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HomeMy WebLinkAboutValdez Gas line 2012KTVA CBS 11 |Anchorage,Alaska News and Weather |Alaska Gasline Port Authority T.. KTVA CBS 11 |Anchorage,Alaska News andWeatherAnchorage,AK Print this article Alaska Gasline Port Authority Touts Interest in Pipeline to Valdez | Originally printed at http://www.ktva.com/home/top-stories/Alaska-Gasline-Port-Authority-Touts- Interest-in-Pipeline-to-Valdez-170525456.html B on -Fai ks Daily News-Miner /mbuxton@newsminer.com September 20,2012 ; FAIRBANKS -The Alaska Gasline Port Authority has gathered interest from six major Asian buyers for enough gas to fill half of a large-diameter pipeline to tidewater in Valdez. In a Fairbanks news conference Wednesday,the authority said six potential buyers had filled out non-binding statements of interest in getting gas to Valdez totalling 2.8 billion cubic feet per day.The six are POSCO (South Korea),Korea East West Power, KOGAS (South Korea),GS Energy (South Korea),PTT International Co.Ltd. (Thailand)and PT PGN LNG Indonesia. The statements were lumped together by AGPA and submitted to TransCanada and ExxonMobil,who are conducting a non-binding "solicitation of interest”to determine a potential pipeline's route under the Alaska Gasline Inducement Act. The solicitation closed Friday,and the results likely won't be announced to protect commercial interests. Bill Walker,general counsel for AGPA,said the public has a right to know that there is significant interest in a pipeline to Valdez. "The point we're trying to make is there's market out there,there's plenty of market out,”he said."This is what would allow Alaska to benefit from low-cost energy....We are a state with a whole lot of resources and 624,000 people aren't going to be enough to do this from a market standpoint.” Walker took the opportunity to warn Alaskans that he believes the current AGIA http://www.ktva.com/internal?st=print&id=170525456&path=/home/top-stories .Page |of3 9/20/2012 KTVA CBS 11 |Anchorage,Alaska News and Weather |Alaska Gasline Port Authority T... process,which puts the final decision on a pipeline in the hands of the producers, doesn't serve the best interest of Alaska.He said the state needs to make a large investment in the pipeline. Kurt Gibson,the director of Alaska's Gas Pipeline Project Office,defended the AGIA process,saying it maintained momentum on a large-diameter pipeline after plans for a line to the Lower 48 fell apart when prices plummeted. "It was flexible enough to respond to economic conditions and because of that we are able to continue moving forward.If you think of a project this size,if you can get it rolling it's very,very difficult to stop it,”he said. He went on to say that the recently concluded solicitation of interest "has produced encouraging results,with respondents from both North America and Asia -a wide range of interested parties.” He said the current process is asking buyers if they prefer a route to Valdez,Cook Inlet or through Canada,which will help decide the direction in the coming years. Walker said he's skeptical Alaska will see any meaningful development on a pipeline out of the big developers,each of whom are already involved in gas export projects elsewhere in the world.He argues that they have no interest in bringing Alaska gas to market because it's the most competitive for Asia and would undermine other efforts. "It's wrong that we're going to think that we're going to have an alignment,it's not going to happen,it's only been 47 years and I don't think the 48th year is going to be anything different,”he said. Walker said he expects there will be an announcement for a line to Cook Inlet,and not to the exhaustively researched Valdez.Cook Inlet,he said,will give the producers plenty of things to slowly study,delaying a big line for a number of years. "What's really frustrating is that the market is going by,”he said."It's been 47 years and now they're going to study a route.” He said it's up to the administration to take a stronger stance with producers and stand up for Alaska's interests. "When we can go out with a beat up briefcase and a worn-out pair of shoes and come back with 18.2 million tons of export,think of what you could do if you had some clout,”he said."It's rewarding yet so frustrating if the state administration stood up, but on the state level it doesn't seem to happen.” http://www.ktva.com/internal?st=print&id=170525456&path=/home/top-stories Page 2 of 3 9/20/2012 KTVA CBS 11 |Anchorage,Alaska News and Weather |Alaska Gasline Port Authority T...Page 3 of 3 Contact Fairbanks Daily News-Miner staff writer Matt Buxton at 907-459-7544 or follow him on Twitter:@FDNMpolitics. http://www.ktva.com/internal?st=print&id=170525456&path=/home/top-stories 9/20/2012 ;What If Open Season Fails?-KTVA Page |of 6 on ee . Pe Home News Features Weather Video Follow Us Interactive Schedule Classifieds Inside KTVA On-Air Links Home|Alaska |Local |National |Submit Photos |My Yahoo |Video Player|Mobile News|Email Us|RSS. Most Viewed Most E-Mailed RSS | Print Emall Font Resize ©)BOOKMARK a 73PF.__(From the last 12 hours) a a la [ALAl «Palin:A "Darkness”Has Enveloped the Media What If Open Season Fails?