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Alaska needs to get out from under AGIA

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Last week Dan Fauske, Executive Director of Alaska Housing Finance Corporation, released the long-awaited report on the in-state bullet line. The Legislature and Mr. Fauske’s team are to be commended for their good start. Unfortunately, the analysis was limited by the constraints of the Alaska Gasline Inducement Act (AGIA).

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The AGIA legislation precludes the State of Alaska from assisting in any gasline project with a volume exceeding 500 million cubic feet of gas per day, which is less than one-fifth of the volume available for export from the North Slope. The state funded AGIA, Trans-Canada/ExxonMobil open season closed a year ago and no results have been released. Reality struck, however, when the BP/Conoco Phillips’ Denali project was abandoned due to the lack of interest from its own principals and other leaseholders in taking Alaska’s gas into the saturated markets of Canada and the Lower 48. The discovery of vast amounts of shale gas has prompted the development of numerous liquefied natural gas (LNG) export projects from the Lower 48 and Canada into the premium Asian market. This is precisely the market that the late Govs. Bill Egan, Wally Hickel and Jay Hammond and the late Sen. Ted Stevens recognized as the incredibly lucrative and only viable market for Alaska’s gas.

Central to the bullet line report was the state ownership concept, whereby the project would be built and operated by the private sector but owned, as a piece of infrastructure, by the State of Alaska. This is the paradigm shift that is absolutely necessary to finally advance a gas line project in Alaska.

While the bullet line option, the recent USGS report of increased gas potential in Cook Inlet and the influx of exploration lease bidders in Cook Inlet all foster great optimism about meeting the energy needs of Southcentral Alaska, other parts of the state will not reap the benefits. Ninety per cent of the state’s revenue comes from the oil pipeline that is declining in throughput. The surest way to put more oil into the pipeline is to build a larger-volume gas line to tidewater which will encourage further development on the North Slope. This cannot be accomplished with a small volume bullet line.

The fiscal rewards from a larger volume gas line to tidewater with the export piece would benefit every single community in Alaska through lower cost heating, revenue sharing, jobs, infrastructure and value-added opportunities.

We cannot continue to imperil our own economic and energy security while handcuffed to the doomed AGIA process. The Legislature should authorize Mr. Fauske’s team to expand and redirect its focus using the same ownership structure and financing model in their report to develop the larger-scale pipeline/LNG export project. The line should utilize the existing permitted federal gas line route parallel to the trans-Alaska oil pipeline from Prudhoe Bay to Valdez, with a spur line from Glennallen to the existing gas grid. The deep water port at Valdez is capable of receiving the massive Q Max tankers on which LNG is shipped, has an existing U.S. Coast Guard vessel traffic system and previously received an export license for LNG.

Meanwhile, the Legislature must regain control of Alaska’s future and utilize the AGIA provision authorizing either party to exit AGIA if the project proves to be uneconomic. The fact that two of the very companies that would be required to commit gas to the project have deemed a comparable project uneconomic is solid proof. If Trans-Canada and ExxonMobil disagree with Alaska’s decision to exit AGIA, they can invoke the AGIA arbitration process. Given the oversupply of shale gas and the scuttling of the Denali project, the weight of the evidence would clearly be on Alaska’s side.

The energy world has changed significantly since AGIA’s passage. It is time for Alaska to remove AGIA’s ball and chain and build the right sized project that benefits all Alaskans while there is still demand in the Asian markets for Alaska’s gas.

Bill Walker is general counsel for the Alaska Gasline Port Authority.

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