AD Header Dropdowns

AD Main Menu

Q&A: Departing ANGDA chief Heinze discusses future of Alaska pipelines

Alex DeMarban

Combine AGIA, ANGDA and AGDC and what do they spell?

Utter confusion.  

Yet these are the acronyms du jour that could help Alaska turn a decades-old dream into a gas pipeline that moves the largest reserves of conventional natural gas in North America.

Some say it's a pipe dream, but many Alaskans keep faith that a billion-dollar gasline will someday be built, bringing thousands of new jobs and a new resource boom to the Far North.

Spelled out, the gasline efforts include:

Alaska Natural Gas Development Authority, a state corporation created by voters in 2002.

Alaska Gasline Inducement Act, the ExxonMobil-TransCanada partnership funded with $500 million from Alaska and initiated by ex-governor Sarah Palin in 2007.

Alaska Gasline Development Corp., a state corporation created by lawmakers in 2010.

ANGDA is probably the least likely to produce a gasline.

Though created by voter initiative with nearly 2-to-1 support, it's enjoyed little political support and hasn't done much to advance a trans-Alaska gasline.

But its small staff can point to some successes. In an excerpted interview with Alaska Dispatch, Harold Heinze, the authority's longtime chief executive, who's resigning, discusses those victories and explains why the authority hasn't built the pipeline voters demanded nearly a decade ago.

What's prevented ANGDA from delivering gas?

Alaska Dispatch: Alaskans are frustrated that we have an energy crisis stretching from our rural communities to Fairbanks to right here in Anchorage, with a looming natural gas shortage. What has prevented ANGDA from fulfilling its mission of getting North Slope gas to Alaskans?  

Heinze: Number one, the big solutions are big. They're complex. They're expensive. They're very difficult. And while this is a very effective army around here, we have a staff of three, counting myself, and we at times have had as many as six contractors. That's not a huge staff to accomplish everything. We've been able to do a lot.

Secondly it's never really been our purpose to necessarily drive from a zero-point to the end, and the reason is we believe very heavily that the people who should be the doers are the private sector. This is not a doer organization in the sense that we're not going to build stuff. We've tried to do the front end, the bringing together, the forming of the coalitions.

The other part is the system sees this as a small piece of the total puzzle. It's really hard for the tail to wag the dog. A lot of what we've done over time is make sure at least the tail stayed attached to the dog. The best example I can give you is AGIA (Alaska Gasline Inducement Act). From Day Zero, ANGDA has made sure the in-state side of that issue was always there.

(We have) never been at the point of digging the ditch and putting the pipe in. Not to say I wouldn't like to, but I'm a pragmatist, and the things we've done have cost, over eight years, maybe $15 million. If you want to start digging ditches and putting pipe in the ground, you're talking hundreds of millions of dollars. And we've never felt the case was there for it. But the transition from setting up the project to actually executing the project is almost a hundred-fold increase in funding.

What we did do, for instance, in the AGIA process: when the Alaska Pipeline Project -- TransCanada Corp. and ExxonMobil -- held their open season, we participated in that as a commercial entity. We noticed other people are standing around here, putting in bids. We said we'd like to put in a bid, and we're here representing the Railbelt electric utilities.

The companies offered themselves some pretty good terms. They just didn't expect anyone else to stand in line, and we did. And when it became our turn they had to give us the ticket. So we enjoy as favored a circumstance as anybody ever will have in that project if it's built. That didn't put pipe in the ground, but that link is probably the equivalent of several billion dollars worth of pipeline at a discount. Instead of building a pipe at several billion dollars, we can ride in that pipeline to say, Delta Junction or Glennallen, under very favorable terms. So we've tried to work the system in that way.

So are we frustrated things aren't further along? Yeah. The other example I've used with people is the talk of the pipelines -- in particular big gas pipelines -- tend to suck all the oxygen out of the room, and a lot of the opportunities in Alaska are not (discussed). For instance, propane. Propane is a fuel that may affect a quarter to a third of all Alaskans before this is said and done. It comes from Prudhoe Bay. It's not a pipeline-delivered thing. We'll have to find other ways to deliver it. No one's ever worked on that. We're the only ones who ever touched it and tried to make it happen.

****

ANGDA's finite resources

Alaska Dispatch: I think you said $15 million has been spent by ANGDA since its creation. That doesn't sound like a lot to create a gasline. Is there a lack of willpower on the Legislature's part that's part of the issue? Are they not funding it enough? Or is ANGDA to blame?

Heinze: What we've tried to do is put that money into the best opportunities we saw that people weren't necessarily working on. About September 2003, when we got started, was also when the newly-elected Gov. Frank Murkowski was starting to deal with the producers and other people, and he said, "I don't want you to do the LNG thing because it makes them mad."

