99% of Alaskan’s (and unfortunate Canadians in the Yukon territory) have heard about it for so long that sentences containing: “Governor”, “Natural Gas Pipeline”, “Alaska’s Gas”, “Gas Line Initiative” actuated a mental auto mute or at least a change of channel. Mis-information abounds and facts seem to have the flexibility of Russian gymnast and the latter's drug testing regiment.
But because interesting things are happening, it's worth paying attention to, if for no other reasons - it's an E&P thing.
Governor Walker is the newest face of the gas line and has not disappointed on the drama front. The Republican sector of the Alaska legislature has traded reams of irate letters and press releases with the Governor.
Gas Reserves: Alaska's North Slope has an estimated 32 - 34 TCF of PROVEN natural gas resources.
Prudhoe Bay has an estimated 46 TCF of natural gas in place with 24 TCF considered recoverable. The remainder of natural gas is in Point Thomson.
*32 TCF is the number established by certain publications while others use 34 TCF . Resource estimates vary depending on the methodology.
Pipe: 48" diameter pipe (previously 42") Capacity: 3.3 -3.5 MMcf/day
Route: Follows the existing Trans-Alaska Pipeline (TAPS) from the North Slope to Livengood (near Fairbanks) and doglegs toward Anchorage terminating on the Kenai Peninsula at the Nikiski plant and LNG loading terminal.
- Alaska Gasline Development Corporation (AGDC) which is owned by the State of Alaska
Market: Asia Pacific (Japan, Korea, Malaysia etc.) , Alaskan Domestic
Estimated Cost of Pipeline: $45 - 65 billion (per the AK LNG webpage)
Is this an accurate estimate? Maybe*
*If the history of LNG projects cost overruns is to be believed, No, non, nein, nyet.
What is this LNG you speak of?
Because I know LNG has something vaguely to do with gas, not the car kind, the BBQ kind."
- Conversation while standing in the TSA line at SeaTac Airport
Writing this article forced me to dig into the archives of Alaskan history to outline the background of the present perplexity. The black hole which is Alaska’s Politics is a civic trio that provides the bureaucratic, the stupid and the expensive in one unholy trinity. Following is a greatly abbreviated timeline of the Alaska Gas Line:
- 1970’s: Jimmy Carter signed legislation that made Alaskan gas central to “energy independence”. Several international groups study methods of transporting natural gas via a pipeline through Canada on route following the ALCAN highway and hooking into lower 48 infrastructure for sale.
- Canadian Prime Minister Pierre Trudeau and President Carter came to an agreement on this project and startup was slated for 1983, however natural gas prices dropped while the project’s cost exponentially increased and the entire idea was scrapped..... And then Carter lost the 1981 election to Reagan.
- Things American’s would like to forget about the 1970’s: the Ford Pinto and gas lines.
- 1980’s: Peak flow rate of Alyeska Pipeline is achieve, Reagan is President, there’s a Nordstrom in Fairbanks, big hair, rock n’ roll entering a new era and Alaska drowning in cash until the oil crash of 1986 which hits the Alaskan economy hard.
- The death of the via Canadian natural gas pipeline project prompts the Department of the Interior to re-classify North Slope natural gas as a “resource”, not a reserve.
- 1990’s:The break up of the Soviet Union in 1991 ends the Cold War and a triumphant decade, free of nuclear anxieties and full of technological advancement, economic prosperity and optimism is kicked off. Bill Clinton is elected President. (Yeah, sure Poppy Bush was President until 1993)
- Alaska struggled through the low oil prices of the 1990's. Any discussions of a gasline where put to the back burner.
- Energy companies face hard times in the 1990's freeze hiring, many longtime E&P giants (Texaco, ARCO, Union Oil) succumb to mergers in the face of ultra low oil prices.
- But mostly, it was all about $0.95 gasoline, a Budget Surplus, Windows 95 and the introduction of the World Wide Web.
- ARCO, the company that drilled the wildcat that discovered Prudhoe Bay, finally succumbed to the "winners curse" and was bought out - it's Alaska assets divided between BP and ConocoPhillips (formerly Phillips Petroleum)
- 2003 – 2007: High oil and gas prices prompt Governor Murkowski to begin talking about the possibility of a gas pipeline. Estimates the project at $20 billion. Talks to Alaska’s big 3 behind closed doors about it, leases, state taxes et cetera. This is also about the time Murkowski began tolose favour over a plane - not a Cessna for him to go moose hunting in but a Westward II Jet. Sarah Palin running for governor. Murkowski doesn’t release the pipeline contract to the public which several companies have agreed to sign. Drama with the DNR, Sarah Palin zeros in on Pipeline Drama. She wins race for Alaska Governor and rehires DNR people who quit under Murkowski. Alaska Gasline Inducement Act (AGIA) is released by Palin. Also gives project $500 million of “seed money”. TransCanada is only company that submits application.
