backed away from it. Current Gov. Sean Parnell has been basically ambivalent to ANGDA, but ultimately backed the Legislature’s creation of ADGC through HB 369. Despite the uncertainty of support, all administrations and Legislatures have supported annual budget appropriations to ANGDA, although they have been small. Much more substantial appropriations are now being made to the AGDC for its bullet line work. With its initial charge in the ballot initiative to pursue a Valdez LNG project, ANGDA did some preliminary work, including a capital cost estimate but because others were focusing on the Valdez project, mainly the Alaska Gasline Port Authority, the authority’s board shifted the emphasis to enhancing access to gas by communities. Since its inception in 2002, ANGDA has pursued a number of projects, with one significant accomplishment being the securing of capacity for Alaska utilities or others with a guaranteed discounted tariff in a large 48-inch gas pipeline, if one is built. This is important because the discounted tariff is available only to companies or organizations submitting bids for capacity during an 2010 open season held by Trans-Canada Corp. and ExxonMobil Corp. on the Alaska Pipeline Project, the two companies’ plan for a 48-inch pipeline from the North Slope to Alberta. ANGDA’s status of “shipper” on behalf of the Alaska railbelt utilities on the Alaska Pipeline Project allowed it a status that will secure a 30 percent savings for Alaska gas consumers, Heinze said. ANGDA’s capacity bid was for a small volume — the exact amount is confidential — but the volume can be expanded with the advantage of the discounted tariff. “This could be worth hundreds of millions of dollars in savings to Alaska consumers,” Heinze said. Most important, the discount is available if ANGDA uses some of its capacity to transport gas for in-state industrial customers, even an LNG export project. The discount also applies if the scope of the Alaska Pipeline Project changes, for example from a pipeline through Interior Alaska to Alberta to a pipeline though the Interior to Valdez. A second achievement is a conditional right-of-way and other work on a possible Delta-to-Palmer spur pipeline to bring gas off a large pipeline and transport it to Southcentral Alaska through Glennallen. The conditional state right-of-way is across about 150 miles of mostly state-owned lands from Glennallen to Palmer. The Delta-to-Glennallen segment, also about 150 miles, would follow the existing Trans-Alaska Pipeline System corridor, which has an established right-of-way. As an alternative, ANGDA considered the Parks Highway route for a spur line, a route now being studied by the other state gas corporation, AGDC, but concluded that, as a spur line, the Delta-through-Glennallen route was more cost effective because it was somewhat shorter and would leave open the possibility of still building a pipeline to Valdez, even as a spur from Glennallen. The Slope-to-Southcentral pipeline being pursued by AGDC via the Parks Highway could also become a spur line from the Fairbanks area if the large-diameter pipeline is built. Heinze argues, however, that the Delta-to-Palmer spur line route via Glennallen would be a less expensive option, mainly because the gas can ride along in the large-diameter pipeline for a longer distance, enjoying the lower costs of transportation. However, an important advantage is that it would leave open the possibility of serving Valdez, which would be precluded if a spur line went along the Parks Highway. Other works Other projects undertaken by ANGDA include, most recently, a propane project, working with potential private developers of a system to truck or barge propane from the North Slope; a design for a connection to a large-diameter pipeline for a community to take off gas and possibly liquids like propane; a high-level look at what kinds of investments might be needed to expand the existing ConocoPhillips LNG plant in Nikiski (although the plant is privately owned, because of its importance, ANGDA wanted to have some information on possible costs available to the public); and a variety of smaller projects, including discussions with ConocoPhillips on equipment to load LNG onto trucks for regional delivery at the Nikiski plant. The propane project would take advantage of the fact that large quantities of propane are available now on the North Slope, at the Central Gas Facility operated in the Prudhoe Bay field by BP. The propane is separated along with other gas liquids like butane from gas now produced with crude oil. The vast bulk of the gas and liquids are injected back into the underground reservoir to help maintain pressure but a small volume of propane is taken off for use in oil field operations. Heinze said it would be a small matter for BP, the field operator, to increase the amount of propane taken off. A separate facility to store the propane would be needed, which could either be owned and operated by the field owners or by a private investor. Heinze said there are several interested, but this is not a huge investment. Propane could be trucked to Fairbanks for use in home heating or even for power generation by Golden Valley Electric Association or as a source of energy for the Flint Hills Resources refinery in North Pole. Also, propane could be moved by barge from Prudhoe Bay to Western Alaska communities, or to Interior villages along the Yukon River by trucking to the Yukon River bridge on the Dalton Highway and barging the propane along the river. Although private companies are interested in the propane project BP has been reluctant to discuss making propane available at Prudhoe Bay, Heinze said, reasons of which are unclear to him. Tim Bradner can be reached at [email protected]

Buccaneer looking for markets for Cook Inlet gas

Australia-based Buccaneer Energy is working with a Houston-based consulting group on plans for regional sales of liquefied natural gas within Alaska, an indication that companies now exploring for gas in Cook Inlet are concerned that a gas surplus might develop. Buccaneer discovered gas earlier this year in an onshore exploration well drilled on the Kenai Peninsula, and will begin sales of gas in December to Enstar Natural Gas Co., according to James Watt, president of Buccaneer Alaska. The company plans additional wells at its Kenai Loop discovery and will also test several offshore Cook Inlet prospects next spring and summer with a jack-up rig being moved to Alaska next April. The offshore prospects have confirmed oil and gas deposits from early exploration in the 1960s, although the finds were not then considered economic. In addition, Escopta Oil Co. will work to confirm its gas discovery in the Inlet, and Apache Oil Corp., a major independent, is conducting a detailed seismic surveys across its leases and plans to drill in 2012, the company has said. Buccaneer’s plans for regional sales of LNG, and possibly exports, would be done through a joint venture, according to Keith Meyer, a consultant working with the company. Meyer is a former president of Cheniere Energy, which is developing a large LNG export project in Louisiana, and has extensive experience in LNG. He has assembled a small team to work on the Alaska project. The plan for now is to develop medium-scale gas liquefaction facilities on the Kenai Peninsula to supply LNG by truck, rail or barge to Alaska communities now dependent on diesel for power generation and space heating. Studies of the potential market have been under way for about eight months, Meyer said. If a project is defined, a joint venture company will be formed to develop facilities and make regional LNG sales, Meyer said.  There are still concerns, for now, over shortages of natural gas in Southcentral Alaska with the currently producing large fields in decline, but there have been three gas discoveries in the region so far this year, including at Buccaneer’s Kenai Loop well.  The extent of new resources discovered this year is not yet known, but industry officials believe that if the finds are even of modest size, a surplus could develop. Two other independents making discoveries this year include Escopeta Oil Co., also of Houston, on a Cook Inlet offshore well drilled this fall with a jack-up rig, and NordAq Energy, an Alaska-based independent, on an onshore Kenai Peninsula exploration well. One potential customer for new natural gas production may be going away, however. ConocoPhillips, owner of a larger liquefied natural gas plant at Kenai, has announced that it is mothballing the plant after operating it for 42 years, although the company now says it has postponed a final decision until after Jan. 1. Without the LNG plant, which has mostly taken gas only from ConocoPhillips and Marathon Oil, a previous partner in the plant, the local gas market is limited. The main customers are the utilities, and while all utilities are forecasting future needs, their requirements are largely met for the near-term, although Enstar has some unmet needs for 2013 and more in the following years.  Chugach Electric Association, the region’s largest electric utility, has all of its gas needs supplied until 2015. Municipal Light and Power, Anchorage’s city-owned utility, supplies its needs from gas it owns in the Beluga gas field. Meyer, Buccaneer’s consultant, said his team has done an assessment of the potential Alaska market and envisions a project developing in three stages. First would be supplying LNG to potential Interior Alaska customers like Golden Valley Electric Association and Flint Hills Resources, which owns an oil refinery in North Pole, Meyer said. Fairbanks Natural Gas, a small Fairbanks gas utility that now trucks LNG from gas fields in Southcentral Alaska, could be included in this. All three of the potential Fairbanks customers are now studying the possibility of trucking LNG from the North Slope, but Meyer believes he and Buccaneer can make a better case for supplying liquefied gas from the Kenai Peninsula. The second increment of demand, he said, could come from the use of LNG as a transportation fuel, Meyer said. In the Lower 48 trucks and heavy equipment in certain locations now use LNG as fuel, and in Norway LNG-fueled coastal marine vessels are common. A key customer would be the Alaska Marine Highway System, which has ferry vessels operating a defined routes and schedules that would make supplying fuel as LNG very practical. The third increment of growth could come from export sales, as had been done by ConocoPhillips from its current facility. Meyer said he has held some discussions with ConocoPhillips over use of its LNG plant, which could be an alternative to building a separate, new LNG facility. The talks have been “positive,” he said, but no specific agreement has been reached. Watt said two Cook Inlet offshore prospects Buccaneer will test with the jack-up rig have oil and gas reserves proven from earlier drilling ,but not developed. One is Buccaneer’s Southern Cross Unit adjacent to the producing Middle Ground Shoal field in Cook Inlet. The other is the company’s Northwest Cook Inlet Unit, which is adjacent to the producing North Cook Inlet gas field. Tim Bradner can be reached at [email protected]

