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In-state gasline planners revise proposal

Posted: December 27, 2012 - 3:28pm

ANCHORAGE — A proposal for an in-state pipeline that could carry North Slope natural gas to communities from Fairbanks to southcentral Alaska has been revised to eliminate the transport of natural gas liquids, which will have the effect of lowering tariffs for customers in Fairbanks.

Carrying natural gas liquids such as ethane, propane and butane was previously considered desirable because they could be sold at a premium and used to lower the price of gas to Alaskans, said Frank Richards, the pipeline engineering manager for the Alaska Gasline Development Corp.

“Now we see that the world is awash in natural gas liquids,” he said in a presentation to a legislative committee Dec. 20.

More shale gas has meant a glut of NGLs in the U.S. market, with prices falling by 60 percent.

Eliminating them from an in-state pipeline would allow the project to be built with industry-standard 36-inch pipe rather than 25-inch pipe, Richards said. Pressure could be lowered from 25,000 pound per square inch, which requires premium fittings, pipe and valves, to 1,480 pounds per square inch. Lower pressure means a safer line and more takeout points, Richards said.

NGLs in the line would have required Fairbanks to have facilities to take them out, depressurize gas for local use and re-inject the liquids. Another extraction plant would have been needed at the end of the 737-mile line. “Those are expensive facilities,” Richards said.

The new plan eliminates that and the net effect would be to lower the tariff for natural gas delivered to Fairbanks, which under the previous design would have paid a higher tariff than Anchorage. Fairbanks, he said would pay $8.25 to $10 per million BTUs, down from $10.45 under the old plan and far less than the $23 per million BTUs that customers are now paying for fuel oil. Anchorage would pay $9 to $11.25 per million, comparable to rates projected for 2013, he said.

“That to us is a major milestone,” Richards said.

The projected cost remains roughly the same — $7.7 billion, a figure planners acknowledge could vary up or down by 30 percent.

Richards said the AGDC with “optimal” state funding of $400 million by the end of 2014 would refine that figure, conduct an open season to gauge interest by shippers and advance the project to the “sanctioning stage” where a decision is made to move forward with a builder and operator.

Gov. Sean Parnell has proposed a fraction of that — $25 million for an in-state pipeline and $25 million for a large-diameter line envisioned by his predecessor, Gov. Sarah Palin, under the Alaska Gas Inducement Act.

Under that law, competing projects such as AGDC’s cannot exceed 500 million standard cubic feet per day.

House Speaker Mike Chenault, R-Nikiski, and Rep. Mike Hawker, R-Anchorage, have pushed legislation to move the in-state pipeline to a decision point. Chenault said during a break last Thursday that he will advocate for more funding than the governor has recommended.

“I would like to see enough to get this project through to sanction,” he said. “The longer we drag it out the more likely the cost will go up and we’ll just kill it by not addressing needs of the project.”

Ultimately, he said, the line size will be determined by the economics. If buyers indicate they want 2 billion cubic feet of gas, and suppliers can provide it, a pipeline of that size will be built. But he also wants numbers for a smaller project.

 

“Right now it’s a lot of talk,” Chenault said. “So until we get to a point where we have a project on the table, it’s all talk.”

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