*Plea Deal In Rape,Kidnap,Strangulation °Case *Man Kills Friend With Axe After Fishing Fight Natalie Travis :*Mother Arrested for Obscene Image of 13- toes we Re ek ee wee ene nie mera mere Ue ae cn nnermun gree en on anne a :Year-Old . CREATED:07/26/2010 09:02:05 PM PDT 4 Alaskan Doctor Dies While Exercising *Teacher Guilty of Indecent Exposure;Sent Nude Photos of Herseif to... ANCHORAGE,Alaska (KTVA-CBS 11 News)Alaska has millions of dollars invested in the Alaska Gasline Project.*Black Bear Slaps Kake Teen *"Kate Plus 8 Plus Palin? *Assembly "Boots”Mayor's Veto *'Cannibal Squid'In Alaska? Some are hoping to get some solid answers by this Friday,July 30th when open season cioses for the state-backed project,AGIA,which involves TransCanada and Exxon. SQA SES Acai Berry Exposed ;(Official Test) mm © Want to use Acai berry?Do not However,some experts say we probably won't hear much. *We will probably only hear whether bids were received and perhaps get a general picture,”says Commissioner Pat Galvin for the Alaska State Department of Revenue.What Happens if Open Season Fails For Gasline?"g use.Read this warning now.Read /M : The commissioner also says if there are bids,you can probably count on Alaska Bullet Gasline Expected to lore officials being tight-lipped.Cost $7 Billion to $8 Billion GVEA Gives Shot in the Arm to interior Alaska Natural Gas Trucking"If there are bids,it's unlikely that they will say much of anything Plan because they will start negotiations and they will be fairly resistant to Lawmakers Question Plan to Deliver Alaska Mom Lost 46lbs reveal information about those private discussions with the company,”North Slope Natural Gas by Truck Following 1 Rule says Galvin.Hopkins Details Plan to Truck Natural I cut down 46lbs of stomach fat Gas in a month by obeying this 1 rule So,what exactly is open season?Read More "Open season is when a pipeline company solicits bids from potential shippers or potential customers.They put together their package of terms for which they are willing to ship gas and they are looking for customers who are willing to make commitments to ship their gas in their line under those terms,"says Galvin. Those commitments and terms have a lot of people playing the waiting game. "We're anxious to see what happens.|am not sure when we will hear,but !know we are anxious.All Alaskans are anxious to see what,if any,bids came forward and to move that project forward,"says Dan Fauske, President of the Alaska Pipeline Development Corporation. Advertisement Some natural gas officials are optimistic. "We're thinking that it's unlikely,at this point,that there will be no bids.We are very hopeful that the bids will bereceivedandthatwewillcontinuetoseealignmentbetweentheshippersandthepipelineastheymoveinto those negotiations,"says Galvin. Either way,State economists say there is still a lot of pressure for Alaska,which is heavily invested in this enormous potential for valuable energy resources. "There's a lot of pressure and there wil!be pressure on the State,because the State is a player in this,”says Gunnar Knapp,Professor Of Economics for the Institute of Social and Economic Research. So,what happens if open season fails and no bids come in? Department of Revenue officials says if no bids come in for the AGIA open season,they will wait to see whatcomesoftheopenseasonfortheDenaliProjectwhenitclosesOctober4th. The Denali Project is a competing partnership between ConocoPhillips and BP,which did not take any state funds. So what if neither the AGIA or Denali open seasons draw in bids?Well,some say it's back to a 30-year drawing board. "People would go back to the drawing board in terms of some fundamentals relating to what should be the . State's policy towards how best to promote a gas pipeline,”says Knapp.« "if they did not receive any bids then |think the question would be,why?The question would go to the potentialcustomers.We would ask,why were you not participating?What were the reasons for that?And is there http:/Awww.ktva.com/alaskanews/ci_15608712 . 7/28/2010 _,What If Open Season Fails?-KTVA anything to be done that would address those concerns?"says Galvin. Some economists say addressing those concerns might mean looking at other options for energy. "Discussion about where Anchorage is going to get its energy supply in the future might happen,because that is partly dependent on whether people expect a big gas pipeline happening any time soon,”says Knapp. Until then,researchers say you should approach the idea of open season asa trial time for conditions. "The way to look at these open seasons are as a test of what those conditions look like at the moment,”saysKnapp. With regards to the Alaska Pipeline Project,the Department of Revenue says in the event that no bids come through,under the terms of AGIA,the project is still required to be developed. To contact The Newsroom,call 907-274-1111. Login @ This blog post ©All blog posts Subscribe to this blog post's comments through... e(--_] ige Subscribe in NewsGator | R_Add to My | "ga,Feedblitz 'St Add to °oaran Ike Add to 4 Subscribe with Subscribe via email Email Address Subscribe Follow the di ion Comments