Health care employment booms in state, expert panel says

Employment in health services has leaped in Alaska over the last two decades and shows no signs of a slowdown, a panel of state officials told the Anchorage Chamber of Commerce Nov. 28. What’s driving the increase isn’t entirely clear, although the gradual aging of the state’s population is one explanation, the panel said. About $7.5 billion was spent on health care in Alaska in 2010, and employment in the industry reached 31,800, said Pat Carr, with state Department of Health and Social Services. Carr was one of three state officials on the panel. Dan Robinson, senior economist in the state Division of Research and Analysis, also on the panel, said health care employment grew 58 percent between 1990 and 2000, a period in which overall Alaska employment grew 19 percent, and another 51 percent between 2001 and 2010, years in which overall Alaska employment grew 12 percent. The research and analysis division is part of the state Department of Labor and Workforce Development. A steady, steep rise in health care jobs also kept Alaska’s job-growth on a positive track in 2008 and 2009 when the rest of the nation slipped into recession and other states lost jobs, Robinson said. Alaska showed a net gain of 2,300 jobs between 2008 and 2009 but within that total health care employment increased by 4,000, he said. Without the growth of health care, there would have been a loss of total jobs in Alaska of 1,700, Robinson said. Health care and social services, categories that are lumped together in the state labor data, now account for 12 percent of the state’s total workforce, or about one in nine jobs. This total includes all who are employed by health care providers, however, so the many support jobs such as in information technology and even attorneys would be included in this, he said. However, about 40 percent of the total are employed directly in health care in hospitals or in physician services, Robinson said. The state labor department’s forecast is for the growth to continue. Robinson said the 10-year employment forecast, for 2008 through 2018, estimates that health care employment will grow another 27 percent, compared to overall job growth in the state of 11 percent. Aging of the state’s population is one factor driving the rise in health care employment because senior citizens typically need more medical services than younger people. Carr said the state’s senior population, those over 65, increased 50 percent between 1996 and 2006, although state labor economists also say that Alaska’s population is still younger overall than the populations of most other states. Another factor that has driven the increase in health care services, many health professionals have said, is the continued development of health care infrastructure and technology in the state. In previous years Alaska was undeveloped in terms of medical services even in the populated communities, the result being that many Alaskans went out of state for medical care. Now advanced services and medical technology are available in the state’s larger communities, and medical facilities such as clinics are being developed in rural communities through the large nonprofit tribal health care consortiums and agencies like the Denali Commission. Meanwhile, the numbers of health care professionals are increasing in some parts of the state, but declining in others areas. An Oct. 31 report by the state Division of Public Health, a part of the Department of Health and Social Services, showed that the numbers of physicians and other specialized medical professionals is increasing, but in some areas, particularly rural, populations remain underserved. Between 2007 and 2011, the number of physicians licensed in Alaska grew by 7 percent, ahead of the state’s 5 percent population growth, but while the Anchorage, Matanuska-Susitna Borough and Interior regions grew in numbers of physicians, Southeast and Southwest Alaska lost physicians. There were similar increases in the numbers of physician assistants and nurse practioners in most areas of the state except, once again, Southwest Alaska. Registered nurses showed increases in all parts of the state. Tim Bradner can be reached at [email protected]

Minerals industry spending jumped in 2010, state report says

Alaska miners crowded into the Anchorage Sheraton Hotel the week of Nov. 7 for the annual Alaska Miners Association convention. It was a record-breaking attendance that may have neared 1,000 people in and out of the meeting over three days of the main conference, held Nov. 9 through Nov. 11. Much of the agenda at the miners’ annual conference is traditionally devoted to technical presentations on geology, environmental procedures and new government regulations, but with metals prices at high levels the mood was confident and upbeat. Presentations were given on many of the state’s operating mines, including the Pogo gold mine east of Fairbanks and the Red Dog zinc and lead mine in Northwest Alaska, and proposed mines in advanced stages of development planning, like the big Donlin Creek gold project. A highlight of the conference is always the state’s release of its annual report on exploration and production. The report always lags a year – the one released Nov. 8 was for 2010 – because the tally of industry spending in 2011 won’t be completed until 2012. It was good news, however. Spending on minerals exploration and mine developed increased substantially in 2010 compared to 2009, driven mainly by high prices for gold and zinc, the state said in its annual report.  The state departments of Natural Resources and Commerce, Community and Economic Development compiled the data and issued the report. Alaska exploration spending, an important barometer for the industry, increased 47 percent last year, rising from $180 million in 2009 to $264.4 million in 2010, the report said. This growth helped make 2010 the sixth consecutive year with exploration spending that exceeded $100 million. Exploration occurred across Alaska, but more than 48 percent of the spending ($127 million) was in Southwest Alaska alone, and 21 percent, or $55 million, was in the Eastern Interior region of the state, according to the report. Two advanced exploration projects, the Pebble copper/gold and the Donlin Creek gold projects in the western and southwest regions, accounted for more than 43 percent of the exploration spending in 2010, the state report said. Thirty-four projects reported exploration expenditures of $1 million or more, and 47 additional projects reported spending at least $100,000. Mineral industry employment, another important indicator, rose 18 percent in 2010 to 3,872 full-time-equivalent jobs, an increase of 592 jobs from the 2009 total of 3,280. Full-time-equivalent job numbers are derived from adjusting season job totals to their equals as year-round jobs based on hours worked weekly. The jobs were distributed across Alaska, the state report said. The value of produced minerals also grew substantially in 2010. The estimated gross wholesale (first market) value of mineral production increased more than 27 percent in 2010, rising from nearly $2.5 billion in 2009 to $3.1 billion. Zinc topped all mineral product values, with 42 percent of the total, and the Red Dog Mine near Kotzebue, operated by Teck, was the largest contributor to total zinc production, the state report said. Gold remained a strong second, carrying 35.8 percent of the total production value. In descending order, the values of remaining production were lead, 9.1 percent; silver, 9 percent; coal and peat, 2.4 percent; and industrial minerals (rock, sand, gravel, and gemstones), 1.7 percent, according to the state report. Mineral production continued strong at Alaska’s six large lode gold mines and more than 225 placer gold operations. Teck Resources Ltd Red Dog Mine, one of the world’s largest zinc producers, began mining the Aqqaluk deposit adjacent to the main Red Dog deposit, extending the mine’s life to 2031. Red Dog produced 593,043 tons of zinc, 121,144 tons of lead, and more than 6.7 million ounces of silver in 2010. Coeur Alaska began mining at the Kensington gold mine near Juneau, producing 43,143 ounces of gold by year’s end. Hecla Mining Co.’s Greens Creek Mine near Juneau produced more than 7.2 million ounces of silver in 2010, along with 68,838 ounces of gold, 74,496 tons of zinc, and 25,336 tons of lead. Kinross Gold’s Fort Knox Mine near Fairbanks produced 349,729 ounces of gold, and Sumitomo’s Pogo Mine near Delta Junction produced 383,434 ounces of gold. Usibelli Coal Mine near Healy produced 2.06 million tons of coal. Total placer gold production, from more than 225 operators, was 69,318 ounces. Tim Bradner can be reached at [email protected]

