Legislative week in review
Legislators in Juneau were focused on the prospect of a billion dollars of federal stimulus money for Alaska as the second week of the 2009 session ended Friday, Jan. 30. A few details were emerging on how the money might be appropriated if the package passes Congress. It has been approved by the U.S. House but not the Senate. Both the House-passed and Senate-pending versions channel the federal money through existing programs with states, thus avoiding the taint of "earmarks," or special designations. For Alaska, this means that surface transportation infrastructure money, for example, will flow through the existing federal-state transportation program. Projects already on the Statewide Transportation Improvement Program, or STIP, will be first in line for funding.
Money for Alaska airports, most of which are state-owned and operated, will similarly work through the existing programs for federal aid to airports. It is less clear how funds for school capital improvements will be handled, but presumably each state’s existing school construction program will be followed. In Alaska, this means that the new school and school major maintenance projects on the state Department of Education priority list would be followed. There will be substantial flexibility on how some of the funds will be apportioned. Legislators are most interested on how money can be channeled to municipalities, for example.
On other issues, last week legislators heard from TransCanada Corp. and the BP-ConocoPhillips Denali pipeline on those companies’ efforts to develop a North Slope natural gas pipeline. The two are competitors in developing a project. Both told lawmakers that they are taking the long view on prospects for the pipeline, and that they are not discouraged by the current slump in energy markets, which they see as short-term. However, many legislators attended the Alaska Support Industry Alliance’s "Meet Alaska" conference the previous week, on Jan. 23, where they learned from BP, ConocoPhillips and Wood MacKenzie, a consulting group, of substantial inroads into North American gas markets being made by new shale gas production, and of substantial surplus capacity in facilities to re-gasify imported liquefied natural gas, or LNG. The concern legislators have is that as the all-important 2010 open seasons for both TransCanada and Denali approach, it is apparent that energy markets are in a high state of flux. Even though customers purchasing capacity in either pipeline project will take the long view, the current environment in which "take-or-pay" contracts worth tens of billions of dollars must be signed can’t help but have an impact.
Concerns over the supply of natural gas in Southcentral Alaska is also on the minds of legislators, and there is a lot of talk in the capitol over the "bullet line" idea being advanced by Enstar Natural Gas Co. The concept is for a 20-inch or 24-inch pipeline from the foothills region of the North Slope to Southcentral Alaska. The foothills region is where Anadarko Petroleum and its partners are working on a potential gas development. It is not yet known whether this gas can be commercially produced, however. If it cannot be produced, Enstar’s alternative is to build its pipeline on to Prudhoe Bay, where there are substantial gas reserves. Enstar says it needs gas by 2015, several years before a large-diameter gas pipeline can be built. The bullet line could be built and operating by then, the company says.
There is an additional uncertainty over demand for the gas on the southern end of the pipeline, however. Enstar is quite clear that the Southcentral utilities cannot, by themselves, use enough gas to make the project viable. One or two large industrial customers, such as the existing Kenai LNG plant or a restarted fertilizer plant also near Kenai (the plant is now closed due to lack of gas feedstock) will be needed in addition to the utility customers. Enstar now estimates the cost of its project at about $4 billion, but new cost estimates are being worked on.
Gov. Palin says that an in-state gas pipeline will be one of her priorities for this legislative session but details have yet to emerge on what the governor has in mind. Legislators are unclear just what the state can do beyond what has already been done in creating the Alaska Natural Gas Development Authority, or ANGDA, which has the capability to issue bonds to finance projects. ANGDA is currently engaged in planning and environmental studies of a spur line to Southcentral Alaska from a large-diameter pipeline built through Interior Alaska. Enstar has, to date, indicated that it intends to do its bullet line as a private venture without state assistance.
One thing the state could do that would make a substantial impact on the economics of a bullet or spur line (and the cost to consumers) would be to make a substantial front-end cash investment in the project. Gov. Palin seems to shy away from this prospect, however, as do many legislators.
Mike and Tim Bradner publish the Alaska Legislative Digest and Alaska Economic Report.