i?)Logging you in...Close Login to IntenseDebate Or create an account Usemame or Email: Password: Forgot iogin? OpenIDn|Logincue(49)WordPress.com Usermame or Email: Password: Lost your password? Cancel LoginCiose Login with your OpenID http://www.ktva.com/alaskanews/ci_15608712 Page 2 of 6 a New York minute. OPM ONLY CBS HOS Mresere icing oneNocineityeuarieuew!brotied ™FOLLOWED BY = Select a tab above to search in that category (e.g.,concert,festival)Go |Sudaanevent coloncar 28 ||29]30/34 BS Be = 3 pm Mental Fitness 4:30 pm tomorrow 8th Annual West End Biock Part 6 pm tomorrowClareto Clare Fashion Show _Public Patin book signing |After two private book signings for military personnel here in Alaska,do you want former Governor Sarah Palin to have a public book signing? ©Yes A | 7/28/2010 -\(c)ISSN #1072-8139 \Special Resource AlaskaSupplement|er SenerPP E Economic Report--A laska Economic Rep ort '--A special supplement available only to&Alaska Legislative D ig est ed =regular report subscribers by special order, Resource Supplement ,July 20,2010 Alaska gas supply/energy mix is complex A choice in one area could foreclose other options Alaska's natural gas supply and energy mix is complex,and the security of energy supply to the public can't be left entirely to natural market forces.Different forms of government intervention,or better put,participation,are needed,whether it's a spur gas pipeline to Southcentral from a large pipeline built through Interior Alaska;a "bullet” pipeline from the North Slope to Southcentral if the big pipeline is seriously delayed; new gas exploration in Cook Inlet;large hydro projects at Susitna or Chackachamna; Cook Inlet Region's innovative underground coal gasification project and its Fire Island wind project;or a large industrial project,like a gas-to-liquids plant,that would be an anchor customer for a bullet pipeline (or new Cook Inlet gas)and would also generate considerable amounts of power.There is also,of course,the default if none of this hap- pens,which is importing liquefied natural gas. All options require some form of state participation All of these options require some form of state participation,incentives or outright subsidy.Not all of them will be built,of course,so choices have to be made and someone has to figure out the optimum mix that would ensure energy security,ideally at a price that would spur further economic growth.The concern we have is that no one is looking at the big picture,at the interplay of all of these.We have a start at this in the draft Inte- grated Resource Plan prepared by the Alaska Energy Authority for railbelt electric utili- ties last year.This provides a foundation but it goes only to electric power.And in the end this is largely a set of political decisions because public bodies are involved,mainly the state.A consulting firm can only go so far in preparing a plan. Without an integrated approach to decisions things will proceed ad hoc,and we may wind up with a less than optimum mix.For example,if we rush into subsidizing a bullet line in a panic if the big pipeline is delayed we may foreclose the Susitna or Chacka- chamna hydro options and discourage companies from pursuing Cook Inlet exploration. We should at least have a way of evaluating those tradeoffs. -Continued on next page Special Resource Supplement,available to subscribers of the Alaska Economic Report or Alaska LegislativeDigest3037SouthCircle,Anchorage,Alaska 99507 (907)242-6572 -Fax (907)345-5683 la ie Energy security problem may be worse than thought -Continued from previous page The energy security problem is more serious than people believe.Gas fields in Southcen- tral Alaska are being depleted and the region may be short of gas by 2014,meaning that annual production will no longer meet annual demand.No option for bringing in new gas or new energy -a spur or bullet line or a large hydro project -can meet this time line. Only CIRI's Fire Island wind project could be on line in time to supply new power by then,which would reduce the utilities'need for gas and preserve supply,buying some time. Imported LNG is the fallback,but no one is working on that ultimate security net,estimat- ing its cost and feasibility. Interior Alaska has its own set of issues Interior Alaska has its own issues.Coal and fuel oil will at least be available so there's no immediate near-term security issue as in Southcentral.However,there is a long-term issue if the decline in crude oil moving through the Trans-Alaska Pipeline System isn't addressed. The Interior has ample coal reserves at Healy to rely on for base power generation. There are innovative efforts underway to get North Slope gas to Fairbanks,however.One is a proposal to truck liquefied natural gas and a second is a proposal to truck propane. These wouldn't see immediate wide use in Fairbanks (the infrastructure will take time to develop)but if they can be used for power generation it would be a big help. The Fairbanks community also wants natural gas so as to reduce winter air pollution prob- lems that are drawing sanctions from the U.S.Environmental Protection Agency.If not ad- dressed,the EPA sanctions could create problems in getting