Second jack-up rig to explore in Cook Inlet by next April

There will be a second jack-up rig exploring for oil and gas in Cook Inlet by next April, this one owned about one-third by the state of Alaska. The Alaska Industrial Development and Export Authority, a state corporation, finalized an agreement Nov. 14 to invest $27 million in the purchase of the Adriatic XI jack-up rig along with two partners, Australia-based Buccaneer Energy and Ezion Holdings Ltd. of Singapore, the chairman of the Alaska Industrial Development and Export Authority said in a press release. AIDEA’s stake in the rig is temporary, however. After five years the authority’s investment will be repaid under terms of the deal. The jack-up rig was purchased from TransOcean Offshore Resources Ltd. The rig, to be used in drilling for oil and gas in Cook Inlet and possibly other Alaska offshore areas, will be renamed Endeavor – Spirit of Independence, according to Hugh Short, the chairman of AIDEA’s board. AIDEA has transmitted the first part of its $24 million investment, Short said. The rig was purchased for $68.5 million, which was funded by $17.6 million from AIDEA, $44 million in debt financed by the Overseas Chinese Banking Corp., and with $6.9 million funded by Buccaneer and Ezion Holdings, according to a Nov. 15 release from Buccaneer. There will be other expenses in modifications needed for the rig, which will be funded by additional debt from Overseas Chinese Banking Corp. and cash investment from AIDEA, bringing the state authority’s investment to $27 million. Buccaneer and Ezion Holdings have organized a subsidiary, Kenai Offshore Ventures, to own the jack-up rig. Archer Drilling has been hired as a contractor to operate the rig. AIDEA’s investment is structured as a Preferred Interest Investment with a fixed annual dividend of 8 percent that is guaranteed by Buccaneer Energy, according to the authority. The state authority’s investment and the loan by the Chinese bank will be repaid in five years, under terms of the deal. “Kenai Offshore Ventures anticipates over the next five years both the OCBC and AIDEA facilities will be fully repaid by revenues received under the Bare Boat Charter agreement,” Buccaneer said in its press release. That essentially will buy out AIDEA. After that the authority will have no ownership stake in the jack-up rig, AIDEA spokesman Karsten Rodvik said. The jack-up rig was moved from Malaysia, where it was in storage, to the Keppel FELS Shipyard in Singapore, where it will undergo upgrading and modifications in preparation for its work in Alaska waters. It is expected to be moved to Alaska in April 2012, and to begin Cook Inlet drilling in May.  Buccaneer owns Cook Inlet offshore leases and has at least four prospects, which will be tested by the jack-up rig. The first prospect to be tested is Buccaneer’s Southern Cross prospect, which is in 50 feet of water and is within five miles of established Cook Inlet production facilities, Buccaneer said in its press release. “The conclusion of this deal is another very positive step forward for Cook Inlet oil and gas resource development,” said Short. “AIDEA’s investment in this rig will not only help secure long-term energy supplies for Alaskans, it will create job growth and help advance the region’s economy,” Short said. There is already one jack-up rig now in Cook Inlet. Earlier this year Escopeta Oil Co. brought the Blake 151 rig, owned by Spartan Drilling Co., to Cook Inlet to do exploration drilling. Escopeta began drilling in September and encountered natural gas at two intervals to the 8,800 foot level. Drilling ceased for the winter on Oct. 28 and is to resume next April, about the same time the Endeavour rig will arrive. AIDEA has said previously that the Endeavour rig is larger than the Blake 151 and will be able to drill in deeper water depths. The rig is rated as being capable of operating in waters as deep as 300 feet. Tim Bradner can be reached at [email protected]

Slope producers: Decline will continue without tax reform

North Slope producer BP delivered a tough message Nov. 16 to several hundred business and community leaders at the Resource Development Council Conference in Anchorage. Claire Fitzpatrick, BP’s chief financial officer for Alaska, said her company is expecting a 7 percent to 8 percent decline in annual production in the Alaskan fields it operates, which amounts to two-thirds of total Slope production. She also warned that Trans Alaska Pipeline System throughput could drop to the 550,000 barrels-per-day range this winter. At that level pipeline operating problems could occur, Fitzpatrick said. A study by Alyeska Pipeline Service Co. released earlier this year predicts increasing problems with water drop-out, wax build-up and freezing in cold weather as oil moving through the pipeline drops below 600,000 barrels per day, Fitzpatrick said. There are projects that could add new production but a heavy state production tax  pushes these projects below the economic threshold when added to problems of high costs on the North Slope, Fitzpatrick said. “These are prospects that do not make economic sense in the current business climate in Alaska, prospects that will remain only possibilities unless Alaskans and the oil industry work together to make changes that will make these prospects commercially competitive,” she said. Fitzpatrick predicted that BP’s activities in 2012 would be flat, with no growth in activities like drilling that add oil. “We’re making significant investments in infrastructure and pipeline upgrades, but capital spending on activities that produce more oil, on drilling, pad expansions, de-bottlenecking and others, is on hold or significantly limited. If the economics in Alaska don’t improve they’ll remain on hold,” Fitzpatrick said. ConocoPhillips Alaska President Trond-Erik Johansen conveyed a similar message to the RDC conference and said a perverse effect of the Alaska tax is that it depresses companies’ incentive to invest as oil prices rise, resulting in stagnant or even declining investment by major operating companies at higher oil prices. In contrast, industry investment in the Lower 48 is booming. Even in countries like Norway with high rates of tax there is enough profit for industry that investments are being made. Johansen said ConocoPhillips’ 2012 Alaska capital budget will be about the same as 2011 and 2010, in the range of $900 million per year. Fitzpatrick said BP’s 2012 capital investment will decline from about $800 million to $700 million. The bulk of BP’s spending will be on major facility and pipeline maintenance rather than activities that add new production, Fitzpatrick said. Johansen said in a previous presentation that 70 percent of his company’s annual capital investment is going to maintenance. Unless the investment environment for new projects improves Fitzpatrick said she forecasts Slope production declining 25 percent by 2020 from the current average of about 600,000 b/d. “The state Department of Revenue forecasts a 13 percent decline over the same period, but 52 percent of that is from projects not now producing and which are still under evaluation,” Fitzpatrick said. Given the reluctance of the major operators to make new development investments, a good share of the production the state assumes in its forecast will not appear, she said. Gov. Sean Parnell has proposed adjustments to the tax law but the governor’s bill is bogged down in the Legislature. Lawmakers opposing Parnell’s bill point to an upsurge in planned North Slope exploration this winter as proof that the tax adjustment Parnell proposes isn’t needed. However, the bulk of this winter’s exploration drilling is by one company, Repsol. The company acquired a interest in a large lease position from an independent company, Armstrong Oil and Gas, and faces lease expirations on the acreage unless an aggressive drilling program is conducted, Repsol’s Alaska operations manager, Bill Hardham, told the RDC conference. Hardham also told the conference that the prospects being tested are likely to be moderately-sized discoveries, if oil is found. “We don’t expect any Prudhoe Bays,” he said. Repsol is also concerned about the state tax, he said. State exploration incentives that pay for as much or more than half the cost of a new exploration well has also helped spur new drilling. However, exploration won’t help get new oil into the oil pipeline anytime soon. Marilyn Crockett, executive director of the Alaska Oil and Gas Association, said it typically takes eight to 10 years to get new discoveries into production in northern Alaska. “The reality we face is that our best prospects for new production and adding throughput to TAPS are within existing fields, but these are the kinds of investments being discouraged by the state tax law,” Crockett told the RDC conference.

Study looks at road and rail for Ambler mine area

The state Department of Transportation and Public Facilities has released a preliminary study of routes and costs for a road into the mineral-rich Ambler Mining District of Northwest Alaska. NovaGold Resources and several other minerals companies have discovered significant metals deposits in the area. NANA Regional Corp. of Kotzebue, a major landowner in the area, has teamed up with NovaGold to jointly explore and possibly develop the Arctic and Bornite discoveries, which are owned by NovaGold and NANA, respectively. The state Transportation Department’s study is part of Gov. Sean Parnell’s Roads to Resources program, which proposes new transportation access projects to areas with potential for minerals and oil and gas. The Ambler region survey considered seven routes into the Ambler region, which is in the western Brooks Range east of Kotzebue, according to the transportation study. Three routes were from the east, connecting with the Dalton Highway or the Elliot Highway, and four routes were to the west including one that connected with the Red Dog Mine road and an existing port on the Chukchi Sea coast. Two routes to the Dalton Highway, which are basically variations of one route, appear to have the lowest costs and are less affected by federal land conservation units in the region, the study said. Of these two, the Brooks East route provides the shortest connection to the Dalton Highway, 220 miles, with the lowest estimated cost at $430 million. It does cross 26 miles of the Gates of the Arctic National Park, said Ryan Anderson, the state’s manager on the project, but this part of the park is not classified as wilderness and it may be possible to secure a corridor under provisions of the 1980 Alaska National Interest Lands and Conservation Act, or ANILCA. If an Environmental Impact Statement shows that this route is shorter and has less overall effect on the environment, federal agencies might be convinced to grant the corridor, Anderson said. However, there is an alternate route from the Dalton Highway that is 20 miles longer and would cost $80 million more, but circumvents the national park to the south. This route, the Kanuti Flats alternative, is 240 miles long, with an estimated cost of $510 million. Projected maintenance costs on the two alternatives are $8 million a year for the Brooks East option and $9 million a year for the Kanuti Flats route, according to  the study. One other route from the east would connect with the Elliot Highway, but it is longer, at 370 miles, and would cost much more, $990 million, mainly because of a need for a bridge across the Yukon River. By connecting with the Dalton Highway north of the Yukon, the Brooks East and Kanuti Flats alternatives avoid this need, since there is already a Yukon bridge for the Dalton. All four road alternatives to the west that were studied are generally more expensive than the eastern routes and cross extensive sections of federal conservation land units. The route to the Red Dog Mine road appears the most viable of these because it is 260 miles long and would cost $720 million, but it also would require a 114-mile corridor across a federal conservation land unit. Other alternatives to the west, to Cape Blossom, Cape Darby and to the Selawik Flats, are 250 miles, 340 miles and 330 miles, respectively, but have estimated costs of $860 million, $950 million and $960 million because of wetlands and stream crossings. More important, however, is that all of the western routes cross extensive areas of federal land conservation units with sensitive habitat, which raise doubts as to whether a corridor could be obtained. The transportation department’s study also considered railroad options, including four routes to the east that would connect with the existing Alaska Railroad and four to the west, to various port sites including the existing Red Dog Mine port. All of these were expensive, however, with costs ranging from $1.8 billion to $2 billion for the four eastern route options for railways, with lengths of 430 miles to 450 miles. Costs were lower, and routes shorter, for the western routes, but all four routes crossed extensive areas within federal land conservation units. Cost estimates for the western rail routes ranged from $1.25 billion to $1.57 billion. Distances ranges from 260 miles to 340 miles. The main part of the Ambler access study is finished but the transportation department is continuing work on how a road might affect subsistence use, a concern to small communities in the region, Anderson said. Generally, local villagers support the concept of road access because it would also lower living costs, which are very high, particularly for fuel.