- 2005 Note: Gas prices consciously "uncouple" from oil prices hence since 2005 gas price forecasting is exponentially more error prone. Prior, utilities and industries used natural gas interchangeably with fuel oil for power generation. Hence oil prices correlated to natural gas prices by an average factor of 6 - 10 ($60/bbl oil →$10/MCF natural gas).
- Elected Governor Parnell indicates support forAGIA, at least in public. BP & ConocoPhillips backpedal on Denali Alaska Gas Line – “the project is uneconomical”. Juneau begins to get nervous about contract with TransCanada. TransCanada isn’t having luck with lining up Lower 48 customers.
- Parnell redirects pipeline construction conversation to one going to an Alaskan deep water port. Lower 48 no longer main hub; Asia would be biggest customer. The long discussed gas pipeline through Canada is nixxed.
- Until 2010, the Alaska Gasline (through Canada to lower 48 hub) was considered economically feasible by many experts. In the aftermath of the shale gas revolution, potential lower 48 market share evaporated. Gas sales via LNG to Asia Pacific is seen as the only viable option for ANS gas.
- The Point Thomson tiff (something Murkowski started) with ExxonMobil is settled – this has more to do with technology than ExxonMobil lacking motivation. The Point Thomson is the highest pressure gas cycling project in the world and began to production in May of 2016.
- 2012: Sean Parnell presiding over Alaska LNG Project known as AK LNG.
- 2013: ASAP’s size is upped from 24” to 36” which would give it a capacity of 3 bcfd. Walker intended initially for ASAP to compete with Alaska LNG project where ASAP served as a backstop should Alaska LNG project failed. Disagreements on level of state involvement, viability and partnership with slope operators on both projects complicate an already overdrawn debate.
- March, 2015: HB 132 seeks to constrain the AGDC, preventing them from increasing the size/scope of the ASAP project. Governor Walker's relationship with legislature could not be described as harmonious.
- May, 2015: HB 132 is vetoed by Gov. Walker.
- June, 2015: Alaska LNG Partners (BP, ExxonMobil, ConocoPhillips) state that “uncertainty over the global LNG market may bring changes to the larger structure of the project. “ but that the project would not “hesitate” or be put on hold.
- June - August 2015: Field work and FEED (front end engineering design) proceed on Alaska LNG.
- November 2015: Alaska buys out TransCanada’s stake in AKLNG project for $64.6 million which equates to a 25% stake in ownership. Prior to the buyout, the State held a much smaller stake. As quarter owner, the AGDC will have to contribute $675 million to the front end loading/engineering design stage of the project and $13 billion to the actual construction costs.
- January 2016: Tensions between AKLNG partners and Walker administration become evident. Updates to the legislature have partner representative reiterating their commitment to the project whilst eying the door. Partners are seeking “fiscal certainty” meaning they want to lock in tax rates on project to avoid the decades of litigation that followed the construction of TAPS. This would require a constitutional amendment. The Big Three are also bleeding cash due to low oil prices.
- February 2016: Negotiations between state and partners stall. Gas Balancing and Fiscal Certainty among others are sticking points.
- March 2016: Nothing happened, slow/stalled negotiations, crashed oil and weak LNG market. Governor Walker affirms there will be no amendment vote to lock in a tax rate.
May 2016: Stalemate - BP and ConocoPhillips responds to request from DNR and Division of Oil and Gas for technical and marketing information related to prospective “major gas sales”. Release of the latter would constitute a violation of antitrust laws and a conflict of interest.
- Gas production from Exxon Mobil’s Point Thomson begins.
- June 2016: …..And everything boils over. Gov. Walker proposes Alaska take complete control of AK LNG Project. That is, the state of Alaska would own the gas pipeline effectively nationalizing the project.
MMTPA = Million Metric Tonne Per Annum.
Even pessimistic analysis would have difficulty refuting that a market does not exist however the reality of energy market outlooks are nuanced, complicated and prone to flux in which a definitive yes/no verdict cannot be easily and neatly boxed.
Blinded by Riches: The Prudhoe Bay Effect
Comparing Alaska's Oil Production Taxes: Incentives and Assumptions
Alaska's Unique Oil & Gas Tax Structure: Possible Impacts on Resource Development