federal permits for new projects in the Fairbanks area,such as on the military bases. Southeast Alaska is hydo based Most of Southeast Alaska is home free,thanks to large hydro projects built by the state in the 1980s,by the federal government earlier and by mining companies even earlier.The issue in Southeast is building the transmission infrastructure so the hydro power can be shared with smaller,outlying communities that are still on diesel. Rural Alaska no escape from diesel For most of rural Alaska there's no escaping dependence on diesel,but at least its secure. An ambitious state renewable energy program is helping put small wind and hydro projects in some communities but at best these will only supplement diesel. -Continued on next page Page 2 Alaska Economic Report Resources Supplement July 19,2010 Y\ The options for Southcentral Alaska Cook Inletexploration:Finding more gas in the Cook Inlet area seems like the obvi- ous first thing to do,but the major industry players,such as Chevron,ConocoPhillips and Marathon,don't seem really interested.Marathon did drill an exploration well last year, results of which are still unknown.Other companies are active in oil,Pioneer Natural Re- sources and Cook Inlet Energy,and one independent,Armstrong Oil and Gas,is engaged in a small gas development,Aurora Gas,also continues to produce several gas wells. Frankly,the potential for major gas finds doesn't seem to be there outside the unexplored (in recent years)offshore part of the Inlet that's beyond the reach of land-based rigs.Pros- pects for new discoveries here look good,based on 1960s-era drilling and recent seismic, but a jack-up rig is needed.Several independents are working to get a jack-up rig to the Inlet next year,helped by a major new state incentive (the state basically will pay most of the cost of the first three wells). [he spur line and bullet line:If Cook Inlet exploration is less than successful,the plans are there for bringing North Slope gas to Southcentral.The Alaska Natural Gas Develop- ment Authority has done a great deal of work on a spur line off a big pipeline on a route through Glennallen,which keeps the option open for an eventual pipe to Valdez.A sepa- rate state team,under a subsidiary of the Alaska Housing Finance Corp.(how that hap- pened is politics,but it's actually a very workable setup)is pursuing the bullet line option, with a feasibility report due next July. Spur line a good bet if big pipeline goes If the big pipeline goes (most people now doubt this)the spur line seems a good bet, again given less than good results in Inlet exploration.If the big line is delayed,and Inlet exploration isn't successful,there will be great political pressure,even a panic,to build the bullet line with a large state subsidy if needed.Frankly,the bullet line is unfeasible unless there are large industrial customers. Someone should be surveying the candidates (an expanded Kenai LNG plant;an Agrium fertilizer plant restart,and a new project,a gas-to-liquids plant).The new gas line team will soon let a contract for a study of whether a gas-to-liquids plant is possible,but some say the study won't answer some basic questions (curiously,the Request-for-Proposals doesn't ask for an analysis ofpossible markets for products the plant would make). ¢If there are no large industrial customers the state will have to write a big check for the bullet line. -Continued on next page Page 3 Alaska Economic Report Resources Supplement July 20,2010 \W c Ke Underground coal gasification has potential -Continued from previous page The bullet line would likely blow any chance for a large Susitna hydro project or even a medium-sized Chackachamna.It could also chill Inlet exploration because one or two years of drilling with a jack-up rig may not be enough to evaluate the offshore Inlet.The Fire Island wind farm and Golden Valley Electric's Healy Eva Creek wind project,both could be on line before these Sophie's choice type decisions have to be made.However,if the latter is to happen decisions on these projects have to be made soon. A sleeper in all of this is Cook Inlet Regional Corporations's (CIRI)underground coal gasification project proposed for the Beluga coal fields west of Anchorage,where CIRI is a landowner.This is still in the geologic-reconnaisance stage (CIRI is scoping out the best location),but the first stage of the project appears on track and it doesn't require a huge capital investment.CIRI sees their project,which can be expanded if it works,as "base load”power generation for the railbelt,not a variable supply like that from wind. Sleeper in all of this is underground coal gasification This involves a controlled underground combustion of coal in the seam deep under- ground.The process,through chemical reactions,produces a "synthesis”gas,a mixture of carbon monoxide and hydrogen,a low-grade natural gas.This mix is useful for power generation or manufacturing (gas-to-liquids)and can be upgraded to a form close to con- ventional natural gas.This coal-derived gas could be put into Enstar's pipelines.CIRI is pursing this option on its own (no government hand-outs)and hopes to have a first phase running by 2016.This