NANA and NovaGold sign joint venture

A long-anticipated agreement on minerals exploration in Northwest Alaska has been signed. NovaGold Resources Inc. of Vancouver, British Columbia, and NANA Regional Corp., the Kotezbue-based Alaska Native regional corporation, have agreed to jointly explore and develop base metals discoveries on lands held by NANA at Bornite, on the upper Kobuk River east of Kotzebue, and by NovaGold in the Ambler Mining District, which is farther east but nearby. NANA’s board gave approval to the joint venture agreement earlier this year but the deal was not finalized until Oct 19, Lance Miller, NANA’s vice president for natural resources, told the Resource Development Council. NovaGold’s holdings are on state lands, while NANA’s lands are its own, selected under the 1971 Native claims settlement act and patented mining claims that were purchased. The NovaGold land holdings include the Arctic deposit, a high value copper discovery made originally by Kennecott Minerals and sold to NovaGold. NANA owns the Bornite copper deposit, also a discovery made by Kennecott and subsequently sold to NANA. The two known deposits are about 20 miles apart. Both NovaGold and NANA had active exploration programs in 2011. The Ambler district hosts world-class volcanogenic massive sulfide deposits that contain copper, zinc, lead, gold and silver over a 70-mile mineralized belt. The Arctic deposit is located within the Ambler district, part of NovaGold’s state and patented mining claims. “This is an area where there has been a great deal of interest for a long time,” said Marie N. Greene, NANA Regional Corp. president and CEO. “This partnership has the potential to benefit NANA shareholders for generations to come.” “NovaGold has worked closely with NANA since initiating work on the project in 2004,” said Rick Van Nieuwenhuyse, NovaGold president and CEO. “This agreement ratifies the cooperation that has been and will be essential to the successful development of these significant mineral deposits. Notably, both parties are contributing resources to create the opportunity to take a consolidated and cost-effective approach to exploring and developing one of the richest and most-prospective copper districts in one of the safest geopolitical jurisdictions in the world.” In a separate development, the state of Alaska is doing preliminary feasibility work on an approximate 200-mile road to the Ambler Mining District from the Dalton Highway, an existing road from Interior Alaska to the North Slope. The road is intended to facilitate mineral exploration and mine development in the region. In addition to work on the Arctic and Bornite discoveries, other mining companies are exploring two other base metals discoveries in the region, the Sun deposit owned by Andover Ventures Inc. and Smucker, a deposit owned by Teck Alaska. Sun is in the eastern part of the Ambler Mining District, while Smucker is in the west. NANA is also engaged with Teck Alaska at the Red Dog Mine, a large lead/zinc mine in the DeLong Mountains in the western Brooks Range. Red Dog now produces about 1 million tons a year of lead-zinc concentrates. NANA is the land and royalty owner. “The agreement consolidates NovaGold’s and NANA’s land holdings into an approximate 180,000-hectacre (446,000 acre) land package and provides a framework for the exploration and development of this high-grade and prospective poly-metallic belt,” NovaGold said in a written release. The Arctic deposit holds indicated mineral resources of 17 million tonnes grading 4.1 percent copper and 6 percent zinc plus gold, silver and lead. Expressed in terms of copper-equivalent, a way of representing the value of the combined metals, the deposit is 8.3 percent copper-equivalent.  “The Arctic deposit is regarded to be one of the highest grade undeveloped volcanogenic massive sulfide deposits in the world,” NovaGold said in its release. The Bornite deposit is estimated to hold about 50 million tons of ore with copper grades of 1.2 percent to 4 percent. NovaGold and NANA both did field work in 2011 at the Arctic and Bornite sites. Work is also planned in 2012 under the joint venture agreement but the details haven’t been worked out yet, Miller said. NovaGold completed 5,900 meters of exploration drilling on Bornite this summer and anticipates completing a mineral resource estimate for Bornite in the first half of 2012, according to the NovaGold release. In addition to the Bornite, geotechnical and infill drilling totaling 1,200 meters was completed at Arctic. Additionally, a new 40-person camp was established near Bornite, improving exploration efficiency and reducing helicopter support. Additional engineering and metallurgical work on Arctic is ongoing to support further economic studies and to evaluate overall district development scenarios. NovaGold will have invested approximately $10 million in exploration and development of the district in 2011. Highlights of the Agreement, which considers exploration as well as possible development, operations and closure, include: • An oversight committee with equal representation to regularly review plans and activities on the project; • The option for NANA to participate as a joint-venture partner or receive a net proceeds royalty upon establishment of any mining operation; • Commitment on behalf of NovaGold to promote employment for NANA shareholders by fulfilling shareholder hiring and contracting preferences; • Rights for NovaGold to lease lands for mining operations; • Payments and net smelter return royalties to NANA for mineral rights and surface use for mine-related infrastructure and facilities; • A scholarship fund to promote education for youth in the region; • A sustainability committee to protect subsistence and the Inupiaq way of life; and • An area of interest within which land acquired by either party will form part of the agreement.

Parnell wants to take a new look at LNG

The gas pipeline plan may be shifting from Canada to an LNG project in southern Alaska. Gov. Sean Parnell called on North Slope producers and TransCanada Corp. to reexmine the LNG option in light of low gas prices in the Lower 48 states and the buildup of gas supply from shale gas producers. In a speech to the Alaska Oil and Gas Association’s annual meeting Oct 27, Parnell said there is little progress to date on TransCanada’s current plan for a pipeline to Alberta, from where gas could be shipped on to the Lower 48. However, markets for LNG in Asia are strong, and the governor wants a new look at that. Various companies including North Slope producers and TransCanada have looked at LNG and exports to Asia over the years. The state is in a contractual relationship with TransCanada under the state’s Alaska Gasline Inducment Act, or AGIA, to support the pipeline company’s current effort on a 48-inch pipeline from the North Slope to Canada. TransCanada and ExxonMobil are in a separate relationship to do engineering and feasibility work on the pipeline to Canada, which is expected to cost in the range of $40 billion. Parnell did not commit on any additional state financial support for a pipeline to an LNG project other than $500 million already committed to TransCanada under the AGIA contract, but he did say that he would be open to a tax agreement on gas production this year, in time for the Legislature to consider in 2011, if TransCanada and the North Slope producing companies could agree to pursue an LNG project. In a statement, TransCanada said, “TransCanada, as the licensee under AGIA, has regular conversations with different levels of the state administration on matters pertaining to the Alaska Pipeline Project. Those discussions are held in confidence under the terms of the license. TransCanada is continuing its efforts to advance the Alaska Pipeline Project to successfully transport North Slope gas to market,” the statement said. In his comments, Parnell said, “It’s my impression that TransCanada and the producers are looking for something different, because there’s no forward movement on the pipeline to Canada. It appears the market has shifted,” adversely in North America, because of shale gas. “I have communicated to TransCanada, ExxonMobil, BP and ConocoPhillips the frustration that Alaskans have with the lack of progress, and I want to send a signal that if the producers and TransCanada want to take a hard look at LNG, we are flexible and will support that,” the governor said. As part of an open season held by TransCanada in mid-2010 under the AGIA contract the pipeline company offered prospective shipped the option of a 36-inch pipeline alternative to an LNG project at Valdez, in south Alaska. TransCanada said it did get offers from shippers in the open season but would not say whether the offers were to send gas to Canada or Valdez. Since 2010, however, TransCanada vice president Tony Palmer has said that the company’s efforts are focused on the pipeline to Alberta, and not to an LNG project in Valdez. Parnell did not specify any preference for a pipeline to Valdez or to the Kenai Peninsula south of Anchorage, where there is an existing small LNG plant owned by ConocoPhillips. Separately, the state is backing engineering work on a 24-inch gas pipeline from the North Slope to southern Alaska if the 48-inch pipeline to Canada is not built. There is speculation in Alaska that the governor may push for the two projects to be merged, with a 36-inch pipeline built to the Kenai Peninsula. ConocoPhillips is currently planning to mothball its plant at Nikikski, near Kenai, partly because of a lack of gas supplies from Cook Inlet producing fields. If gas were brought from the North Slope the plant would have to be expanded and upgraded.