It turned out the ballot measure fortunately had included a provision to work on the spur line. So we did. We didn't work that hard on Valdez, but we worked really hard on the spur line. And a few years later, we ended up with a conditional right of way, basically very advanced in terms of the permitting -- so much so that a couple of years ago, we put all that off to the side and said we've done everything we can do short of being a pipeline company that's ready to build this thing.

Gov. Sarah Palin during her tenure at one point in 2008 told us to look at how we can help Fairbanks, because they were having a horrible time with the high oil prices. We looked at the work we had done and said maybe we can figure out how to run a pipeline from Cook Inlet to Fairbanks and we did. We called it B2F, Beluga to Fairbanks. We were pretty far advanced in that … when it became clear there wasn't a lot of support from the administration or the Legislature to take that to the next level. So, again, we put that off to the side.

We got to the point in B2F that to take it to the next level required $5 million and we had $1 million. The prospect of getting $4 million was nil. So we moved on to propane and other things. And that's where the organization is right now.

The bullet line from the North Slope to Cook Inlet has become the favorite son. In the old days, it was first proposed by Enstar Natural Gas Co. and it was called the bullet line. Under the Alaska Gasline Development Corp., it's called ASAP, Alaska's Stand Alone Pipeline. But even that project leaves things around the edges that are not addressed.

****

Alaska Dispatch: I have heard criticism that ANGDA didn't focus on what it was supposed to focus on -- the pipeline from the North Slope to Valdez. It went off in all these different directions. But it sounds like you guys were told to go in all these different directions.

Heinze: I think the characterization of us is fair in that we probably didn't stay singular and bullheaded about advancing that one issue. And yet we've probably been a hell of a lot more flexible than folks thought we could be.

The other part of it is, we've also tried to look around and very frankly the people who have pursued solely and singularly the Valdez project are the Alaska Gasline Port Authority people. That has been their cause and crusade. We chose not to compete or duplicate their effort. But we turned (to) the spur line that would have connected to their pipeline, and we actually participated in the AGIA process.

So I answer part of the criticism: "We're smart enough folks, we recognized someone else would do it, why should we?" They are not a public corporation within the state, but they are a publicly funded organization, and their motives seemed very clear. Along came the (AGIA) Alaska pipeline project open season, and if you check the record of that, you'll see when they put that out for notice, you'll see there were two projects included, one down to Canada, one to Valdez. We participated in both. So, from an Alaskan perspective, we staked the ground, and we certainly defended the Valdez option fully.

I don't think we've ever lost sight of the original charter. Probably the only other thing is in the early years in particular, we learned that despite our best efforts, things didn't necessarily get communicated clearly to the public. ANGDA has published reports to the people, the first was printed newspaper style. We probably distributed 100,000 copies. And the last page of that report was basically the conclusion that the better LNG project out of Valdez might have been a smaller project than people were thinking about.

We said yep, looking at LNG is a good thing, but it may have to be a smaller project. Since that time, I've made a number of trips oversees trying to attract customers. I had experience doing that in the early 1990s (as Natural Resources commissioner) for then-Gov. Wally Hickel. I haven't had quite the support I did from him in doing it, but we have tried to make those contacts overseas, and I've met a number of people in China and Japan.

****

Accomplishments, disappointments

Alaska Dispatch: ANGDA moved ahead where it could and is ready for certain things to happen, but are you disappointed more was not done?

Heinze: No, I'm not disappointed. And there's probably two reasons. What keeps coming out when you analyze the choices (is that) connecting off (the big pipe) is so far and away the best thing for Alaska that I'm prepared to have whatever patience it takes to pursue that project.

The most singularly valuable thing we have now, I would argue, is this discounted ticket to ship in the Alaska pipeline project. If that was to come to fruition, that's worth hundreds of millions of dollars to the Alaska consumers. We probably didn't spend $1 million to get it. If I can't do that -- a big project with us getting the benefit and the big guys taking the risk providing a highly efficient transportation system -- I'm not convinced it's a smart move to go our own way.

My premise, and the premise working with the board, is that this public corporation, while it might partner with people in the private sector and be supportive of an effort, was not going to take the role of the private sector. We've always believed the private sector was the ultimate judgment. If you couldn't find a pipeline company that was interested in building this pipeline, that's a bad sign and you probably don't want to build that pipeline.

****

Alaska Dispatch: What's one thing you would have done differently in hindsight with the goal of getting the pipeline further along than where it is today?

