December 14, 2005
Wednesday

Sometimes the need to bring forth other relevant facts or points of view regarding an Alaska Gas Line Project is called for.
 
I am just a simple Longshoreman, but I have spent the better part of the last 5 years understanding the different proposed gas projects to commercialize Alaskan gas and all the obstacles to each of them. And mind you, they all have major obstacles. Not just the LNG project.
 
While your [All-Alaska gas line has some big hurdles to overcome By Jeff Jones] distain for the AGPA proposed LNG project is obvious, I have taken the time to explore it in depth and from all angles (see ANGDA's "Report to the People", September, 2004) and also to study the Highway project in depth.
 
And while I continue to question both the Highway  and the current AGPA project of ever happening in my life time, I have taken the time to learn about both. Both are viable.
  
In order to know all, it is only necessary to know a little. But, in order to know this little, it is necessary to know pretty much.
 
I have to say up front that I now know some good reasons the Producers have not built anything yet. If they had done so 20 or 30 years ago it would most likely have been a break even project at best and a totally bankrupt disaster at worst. Because of low gas prices and high construction costs in those earlier decades, relatively, and cost over runs, Canadian regulatory factors, economics, and smaller markets at the time.
 
Of course any project that had broke ground 4-5 years ago would be making a bundle in any market via pipeline or LNG tanker today. And, unfortunately, here we sit. We all missed that window. But we still have many options in front of us. We are rich in options.
 
I have come to learn that the Highway and now the "newer" 4.5 bcfd AGPA project are both "Mega Projects'. Any project costing over $1 Billion today is usually seen as a "Mega Project" by most knowledgeable folks in the business.  These two are both in the $18 to $20 Billion range, allegedly. I suspect both would go much higher as every year of construction delay costs and materials costs add up.
 
And therefore, both of these being "Mega Projects", they each have a high bar to get over in the sense of customers, financing, investment decisions, logistics, market entry, permitting, regulatory, and technology issues, world wide competition for now ever scarcer raw materials, labor shortages, finding good engineers to design it and then even a tougher problem in today's construction arena: finding reputable contractors to build it coinciding with the global competition of other viable mega projects in many companies' portfolios. And our worst friend: acceptable costover run levels.
 
But the biggest hurdle of all will always be risk in a mega project with so many global components. To all interested investors and stake holders involved.
 
And there are many, many other pieces of a "Mega Project" to put in place prior to beginning construction. I have been very fortunate to learn all about this very recently.
 
One needs a tremendous amount of scoping early on, for instance, to settle upon "the right project". I would suggest to you that both the Producers and AGPA are still very early on in this process. 
 
In fact, just the scoping for the Highway project, at about $1 Billion, is a "Mega Project" in itself. This may well take another 5-7 years before any constrution committment occurs.
 
The $2 Billion the State needs to come up with for bridge and road improvements to our State infrastructure to be able to move pipe and equipment is also a "Mega Project". With many risks. Then there is also the training element.
 
Therefore, smart people use this scoping time to look at all options and certainly not throw any out the window until finding/settling on the "right" project. Again with the right mixture of economics, logistics, timing, and what I term the "getting her done" components. This includes looking at a spur line into South Central.
 
You [Jeff Jones] fail to write anything about the TransCanada project which, when combined with elements of the Highway and some LNG to Valdez with a spur line into South-central (also described as a "Y" Line in some circles), might well be the "right project" by combining the best elements of all the proposals.
 
Combining Producer gas into a line say only 36" in diameter (the Enbridge option) and connecting with the TransCanada existing pipeline infrastructure in Canada and their Canadian and potential Alaskan conditional R.O.W. from the Slope to the border with attention to Alaska's needs via a take-off at Glennallen (Governor Murkowski has stated these 4 take-offs are an absolute for our side of the deal), thus allowing for possibilities of things like LNG reaching multiple markets via Valdez, a new Alaskan propane and petrochemical industry, and the option for a spur line into South-central.
 
Or what about a 48" line to Delta? Then spurs off of that with 36" to Canada, and a 30 inch to Valdez, and a 24 inch into South central. That is also a doable, viable project.
 
Or two 36 inch lines of the Slope. One now and one later?
 
This "Y' Line" concept might also be described as "Alaska now, Canada next". This would utilize the existing permissions and pieces to start the Alaska side now and when all the Canadian First Nations, permissions, and regulatory obstacles are in place, build that portion next. The "Alaska Now" option gets our gas moving the soonest.
 