State delays Slope lease sale, hoping to add acreage

The state will delay a North Slope lease sale planned for Oct. 26 for a few weeks with hopes that more acreage can be added and more companies can be enticed to bid for leases. A new date for the sale will be announced very soon, state Natural Resources Commissioner Dan Sullivan said. It is expected that it will be held in December, however. Sullivan said there are two main reasons for the decision. One is that there is currently litigation affecting some state leases, settlement discussions that are under way, and the possibility that some leases may expire and become available for inclusion in the lease sale. The sale is an area-wide sale, which typically includes all unleased state lands. Sullivan wouldn't identify the specific lawsuit or leases involved but the state has had a long-standing court case under way with the Point Thomson Unit that includes ExxonMobil Corp., BP and Chevron are major leaseholders.  

Shell's Alaska investment nears $4 billion, more confident on exploration

Shell Oil’s investment in its Arctic offshore exploration will reach the $4 billion threshold sometime this fall, but the company is now more optimistic than ever that it will receive the needed permits to do exploration drilling in 2012. The company will make a “go or no-go” decision at the end of October, Shell vice president Pete Slaiby told the Alaska Support Industry Alliance Sept. 8, but the company is now more confident and has started the mobilization of a fleet of 24 support vessels that will be needed in addition to two large drilling vessels. Plans are for one vessel, the Kulluk, to drill up to two exploration wells in the Beaufort Sea and for the drilling Discover to drill up to three wells in the Chukchi Sea in 2012. Similar drilling programs are planned for 2012, Slaiby said. Of the company’s soon-to-be $4 billion investment, about $2.1 billion was paid to the federal government in a 2008 Outer Continental Shelf Chukchi Sea lease sale.

Revitalizing downtown Fairbanks

FAIRBANKS — Local business and city leaders are working to get more people in downtown Fairbanks, back to the Interior city's core business district and the center of its history. Like a lot of small cities across the nation, the big malls in outlying areas has drawn shoppers away and downtown retailers have dwindled in number. The city's only remaining downtown quality men's clothing store, Carrs Clothing, is bravely hanging in there, along with another clothing retailer, Big Ray's, which specializes in work and cold weather clothing. Fairbanks has also cleaned up its downtown, closing most of the rowdy but colorful bars on Second Avenue, known as the infamous "Two Street" when the trans-Alaska oil pipeline was being built in the 1970s. The bars are mostly gone now. Second Avenue is quieter and safer, but there are parking lots and spaces where buildings once stood that give the area an empty feeling. Some feel the cleanup went too far, and took away a bit of Fairbanks' "wild west" feel. However, Fairbanks' city Mayor Jerry Cleworth, who is downtown retailer himself (Cleworth owns Alaska Rare Coins) said he'd rather have safe streets than that wild west feeling. Cleworth grew up in Fairbanks and remembers the earlier years fondly. "In the 1960s, before the malls, downtown was where everything was and it was a lively place," he said. Downtown Fairbanks now has possibilities, Cleworth thinks. The Marriott Hotel, built just 10 years ago on Second Avenue, is doing well. The hotel caters mainly to traveling Alaskans, including business travelers, who like a downtown location so they can walk to places. Big Ray's, down the street, also does well. Those are clues that businesses can do OK downtown, Cleworth said. Craig Ingham, president of Mt. McKinley Bank, Fairbanks' local community bank, said the local economy is generally stable, albeit a little soft. The community, along with the state, has generally withstood the jolts that have hit the Lower 48, he said, although high local energy costs are a major concern. Revitalizing Fairbanks Local Fairbanks business groups meanwhile are actively working on downtown revitalization. The nonprofit Festival Fairbanks is pursuing a long-term public space improvement plan that has been partly implemented. There are now attractive green public spaces, walking paths, rest areas and overlooks, as well as flower beds along the downtown side of the Chena River. There is a pedestrian bridge crossing the river to more green spaces near Doyon Ltd.'s corporate office building. Michelle Roberts, Festival Fairbanks' director, is working with the Alaska Railroad Corp. to develop equivalent riverside green space, walking and bicycle paths along the north side of the river. When that is complete there will be pedestrian and bike-friendly green space on both sides of the Chena for a considerable distance, with more pedestrian bridges so that people can walk in loops along the river, Roberts said. Another idea among city workers, just a gleam in the eye at this point, is to extend track from Pioneer Park, Fairbanks' historical and visitor center, to the city center as a way to shuttle tourists and pedestrians. Light-weight rails could possibly be laid on city streets and rights-of-way. A longer-term redevelopment plan also is taking shape for downtown itself, guided by a new committee of people who work and own property downtown, Cleworth said. The goal is to make the city's core more pedestrian-friendly with more trees and green spaces. The city has $6 million left from a series of downtown street improvements that can be reallocated to the improvements, Cleworth said. The improvements are being coordinated with a plan to realign and redevelop other streets just north of the Cushman Street bridge. All of this won't revitalize the downtown by itself, Cleworth said, but it is being supplemented by an important strategy pursued by a second nonprofit, the Fairbanks Downtown Association, to sponsor events. This is proving to be effective and popular, the mayor said. A Solstice celebration is a big success, bringing throngs of people downtown, and this adds to Fairbanks' traditional and much older Golden Days celebration, a project of the Fairbanks Chamber of Commerce. There are also new weekly downtown Farmers' Markets, which sell far more than food. "We've found that events are the way to bring people downtown. It works," Cleworth said. Festival Fairbanks does a lot of other things, too, including community flower gardens and a vegetable garden in front of city hall that provides fresh produce for low-income families. A "clean team" managed and financed by the group appears daily on downtown streets in summer and winter to clean debris and make sure sidewalks and public areas are clean and passable, Roberts said. There are some short-term challenges facing downtown revitalization, however. While there are people walking around the downtown and even shopping, tourists are noticeably absent. "One problem we're having is to get the tour companies to bring tourists downtown," Cleworth said. In previous years Princess Cruises and Holland America had a schedule to bring visitors downtown at midday, which helped restaurants and retail shops. This ended this year when a relationship was forged with the Binkley family's Riverboat Discovery group of businesses, which include a large restaurant and gift shop along with the popular Riverboat Discovery sternwheelers, a popular river day-cruise. The tour companies worked to compensate with a late afternoon and early evening shuttle downtown but the effect hasn't been the same. "We need to sit down and brainstorm this with the tour companies, to find a solution," Cleworth said. The mayor's hope is to persuade Princess Cruises and Holland America to allow visitors more than one day in Fairbanks on their schedules. Something old, something new Another challenge is to remove a real downtown embarrassment, the derelict and empty Polaris Building, Cleworth said. This is to Fairbanks what the abandoned MacKay Building was to Anchorage for years – an eye-sore – until the MacKay Building was renovated. Anchorage developer Marc Marlowe owns both buildings. Cleworth hopes Marlowe will be successful with the Polaris Building, but for now it serves as a stark, visual reminder of the decay of the downtown area. Visually, downtown Fairbanks is appealing in many respects. There is a 1960s feel to the core downtown, First Avenue through Sixth Avenue, where older buildings are mixed with new. Second Avenue still has diagonal parking and the historic Co-Op Drug has been renovated into arts, gift and coffee shops, and the Co-Op's lunch counter still has booths and stools preserved and restored from the 1960s. The old Lacey Street Theater is still there, although it is now used for other purposes. Above the Co-Op, Fairbanks' local theater group stages Shakespeare productions. Fairbanks wants more tourists downtown, but the absence of the multitude of T-shirt shops that is a feature of cities that host masses of tourists can also be pleasing, at least for Alaskan visitors. The decay of the Polaris Building is partly offset by the attractive designs of the nearby Marriott Hotel and the Mt. McKinley Bank building, built in 2008. The Doyon corporate office across the Chena River, easily visible from First Avenue and reached by a pedestrian bridge, also has an attractive design that fits in well with the environment. Toss in the quirky gray-and-pink box design of the KeyBank building, and the adjacent Aurora Energy building, owned by the Usibelli coal-mining family that also owns the Aurora coal power plant near the downtown. Fairbanks' long history is evident with its older, well-preserved federal courthouse that is now privately owned and used for offices and some retail, and the original city office building on Cushman Street, now a historic museum. The city's offices are now located in the old Main School building also on Cushman Street, which has been rebuilt. It was once the only school in Fairbanks. Ingham, of Mt. McKinley Bank, said Fairbanks' downtown core is still mainly business and professional offices and not heavily retail, and that balance that should be preserved. The bank believes in downtown, too. "Our board made the decision to stay in the downtown core area when we built our new building," he said. A downtown revitalization plan should focus on a mix of uses and not become too focused on retail, he said. Fairbanks' retail used to be concentrated downtown. The city had Woolworth's, a Nordstrom's and J.C. Penney stores downtown. Those are all gone now – the more recently arrived large stores are now on the outskirts – but there is still a mix of small and medium-sized retail downtown. Some older buildings could be removed, Ingham said, and a plan to redevelop that space them with an emphasis on parks and green space is a good one, but he cautioned also about too much emphasis on pedestrian access to the point that traffic becomes congested. That would discourage people from coming downtown, the opposite of what is hoped for.

