Homer Alaska - Business

Story last updated at 3:58 PM on Wednesday, January 11, 2012

Congress reduces budget of pipeline coordinator office



BY TIM BRADNER
Morris News Service - Alaska

The budget for the Alaska federal pipeline coordinator has been reduced by 75 percent to $1 million for federal fiscal year 2012, Larry Persily, director of the office, said Jan. 4.

The action was taken in the House-Senate budget conference committee. It is an indication that some in Congress doubt a proposed $40 billion-plus Alaska natural gas pipeline will be built anytime soon.

Persily said the office has $2.25 million in funds remaining from its fiscal 2011 appropriation, and those funds, along with the $1 million for fiscal 2012, are sufficient to cover the expected workload for the office over the next two to three years. There will have to be some reductions in the 10-person office staff, he said.

The federal coordinator's office was established to oversee federal agencies' responses to permit applications for the pipeline, which would deliver four billion cubic feet a day of gas to Alberta, from where it would be shipped on through other pipelines to the continental U.S.

"Whether the federal coordinator's office has $1 million, $2 million or $3 million, or whether it has eight employees or 10, isn't going to affect the project. What is going to determine the future of the Alaska gas line is the state's fiscal system on oil and gas, and the natural gas market," Persily said.

A glut of shale gas in North American markets has dampened prospects for the large Alaska pipeline. In addition, North Slope gas producers are seeking a long-term fiscal agreement with the state of Alaska before committing to ship gas through a pipeline.

Persily said his plan assumes TransCanada Corp. and ExxonMobil Corp. will proceed with the filing of an application with the U.S. Federal Energy Regulatory Commission for their proposed 48-inch pipeline from Alaska to Alberta next October, as the two companies are required to do under a contract with the state of Alaska.

The state of Alaska is contributing $500 million to preliminary engineering and environmental work for the project on the condition that TransCanada and ExxonMobil meet certain performance benchmarks, the most important being the filing of the application to FERC in late 2012.

Although the two companies are contractually committed to continue work on the pipeline to Alberta, Alaska Gov. Sean Parnell has asked TransCanada and ExxonMobil and other North Slope producers to consider a pipeline to a southern Alaska port and an LNG project that would export Alaska gas to Asia.

The alternative LNG project could be done under terms of the existing contract the companies have with the state, which includes the option of LNG instead of an all-land pipeline.

Cost-saving moves will include vacating the federal coordinator's 13,000-square-foot office in Washington, D.C., which costs $750,000 a year in lease fees, Persily said. The office in Washington will not close, however, and the office in Anchorage will also remain open, he said.

"I expect layoffs and other spending cuts," Persily said, although there are as yet no details of reductions.

"I don't think Congress was trying to send a particular message with the cut. They are starting to wonder what is going on, however. Congress passed the loan guarantees, tax breaks, expedited FERC schedule and establishment of our enabling office in 2004. The $1 million, plus our reserves, will get us by until something happens, or not," Persily said.

Tim Bradner is a reporter for the Alaska Journal of Commerce. He can be reached at tim.bradner@alaskajournal.com.

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