The objective truth is that any proposed project on the table today, with north of $5.00 gas (yesterday was a new record reaching $15.29!), is "economically viable." But economics are not the only underlying problems of any of the projects. Each project has specific hurdles.
 
Another idea being kicked around is a bullet line directly into South central from the North Slope. It would cost about $4 Billion for a 20" line, 1 bcfd capacity. The pipe size would surely grow in size with nominations at an Open Season and thus bringing "sure" gas to South central very quickly at below Lower 48 prices.
 
This would also allow for a smaller, quicker LNG project into Valdez as a currently viable "senior" permitted option. Say a 1.5 bcfd capacity line. That project would export about 10 million tons of LNG per year. That is ten times bigger than Nikiski LNG today! A world class LNG project by any measure.
 
Contrast that with the US D.O.E. projected cost of $5-6 Billion to drill for unknown field gas in Cook Inlet. As one guy puts it "Hope is not a Strategy". And that gas would be sold to us consumers at Lower 48, Henry Hub prices. Ask ENSTAR.
 
Surely, that is not our best option with a South central gas crisis looming. And risking the loss of our valuable Kenai Industrial operations is a bad choice.
 
Remember, doing nothing is the biggest risk to Alaska. Alaskan consumers and workers, the State, the Alliance, Unions, VECO, South central and rural Alaskansall suffer with more delay. Even the Producers it can be argued. Conoco has signed on. Where is BP and EXXON?
 
You [Jeff Jones] have never visited us at ANGDA, never looked at our economics of said spur line, or even a direct "bullet" line. Did you miss the ENSTAR insert in this months billings that says "ENSTAR, ASRC Contractors, Inc, and Michael Baker Engineering are working together on a $4 million Parks Highway Spur Line Project to study the feasibility of constructing a natural gas pipeline from Fairbanks to south central Alaska, along the existing transportation corridor of the Parks Highway. If this study finds the Parks Highway Spur Line economically viable, it would accommodate supplies from both the North Slope and the prospective gas
reserve field in the Nenana Basin".
 
Are you prepared to write that their study is also a bad idea? You dismiss a spur line as some type of "deal buster in a big way". That is not likely.
 
For the last year, ANGDA, with the support of the Murkowski Administration and the Legislature (through both funding and verbal support) has been hard at work on a similar spur line concept from either Delta (getting gas from the big line), or Governor Murkowski's take-off point at Glennallen down the Glenn Highway.
 
We have been working hard on the R.O.W. issue from Glennallen to Palmer and in fact have progressed to the point where we have the draft Commissioners' State R.O.W. decision sitting on Commissioner (DNR) Menge's desk. We are just awaiting his signature so we can proceed with other native and private land entry negotiations, financing options, permitting, potential consortium partners (electric and gas utilities), etc. This has also been described as a pre-build into the big pipe.
 
We believe with the inclusion of existing industrial customers like Agrium and Nikiski LNG, and new industry concepts like propane exports to both rural Alaska and open market sales (China, Korea, Japan, U.S., and Taiwan), and new potential petrochemical industry customers like Dow Chemical and others whom are interested in our gas liquids (an ethane plant specifically to manufacture plastic beads for export utilizing our  4 south bound Horizon and TOTE ships sailing weekly to Tacoma, WA empty) is how ANGDA is clearly working in the best interests of Alaska to fit within any project.
 
ANGDA may well have an economic spur line down the Glenn or perhaps via the Parks' Highway.

Working with everyone interested. Again, scoping will determine which route goes. They are not deal busters.
 
Your own Journal this week [Alaska Journal of Commerce] also reports that no drilling for gas in the Nenana Basin will occur this winter as earlier predicted. That news is certainly disappointing and could lead to more delays getting gas to South central via the Parks' Highway route.
 
In Alaska, our own statewide politics may end up choosing a project or no project at all.
 
Let us all begin to work together to find an "Alaskan sized" project in the next year or less.
Now is certainly not the time to throw any thing out the window as we all work towards a gas project.
 
And every Alaskan and Legislator better be very clear on the composition of any gas coming off the Slope before signing on to anything. It is paramount.
 
And as I said, I know a little. Pretty much.
 
Best,
 
Scott Heyworth
Alaskan
Anchorage, AK - USA

Note: Scott Heyworth is an Anchorage longshoreman who spearheaded the campaign for a ballot proposition creating the Alaska Natural Gas Pipeline Authority.

Related Commentary:

All-Alaska gas line has some big hurdles to overcome By Jeff Jones...
Jeff Jones is the publisher of the Alaska Journal of Commerce www.alaskajournal.com

 

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