Alaska enters into budding world market

When you think of exports from Alaska, fish, lumber and zinc come to mind. Fresh cut flowers wouldn’t be on the list. They soon will be, though. A niche industry is developing fast in growing and selling fresh-cut peonies, those blossoms much in demand and beloved, world-wide it turns out, for weddings. It’s a small business so far but it’s growing, and there seems to be an insatiable market demand at a certain, critical time of the year. That’s according to Ron Illingsworth, a grower in North Pole, who is also president of the Alaska Peony Association, a trade group that recently formed. Alaska peony growers had 39,000 plants in the ground at the end of 2010 and the number is now estimated to grow another 21,000 in 2011, Illingsworth said. The growers are all small operators, many, like Illingsworth, who also own greenhouses and sell plants and vegetables at retail or at local farmers’ markets. “Buds are what we ship, not open flowers,” Illingsworth said. “The buds, stems with buds on them actually, are cut at a time just before they would open and then chilled to 34 degrees for a minimum of 24 hours before we ship them. The stems are cut about 30 inches long so that they can be re-cut at the destination and rehydrated to open the bloom,” Illingsworth said. It takes five years for a peony plant to produce flowers that can be sold, he said. There are now about 25,000 Alaska peonies planted that are three years or older, according to data the growers’ association has collected, and more plants of an age where flowers can be sold are becoming available each year. It’s just a guess at this point, but Illingsworth thinks about 6,000 cut peony stems were shipped to buyers in about 15 states this summer, about half of the production from growers are on the Kenai Peninsula and half from Interior Alaska. “Last year our sales were much smaller. Most of us are just now at the point where we have enough plants that are mature enough to do commercial sales,” Illingsworth said. Different seasons The market niche is this: peonies blossom later in Alaska than elsewhere, so when big Outside growers are past the season, Alaska’s is just beginning. Several peony growers said most Lower 48 growers end their season on Memorial Day, which leaves June to September open to Alaska. So far the Alaska growers mainly serve brokers and individual buyers in the Lower 48, but there more interest from overseas and some small export sales have been made. Illingsworth said Alaska growers want to concentrate on building a solid domestic market and establish a reputation for reliability before attempting to ship overseas in significant numbers. The worldwide market is tempting, though. There are inquiries coming from places as far afield as Italy, the Philippines and China that Alaska growers have not been able to serve. Illingsworth said he recently took a call from a broker in England who wanted to buy 10,000 stems a week. “We’re not there yet,” in terms of the production capacity, he said. Illingsworth and his wife, Marji, have about 4,000 peony plants in the ground at their Lilyvale Farm near North Pole and have been growing for four years. Like most growers, Illingsworth started the peony business as a sideline to growing vegetables and plants for the local market. He and his wife retired from teaching at the University of Alaska Fairbanks a few years ago. Illingsworth started very small in peonies with 20 plants, then planted a few hundred the next year, gradually increasing the numbers. About 1,800  new plants went into the ground this year, he said. Other growers have more. Rainwater has about 6,000 plants at Glacier Peonies near Homer, and has been growing her plants for six years now. She is a retired nurse, who also raises greenhouse vegetables, although most of these are donated to the local food bank, except for what she keeps for personal use. Sue Kent, who operates Midnight Sun Peonies Inc. near Soldotna, has 10,000 plants. Midnight Sun Peonies may be the largest grower in the state. Kent has been at it four years as a sideline – her main occupation is as an environmental consultant – and 2011 was her first year selling commercially. “It has been exciting. One Monday, Oregon stopped growing, and my phone starting ringing,” Kent said. Near Palmer, Craige and Kathy Baker just started with peonies at their Grey Owl Farm on the Glenn Highway. The Bakers have been producing flowers and other nursery crops in their greenhouse, as well as selling sod, since 1998. They now have 2-year-old peony plants, and have another two to three years to go until they can sell the flowers commercially. Illingsworth said there are about 18 growers on the state doing commercial sales and about 75 members of the peony growers’ association. “Many of our members are people in the process of planting enough peonies to be considered growers. We have a 500-plant threshold before you become a ‘grower’ for purposes of the association,” Illingsworth said. Kent said the fact that the infant industry has formed an active trade association has impressed buyers. “The fact that we have organized ourselves and are working together seems to have impressed people,” she said. Research needed Growers can get several buds off a mature plant in a season. “A mature plant after five years should have 10 cutable buds. You want to leave the rest on the plant to let it grow. It might have as many as 15 to 20 total buds,” Illingsworth said. Logistics must be managed carefully, however. “We ship out of state using FedEx priority next day air. So far, they’ve given us the best deal,” Illingsworth said. “Temperatures are a problem as flowers on a truck at the destination waiting to be delivered for 5 hours in 95 degree temperatures will probably end up being ruined. Often we have the buyers pick up their flowers at the destination FedEx office rather than having them delivered.” Because Alaskans can sell when no one else can, they can command up to $5 a stem. That is about seven times the price in early summer when the big Lower 48 growers supply the market. Despite bright prospects for the infant industry, recent budget cuts at the U.S. Department of Agriculture will result in USDA’s Agriculture Research Service closing in September, leaving peony growers without vital assistance in research, plant variety and nutrition just when it is vitally needed. “There’s no one left to help us,” said Sue Kent. “We’re building an industry here, but we’re left now to figure things out for ourselves,” in terms of scientific and technical matters. Illingsworth said there had been plans for the USDA center to become a peony gene bank, which would have been an important advantage for Alaskan growers. Researchers at UAF played a crucial role in the creation of the infant industry. Pat Holloway, director of the Georgeson Botanical Garden at the University of Alaska Fairbanks, a botanical research center, developed the idea of growing peonies commercially after meeting an Oregon grower at a greenhouse conference in the late 1990s. “He told me we had something no one else in the world has – peonies blooming in July,” she said. Not long after, two New Zealand tourists stopped by the UAF botanical gardens. They happened to be peony growers. “They were dumbfounded to see peonies growing in Alaska. They said we were sitting on a gold mine,” Holloway said. “In the cut flower trade, money is made by a new shade of pink on a rose, or a ruffled petal. It is unheard of that someone would get three months of a market practically to themselves.” There are peonies shipped from Columbia in the same time period, but they are container-growth plants and of poorer quality than those from Alaska. “They are not competition,” Holloway said. Holloway obtained a $500,000 grant from the USDA’s new crops program and began experimenting with peonies at the university’s botanical gardens. Word about peonies and the commercial possibilities ultimately got around in the state’s gardening community, and a mini-industry took off. Holloway said there are a range of issues growers face, including appropriate soils and fertilizers, weed control, disease identification, proper stages for cutting, and post-harvest chilling and handling. “Growers can experiment on their own but it is hugely expensive. The cut flower trade is very competitive and we need to build the best foundation we can for these growers to succeed,” Holloway said. “Every industry I know of is supported by public research and development dollars. This industry is just beginning, and dollars for research are practically non-existent.” Holloway has been in Washington, D.C., looking for funding, but the outlook isn’t good. “I was told bluntly that Alaska is a rich state and we should fund this project (with state dollars). There are far greater national (agriculture) programs that take priority,” she said. “Unfortunately, agriculture in Alaska is not considered a priority, and it is hard to get Juneau interested in peonies.”  