Heinze: There was a probably a moment in 2008 where we probably should have just gone out more in the open and had it out with the administration as to what we really ought to do on the in-state side. And there were certainly considerations and concerns on the in-state issues. That setting was there, but we just never really carried the fight forward. But it's very hard, again, to put new ideas on the table. One of (those ideas) is the Arctic and the changing conditions and the concept of direct shipment from Prudhoe Bay of LNG or propane. Instead of having a month or two of open water, you may be looking at eight months (in the future with warming temperatures). Trying to get people interested in that idea from the state side is just about impossible.

I think people grasp at, too quickly, one or two ideas put forward by folks and they never really had the conversation about what could we do, what makes the most sense, what can we accomplish quickly, what needs longer times, all those kinds of things. That's what continues to plague us on this whole gas issue. There's a lot of moving parts to this. It's big, it's complex. It takes a lot of people that really want to do this. Yet we somehow think we can divine that answer, like that Johnny Carson Carnak thing, holding the envelope to the head and he says the answer without having seen the question. I would argue that we probably ought to ask some good questions and take some time to answer them before we start choosing the answer. We've been a little too quick to Carnak the thing.

In the Harold Heinze view of the world, when you're faced with a challenging situation, one of the first things you do is expand your thinking, brainstorming, expand the number of items on the table. Then start a process that brings you back into focus. That was never done. The administration never took an interest in that. The Legislature never took an interest in that. They went, boom (slapping head like Carnak), and they just divined the right answer. And that's not surprising, given the political process. If you were a business you'd do it more the way I described. (But) the political system doesn't make those kinds of judgments well.

****

Alaska Dispatch: You know a lot about this process, and part of the goal (of ANGDA) is to satisfy energy need here in Alaska -- and maybe we can make money selling gas to the Lower 48 or Asia. And now there's the (Legislature created) Gasline Development Corp., pushing a small-diameter bullet line to Nikiski. We've now got the governor saying he likes the Valdez option (under AGIA). TransCanada's still looking at Canada. With all your knowledge and with those two goals in mind, what's the single best project?

Heinze: We need to advance all of them. All these ideas have merit. There's no doubt that going to the Lower 48, in terms of sheer volume, is the big project. If instead of 35 trillion cubic feet there's 100 trillion cubic feet of gas on the North Slope once you start looking for gas, you want to go to the biggest market you can find, and that's the Lower 48.

Alaska Dispatch: Bigger than Asia?

Heinze: Oh yeah, because of the delivery system. It's very difficult to visualize an LNG project at 4 or 5 or 6 billion cubic feet a day. A pipeline can handle that much to the Lower 48. The market may not be there immediately, but you have built a system that has a huge capacity. The bullet line has a virtue in that it's within the state's control. Going to Valdez has potentially a strong market pull. All those are important considerations.

If Harold Heinze was king, what he would do is advance all the ideas, be willing to put energy and funds and support into them, with the clear understanding that we decide whether we want to do that project or not. For instance, I don't know any way to have an LNG project if we can't find someone on the market side who's willing to come to Alaska and build the LNG plant. Nobody's going to build an LNG plant on spec. The guy who's the end user has to come here and be part of it.

A line through Canada would make a lot more sense if Chicago Light and Power was standing around here saying, I need your gas from Alaska. If I could see the customer here, that'd be pretty influential with me, and it'd probably be pretty influential with the producers. They've obviously had those conservations. I don't know what those conservations resulted in. Again, the bullet line is pretty straightforward. If you don't have a major corporate entity that's going to take on more than half of that project, you don't have a project. So I'd like to see somebody stand up. ConocoPhillips has been asked that question directly at a conference, and they ducked.

****

Alaska Dispatch: What's the future of ANGDA, with you not being around? The governor likes the (AGIA) tidewater project, what ANGDA supported all along, so does ANGDA's role become less important?

Heinze: I have no idea what our role is. I don't know what the governor has divined for us. I think, again, you never underestimate the power of the governor. I work for a board of directors, and the governor appoints that board. So he certainly has a direct way of influencing what this organization does or doesn't do. Certainly the board, as it's constituted right now, has tried to dialogue with the governor, and simply asked the question, 'What do you want us to do?' And frankly this board has done that with every governor. The people created us, but the reality is (the governor is) still the one steering the ship. They may have put us at the wheel, but (he's) the one barking the orders. So we've always had that dialogue. We have asked for guidance, and there has not been any at this point.

I suspect that come Dec. 15 when the budget is released, we'll at least have some indicator of what this governor visualizes us doing or not doing, and that will lead to a discussion with the Legislature.

Contact Alex DeMarban at alex(at)alaskadispatch.com