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Alaska Legislature's pipedreams could cost state nearly $1 billion

Pat Forgey
The Alaska House of Representatives on Monday passed a bill that calls for spending $225 million on prep work and planning for a small-volume pipeline to move natural gas from the North Slope to Southcentral Alaska. The line would supply gas to Alaska's largest urban centers, including Fairbanks and Anchorage, both of which are facing energy shortages. istockphoto

With Alaska already committed to spending up to $500 million to spur construction of a natural gas pipeline, now there's a legislative push to spend hundreds of millions of dollars more on another pipeline.

In the end, the state could end up spending nearly $1 billion on two pipeline proposals with no guarantees that either line will ever be built. And this comes as the Alaska Legislature is also contemplating a multibillion-dollar tax break on oil companies, one that would spawn budget shortfalls in years to come.

The Alaska House of Representatives on Monday passed a bill that calls for spending $225 million on prep work and planning for a small-volume pipeline to move natural gas from the North Slope to Southcentral Alaska. The line would supply gas to Alaska's largest urban centers, including Fairbanks and Anchorage, both of which are facing energy shortages.

"This bill is on an extremely accelerated schedule," said Sen. Hollis French, D-Anchorage, and a member of the Senate Resources Committee, which began hearing the bill this week.

The line being pushed by legislative leaders, including House Speaker Mike Chenault, R-Nikiski, is known as "ASAP." It is being developed by the state-created Alaska Gasline Development Corp., and would bring as much as 500 million cubic feet of natural gas per day to Alaska residents and possibly supply a liquefied natural gas (LNG) export operation to markets in Asia or elsewhere.

Given economies of scale in the pipeline business, the cost to consumers of gas from the small line is assumed to be far higher than the cost from a larger line. And for more than four years, the state has been pursuing a larger pipeline, too.

Progress on that line began with great fanfare in 2008 when the Legislature passed the Alaska Gasline Inducement Act, championed by then-Gov. Sarah Palin. Under AGIA, pipeline builder TransCanada Corp. was chosen to begin preliminary work on the pipeline in exchange for up to $500 million in state subsidies.

Changing American gas markets, however, have resulted in a shift in focus of the AGIA line from supplying gas to the Midwest to exporting LNG to overseas markets. Three companies holding rights to develop much of the North Slope's natural gas reserves -- Exxon Mobil Corp., BP and ConocoPhillips -- have partnered with TransCanada to pursue the project, which they estimate could cost more than $65 billion.

TransCanada and its partners report they're making progress with the AGIA project, but Chenault is skeptical, saying that only the ASAP line has "momentum."

While the AGIA line has a cost limit to the state of $500 million, about half of which has already been spent, the ASAP line is expected to cost about $400 million to get going, with $225 million being sought this year alone in House Bill 4.

How these two separate pipelines might complement or challenge each other is now being discussed in the Senate.

When the House passed funding for ASAP on Monday, supporters said they hoped the two lines would somehow work together, with the ASAP line possibly even putting pressure on the backers of the AGIA line to move faster in getting a pipeline built.

That's possible, French said, but he warns that some provisions of House Bill 4 seem to clash with the AGIA commitments the state has already made. It is possible the provisions of House Bill 4 could be used as a backdoor repeal of AGIA by blocking further state subsidies, he said. One provision in House Bill 4 states that AGIA would no longer be enforceable if TransCanada no longer receives subsidies.

"There is concern that there is a sort of loophole with which the Legislature could, by stopping the funding of AGIA reimbursements, create an opening for this alternative pipeline," French said of the ASAP proposal.

Under AGIA, the state is prohibited from supporting any other natural gas pipeline that transports more than 500 million cubic feet of natural gas per day, a limitation that ASAP sponsors have complained about. The AGIA line would move up to 4 billion cubic feet of gas per day.

"Unfortunately, we are limited by the statutes that we passed a number of years ago," Chenault said. The ASAP line would be more profitable if it could carry more gas than it is allowed under AGIA, supporters say.

There is also a possibility that ASAP and AGIA could merge, enabling the state to take advantage of work done on both projects. "A merged or larger project could be even more beneficial" to the state, Rena Delbridge, an aide to ASAP cheerleader Rep. Mike Hawker, told the Senate Resources Committee.

A large part of TransCanada's work so far is on the northern part of the line, work that might be able to be merged with the work already done on the ASAP line, she said.

Sen. Lesil McGuire, R-Anchorage, who sits on the Senate Resources Committee, was skeptical of AGIA's progress, questioning when the state will look for an "exit strategy" on that effort.

McGuire and ASAP's primary backers Chenault and Hawker were key opponents of the AGIA license for TransCanada when the Legislature adopted it several years ago.

Contact Pat Forgey at pat(at)alaskadispatch.com