Livengood mine a big boost to Fairbanks area

A possible $1 billion new gold mine north of Fairbanks will be a big shot in the arm for Interior Alaska’s economy, if it proceeds. International Tower Hills’ gold exploration project in Livengood, 70 miles north of Fairbanks, would provide a lot of new jobs and business for suppliers and service companies, if it moves forward. It would be larger than Fort Knox, another gold mine northeast of Fairbanks that is now producing. “We’re in the middle of our pre-feasibility study now. This will be our first look at engineering, metallurgy, our processing design and the infrastructure needed. We expect this to be out in mid-November,” said Karl Hanneman, general manager of the project. Exploration and development of a large mine is done in a phased process. The steps in the project development include the pre-feasibility study, usually followed by further work to optimize the design and add more detail, Hanneman said. This is followed by the feasibility study itself. “The difference between the two is the greater level of detail,” he said. “The pre-feasibility study would include estimates of capital expenditures, for example, while the feasibility study would require actual quotes from two or three vendors. There’s a greater degree of accuracy in the estimates.” Livengood is an old mining district where gold was first discovered in 1914. There was a lot of placer mining in the area and the miners pushed hard for a road, the Elliot Highway, which was built in the 1930s to serve the    mining district. – Karl Hanneman, general manager of the project Typically the feasibility study and the National Environmental Protection Act review occur on parallel tracks, and usually, at the end of both, the project is sanctioned and moves to production. This is followed by production and, ultimately, closure. The pre-feasibility study define the schedule for the following steps, and also would include operating cost and capital investment estimates and expected production rates. International Tower Hills also just released a new Preliminary Economic Assessment, or PEA, a requirement of the Canadian Securities Administrators that must be done following the end of an exploration company’s fiscal year, which was the end of May for ITH. A PEA was issued in August 2010 and 2011, Hanneman said. This year’s will include a higher level of estimates for the project economics compared to last year’s filing. The company is drilling to provide information for the pre-feasibility study and to further define the resource, as well to continue exploration work, Hanneman said. The resource definition aims to move resources from “inferred” to “measured and indicated.” “We are basically improving the quality of our information about our resources,” Hanneman said.  “Inferred resource” is an estimate based on results from relatively widely spaced drill holes. The confidence level is lower than a “measured and indicated” estimate, determined through a more tightly spaced pattern of drilling, giving a higher degree of accuracy. Bigger than Fort Knox As of last March, the company had “measured and indicated” 397 million tons of resource containing an estimated 10.6 million ounces of gold and an additional “inferred” resources of 104 million tons containing an estimated 2.7 million ounces of gold. New resource estimates are expected to be published soon. Overall, the ore body is believed to be about twice the size of the Fort Knox Mine, and the grade appears to be similar, Hanneman said. “Fort Knox is currently milling ore of slightly lower grade than our estimated average ore grade. That is quite encouraging for us,” he said. There are some other differences with Fort Knox. “Our host rocks are quite different. The ore at Fort Knox is in granite and is generally consistent through the ore body, which means the feed to the mill is generally consistent. We have a more complex ore in sedimentary and volcanic rocks, with changes in the ore at different levels,” Hanneman said. “As we advance to deeper layers there will be some changes. This means we have to do good testing work to develop an optimal process. It’s a complexity we have to manage.” The ore also has arsenopyrite associated with the gold mineralization, similar to the ore being mined at the Pogo Mine near Delta, east of Fairbanks. “This means we’ll have to manage the arsenic in the ore, but fortunately arsenic is relatively easily removed through a water treatment process,” he said. “We’ll also have to manage the water runoff through the (soil and rock) overburden,” in and around the mine. The depth of the ore body is defined in some areas, reaching as deep as 1,000 feet. This doesn’t mean the ore can be economically mined to that depth, however. Lands in the ITH Livengood property covers 50 square miles, land owned by the state and federal governments (managed by the Bureau of Land Management) as well as the Alaska Mental Health Land Trust. A key portion of the deposit is on the BLM lands. Hanneman said there doesn’t appear to be any major federal or state issues that would complicate the permitting for the mine. Access and process The company is still studying the gold ore processing options, but the economics so far point to a big mill, rather than a heap leach process, for example. A mill requires large amounts of power, however, and ITH is still working on the power requirements. A long-distance transmission line is the favorite method to get power to the site, although the company has evaluated on-site power generation. Connecting to the grid is best for the community in the long run, Hanneman said. ITH will probably build the transmission line, as was done at the Pogo Mine and Fort Knox, but is open to the local utility stepping in. Having access to the grid also would give the mine access to renewable energy on Golden Valley Electric Association’s system, including wind power from Bradley Lake, Eva Creek and maybe someday Susitna. Having road access and available infrastructure is a big advantage. “Livengood is an old mining district where gold was first discovered in 1914. There was a lot of placer mining in the area and the miners pushed hard for a road, the Elliot Highway, which was built in the 1930s to serve the mining district,” Hanneman said. The low grade deposit was known by the early miners. In fact, the miners named Money Knob, the major geographic feature in the exploration area, because of the known gold there. However, the gold was low grade and the technology to develop the ore wasn’t available. Now the technology is available, and the price of gold is at high levels. Roads and trails have been built all through the area, “and this is infrastructure we can now take advantage of,” The company is also taking advantage of a former Alyeska Pipeline Service Co. construction camp, which includes shops, dining facilities and living quarters that have been refurbished. The Trans-Alaska Pipeline System is only four miles away and a fiber-optics cable built in the TAPS corridor allows for enhanced communications for people working at the exploration site. Mining jobs The number of employees needed will come with the pre-feasibility study. The $1 billion capital investment would require roughly 1,000 construction workers, and 500 to 600 for operations. The project employed about 150 this summer, with about 110 still working in August. Seven drill rigs were at work this summer, a few more than last year. Fairbanks houses a good pool of trained workers, and more workforce development is under way. ITH has already worked with the state Department of Labor and Workforce Development in a drill helper training program, and the University of Alaska Fairbanks offers ample training ground. Where employees will be housed is still being worked out, although some may commute the 70 miles from Fairbanks. “The economic benefits of the project will be spread wide in the community,” Hanneman said. “There is a good support industry and a good network of vendors in Fairbanks created for the oil industry and Fort Knox and Pogo” that will also be able to support Livengood. “These are people who know this business and what our needs are.”

State O&G division scolds Escopeta

  Escopeta Oil and Gas Co. is negotiating a possible fine with the U.S. Department of Homeland Security over a violation of the U.S. Jones Act that occurred when the company moved the Spartan Drilling Co. Blake 151 jack-up rig recently from the U.S. Gulf Coast to Cook Inlet. “There are discussions under way but nothing has been determined,” Escopeta spokesman Steve Sutherlin said. The Blake 151 is now being prepared for final state inspections by the Alaska Oil and Gas Conservation Commission, Sutherlin said. Drilling is expected to begin within days. The Jones Act violation occurred after Escopeta used a Chinese heavy-lift vessel to move the Blake 151 part of the way to Alaska. The rig was moved from the Gulf Coast to Vancouver, B.C., with the Chinese vessel, where it was offloaded to allow work to be done on the rig. The subsequent tow from British Columbia to Alaska’s Cook Inlet was done with U.S.-built tugs supplied by Foss Maritime, a U.S. company. The Jones Act requires cargoes moved between U.S. ports to be in American-built and -operated vessels even if the voyage is broken with a stop at a foreign port, as occurred with the Blake 151 movement. The resulting uproar over the rig movement, with letters of complaint being written to Homeland Security Secretary Janet Napolitano by several U.S. senators as well as U.S. shipping groups, resulted in Escopeta President Danny Davis stepping down from his position, Davis has acknowledged. The U.S. Customs and Border Protection, which is part of the Department of Homeland Security, has jurisdiction over Jones Act administration. In a related development, Alaska’s state oil and gas director, Bill Barron, chastised the company for moving the Blake 151 into location in upper Cook Inlet and lowering the legs on the jack-up rig to the ocean bottom without completing sea bottom site surveys required by the state. “Our concern is with the company’s operational practices, not the condition of the rig,” Barron said. Barron wrote Escopeta a sternly worded letter intended to put the company on notice that, “these are not acceptable practices,” he said, referring to the company’s action in moving the rig without having all of the authorizations. No penalty against Escopeta is contemplated at this time, Barron said. The state just wants the company to adhere to all rules, he said. “The last thing we need is a major incident in Cook Inlet,” with and oil and gas operator, Barron said. In his letter to Escopeta’s current president, Edward Oliver, Barrow said, “While the division is pleased to see a jack-up rig arrive in the state, I am gravely concerned about what I perceive to be Escopeta’s apparent disregard for regulatory requirements.” In the letter, Barron cited Escopeta’s action to ship the Blake 151 rig to Alaska without having obtained a Jones Act waiver as well as the company’s decision to move the rig to the final location without first having U.S. Army Corps of Engineers permit. However, a Corps of Engineers spokeswoman in Anchorage said the company is now in compliance with its requirements. U.S. Coast Guard rules are also being complied with, a Coast Guard spokesman said. Escopeta had sought a waiver of the Jones Act arguing that no U.S.-built vessel was available at the time that could have moved the Blake 151 safely through rough seas around the tip of South America. The government had granted Escopeta a waiver in 2006, but financing for the rig fell through and when Escopeta put its deal back together in late 2010, the department would not grant another waiver, citing the lack of a U.S. security justification needed for Jones Act waiver. Alaska U.S. Sen. Mark Begich said in an interview Aug. 22 that the U.S. Department of Energy, which made the energy security determination for Homeland Security both in 2010 and 2006, has not explained reasons for changing its position. Begich and other members of Alaska’s congressional delegation had interceded on Escopeta’s behalf with Napolitano, although the effort to get the waiver was unsuccessful. “They would never have stopped the rig being unloaded. Napolitano was always supportive of our efforts to get more exploration in Cook Inlet, particularly for natural gas, which we need,” Begich said. Begich said  a penalty is now being negotiated between the Department of Homeland Security and Escopeta, and that he has asked the department for a “modest” penalty. “A violation of the Jones Act has occurred but we don’t want the penalty to bankrupt the company,” Begich said. Jones Act penalties are at least partly based on the value of the cargo being transported, in this case of value of the Blake 151 jack-up rig.  

