Alaska legislature appropriates $355-million for in-state gas pipeline

The Alaska Legislature this session appropriated more than $440 million state natural gas transportation projects. Appropriations for fiscal 2014, which starts July 1, continue state support for two different pipeline projects and also a liquefied natural gas trucking project, though the funding and authorizing legislation do not guarantee any of the projects will be built. That will be up to market conditions, project economics and possibly future legislatures.

The bulk of the appropriations, $355 million, were to continue design, permitting, and other work on a state-sponsored 500 MMcfd in-state line managed by the Alaska Gasline Development Corp. Also included is $25 million to continue state reimbursement of preliminary planning and design on a 3-3.5 bcfd pipeline sponsored by North Slope producers ExxonMobil Corp., BP PLC, and ConocoPhillips, and pipeline builder and operator TransCanada.

The money for the larger line is another installment on the state's $500 million contractual commitment in 2008 with TransCanada under the Alaska Gasline Inducement Act. The state expects 2008-13 reimbursements to total nearly $300 million by June 30.

The AGDC project stands as a potential back-up plan if the larger, producer-led pipeline does not move forward; as a potential business partner with the producers' line if the state decides to take an equity stake in that project; and as a potential supplement to the larger line for moving gas around the state though smaller pipelines.

The fiscal 2014 appropriation is in addition to $72 million directed to AGDC in the past three budget cycles for the pipeline from the North Slope to Southcentral Alaska.

Legislature grants bond authority

The legislation also gives AGDC unlimited authority to issue bonds to pay for construction of the project, estimated at $5.4 billion to $10 billion, with the restriction that the state is not legally or morally responsible for the debt. Repayment would come from the revenues collected from the pipeline's customers, including utilities and large commercial customers. Any appropriation of state money for the project would require additional legislative action.

With funding approved by legislators, the in-state gas line project team plans to further refine its cost estimates and solicit potential shippers in early 2015. The volume and duration of customer commitments will help determine if the pipeline is economically viable, should the state decide to proceed with its own project to meet in-state energy needs if the larger, producer-led pipeline fails to pass its own economic test.

Lawmakers also took action to bring North Slope gas to Fairbanks in a shorter timeframe. Working through the Alaska Industrial Development and Export Authority, lawmakers appropriated $57.5 million in cash and authorized up to $275 million in loans toward a project to deliver LNG by truck. AIDEA would use the $57.5 million for an equity stake in the North Slope liquefaction plant and perhaps other aspects of the project.

The plan calls for a private operator or operators to build the small gas liquefaction plant on the North Slope, own and operate the fleet of LNG delivery trucks, build and operate the aboveground storage tanks and regasification equipment that would feed the gas into a distribution grid for delivery to residences and businesses around Fairbanks. The local electrical generation utility and an oil refinery also are seen as potential customers for the trucked LNG.

AIDEA estimates total development costs at $425 million, including the state cash and loans, $30 million in tax credits that would accrue to the owners of the LNG storage tanks in Fairbanks (approved by legislators last year), and $70 million in private money. The estimated cost includes local distribution lines for only the first phase of a build-out to serve Fairbanks and neighboring North Pole. Expansion of the distribution lines to more of the community would be an additional cost, as would the private expense of converting home and business heating systems to burn gas.

LNG trucking costs

The LNG trucking plan acknowledges that its gas would be more expensive than pipeline deliveries to Fairbanks, should that occur in the future, but that it would cost less than the diesel fuel currently used and could be delivered several years ahead of any pipeline. AIDEA is reviewing several proposals from private parties interested in taking in the LNG trucking project.

Lawmakers also appropriated $500,000 to AIDEA to conduct a feasibility study of a gas-to-liquids project, allowing shipment of North Slope gas down the trans-Alaska oil pipeline.

TransCanada has until October 2014 to file with the US Federal Energy Regulatory Commission for certificate to build and operate its pipeline.That deadline is open to renegotiation between the state and TransCanada.

The pipeline builder and its North Slope producer partners are looking at the commercial feasibility of an 800-mile pipeline to tidewater in Southcentral Alaska, a liquefaction plant, and a shipping terminal for exporting liquefied natural gas to Asia. The companies estimate the project's total cost at $45-65 billion.

Alaska Gov. Sean Parnell has 30 days after receipt of the budget bills to approve the measures or to make selective vetoes of any appropriations. The Legislature adjourned Apr. 14, though the 30-day countdown will not start until the governor's office actually receives the bills.

Contact Christopher Smith at



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