A Bigger Picture
By Scott Heyworth
December 14, 2005
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
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
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
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
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.
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.
All-Alaska gas line has some big hurdles
to overcome By Jeff
Jeff Jones is the publisher of the Alaska Journal of Commerce
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on Viewpoints are the opinions of the writer
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