No magic method for controlling rising state Medicaid budget

  Alaska Department of Health and Social Services Commissioner Bill Streur. Photo courtesy of the Alaska Department of Health and Social Services     State officials and legislators are working to contain spiraling health care costs in the state budget. There’s no magic method they’re finding. Medical costs are spread all through the budget, such as in health benefits paid to state workers and retirees, but an immediate concern is Medicaid, the state program that pays medical care for lower-income Alaskans and which is half paid for by the federal government. Medicare, which pays senior citizens’ health care, is totally federally funded. Costs for Medicaid, however, are increasing at about 14 percent yearly and will reach $1.5 billion next year, up from $1.23 billion this year, state Health and Social Services Commissioner Bill Streur said. The state’s share of this is about half, which makes Medicaid one of the biggest items in the state operating budget. It’s costs are tough to control partly because of federal guidelines, which set minimum eligibility requirements, but also because of choices made years ago in Alaska. One decision at the state level is a high Medicaid reimbursement rate for Alaska medical providers, such as physicians and hospitals, compared to what other states pay their health providers. While this imposes a cost burden on Alaska’s budget, Streur said it also makes Alaska one of the few states where people enrolled in Medicaid can typically find health care. That’s not true in other states, where Medicaid reimbursement rates are low, and Medicaid patients have trouble finding health care. In contrast, with Medicare, the federally controlled program for seniors, reimbursements rates to Alaska medical providers are miserly, which is why seniors in Alaska often have difficulties finding care, particularly with physicians. A number other factors are driving up Medicaid costs, Streur said, including inflation in health costs, which he estimates is running at about 5 percent annually, but particularly in growth of the number of people enrolled in Medicaid and their increased use of medical services in recent years. Consultants to the Legislature have said that both trends, the increased enrollment and use of services, may be linked to a slowing of economic growth in Alaska and more people being without full employer health benefits. An increase in recent years in the number of children enrolled in Medicaid under Denali Kid Care and a long-term increase in Alaska senior-age population have particularly added to costs. Seniors tend to require more medical services in general, but much of the growth in Medicaid also has been in payments for home health-care services for seniors as well as the disabled. These are alternatives to institutional or nursing home care, goals that are worthy in helping keep people at home with their families. But it has also become expensive. These trends have been in the system for years and state officials and legislators have few options to control them. There are other areas where changes are possible although savings may be modest, at least in the beginning. Streur, for example, is concerned with a seeming disorganization in the way people seek health care, which is also driving up costs. People enrolled in Medicaid aren’t alone in this. It’s a problem private health insurers are grappling with. "Today too many people do self-referrals, going to clinics or emergency rooms and essentially directing their own care," the commissioner said. The ad hoc nature of this is very expensive. Streur hopes to do something about this with a pilot program of having patients’ care being coordinated by a physician, a concept Streur calls "medical home" care, which would have a physician direct a patient to the appropriate care. "We want people to have the right care at the right time, and at the right place," Streur said. "Not long ago people had family doctors who coordinated their care, but we’ve gotten away from that." This should discourage people from going to hospital emergency rooms, unless it’s really needed, he said. The medical home concept should result in better care as well as cost savings, and Streur hopes the pilot programs will show both outcomes. This is one of several recommendations expected from the state’s Medicaid Task Force the week of March 20. The commissioner hopes to have the pilot program running this summer, and to enlist three providers, a private nonprofit, an Alaska Native tribal health organization and a community nonprofit to develop the concept. They will work with small grants to be provided by the federal government. A second new initiative, long in the planning stage, involves a series of incentives to physicians and other providers to develop electronic information systems. Too many health providers still rely on hand-written records, a system that is not only inefficient but also error-prone. Switching to electronic costs money, but the state is hoping to ease that burden with grants to help pay conversion costs. Physicians are eligible for up to $63,750 over five years and hospitals are eligible for up to $2 million over the same period to go electronic, Streur said. Applications are now being accepted for the federal grants. Streur said two pediatric groups have submitted applications so far and about a dozen other physicians’ applications are expected shortly, along with applications from four hospitals. The financial savings of going electronic is uncertain at this point, but there will be other benefits, the commissioner said. "We are assuming there will be benefits not so much in saving dollars but in reducing duplications of effort," and greater accuracy, which will prevent mistakes, he said. Federal stimulus funds appropriated by Congress last year will pay for the electronic information system grants along with some funds made available under the federal health care reform law, Streur said. Covering the budget Another issue for the commissioner is the coming expansion of Medicaid under the federal law. In 2014 Medicaid coverage will expand to all low-income adults at or below income levels 43 percent above the federal poverty level for Alaska. The federal law requires coverage at 38 percent above the federal law but allows an additional 5 percent for Alaska, Streur said. Medicaid benefits for the expanded coverage will be basically similar to existing benefits for children, mothers and disabled, but there could be some changes in services offered that are options for states, the commissioner said. State formula programs like Medicaid, where spending guidelines are set out in population-based formulas in state law, take up about half of the state operating budget, and legislators have few tools to reduce spending in these short of major overhauls of the enabling statutes. To compensate for the growth in formula programs, lawmakers must cut spending in other areas where there is more direct control over budgets. For example, the state fiscal year 2012 budget passed by the state House of Representatives March 10 appropriated $4.848 billion in state general funds, about $100 million above the $4.748 billion in general funds being spent in the current budget year, fiscal 2011. With the state share of Medicaid costs running $100 million higher in fiscal 2012 along with increases in other formula programs like education, the House had to make cuts in state agencies and other programs to absorb the increases in the formula programs. Insurance exchange Another issue on the commissioner’s desk is to set up a state health insurance exchange program, a task Streur is sharing with Linda Hall, director of the state Division of Insurance. Health insurance exchanges were in the news recently after Gov. Sean Parnell turned down a $1 million federal grant to help pay for the state setting up an insurance exchange in advance of a mandate in the new federal health care reform law to have one operating by 2014. The exchange will be a web-based system that will allow consumers to sort through different options for health insurance and will make it easier to apply for programs like Medicaid. Streur didn’t comment on the governor’s decision to turn down the federal grant but he said the state’s establishment of its own system would result in one that is simpler and more suited to the Alaska health insurance market. Utah has developed a health insurance exchange for its residents that provides a model for Alaska, Streur said. Utah has petitioned the federal government to have its exchange accepted in place of one created by the federal government in 2014 and Alaska could do the same, the commissioner said. The exchange mandated under the federal law has some requirements, mainly technical in nature, that are more suited to Lower 48 states, which have many health insurance companies and options, compared to a relative few options available in Alaska, Streur said. The intent of an Alaska version of an exchange, like that in Utah, is the same as the goal of the federal exchange, which gives the commissioner hope that the Alaska version will be acceptable.  


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