source would be lower than the cost of a bullet line.Before the state jumps into a bullet line this option should be weighed. Critical decisions have yet to be made on Fire Island:Utilities have to sign contracts to buy the power,it will be expensive,and there are always technical problems with the integration of variable wind power with the steady base-load power from natural gas plants and the hydro plants that feed the railbelt,Bradley Lake and Eklutna. When will we know the results of the open seasons? TransCanada says that if there are no bids for capacity they will announce that shortly after the open season ends July 30.If there are no announcements at that time we can take it as a good sign,that someone is in there at least talking with the pipeline company.We won't know any specifics until the end of the year,at the earliest,or at times when the pipeline companies (including Denali)must tell the Federal Energy Regulatory Commis- sion that there are pending contracts.If the big pipe goes out choices are somewhat simpli- fied (to a more affordable spur line)but we should still consider the tradeoffs against hydro power and Cook Inlet's potential for more gas. Page 4 Alaska Economic Report Resources Supplement July 20,2010 >)\S January 30,2004 With Digest #4/04 Stranded Gas Act applications are in! Now what happens? Applications under the state Stranded Gas Act are now in the hopper.The first was from two North Slope producers,on Jan.13.These were BP and ConocoPhillips.Exxon Mobil was dragged in,kicking and screaming,a couple of days later.Then Mid-America Energy Holdings,a major U.S.transmission company,filed an application Jan.23 with two Alaskan groups as partners.The Murkowski administration kept the producers'appli- cation quiet until Jan.23 to avoid upstaging his State-of-the-State message on the fiscal gap and support for using Permanent Fund earnings.It did seem odd,however,that the governor announced the MidAmerican application,with great fanfare at a large public gathering in Fairbanks on Jan.22,before announcing the producers'application Jan.23. Applications to maybe give away outhouse or the farm? All that aside,what happens now?The Stranded Gas Act allows a project developer to negotiate special fiscal-terms on a project,or special tax arrangements.We now have two separate applications and two sets of negotiations that will be underway.Probably both fiscal contracts will be submitted to the Legislature.Let's hope the governor,and legisla- tors,don't give away the farm in their enthusiasm for a construction mega-project.The state's royalty gas wellhead value is as much as stake as the producers. But what will be negotiated in the two sets of talks? In the MidAmerica application the only real tax at issue is the state property tax,since this is a pipeline,not a producer,group.Fairbanks North Star Borough Mayor Jim Whi- taker and North Slope Borough Mayor George Ahmogak should watch their wallets on this one,lest the state trade away municipal property tax authority (the Stranded Gas Act contemplates the state restricting municipal taxation).The property tax is a big deal in the economics of a gas pipeline,and except for a possible change in the corporate income tax structure,which is less of an issue,that may be about it for the MidAmerica group. -Continued on page 2 Insert -a Producers have more to talk'about with the state - (Continued)The producers have much more to talk about.What they are mainly afterisnotsomuchtaxbreaksasclarityintheroyaltytermsandnailingdowndefinitionsand interpretations.Thisis so the disagreements and lawsuits over oil royalty and tax valua-tions that followed completion of the TAPS oil pipelinein 1977 will not be repeated.The producers will table otherissues,probably including the property tax,but "clarity”and"transparency”in royalty and tax administration are the biggies,as we understand it.Be-_cause the producers have more complexissues to talk about,they may not be able to gettheirdealwiththestatedonebytheadjournmentoftheLegislatureinmid-May.In allprobability,however,MidAmerica will get its contract deal done by then.Lawmakers should not be impatient and pressure the producers. ConocoPhillips hinted that it may seek,in the producers'negotiations,some way the state can offer "risk protection”similar to that contemplated in the gas price tax credit mechanism the company lobbied unsuccessfully for in the energy bill. Many Alaskans are understandably upbeat after the announcements by Gov. Murkowskithat the applications have been filed.These are positive developments,buttheyarereallyjustafewmorestepsalongalongtrailofmakingagiantprojectreal. MidAmerica is politically well aligned in Alaska and Canada € MidAmerica is indeed a strong pipeline company and a new player in the gas pipeline q game.By having Alaskan groups in the consortium (Pacific Star Energy and Cook Inlet ¢ Region)they have a politically-attractive package.They also have an alignment with ; TransCanada Pipelines,Canada's major natural gas transmission company,which makes 1 them well positioned in Canada.This gives the pipeline consortium something the pro- ducers don't have,which is a link with a strong Canadian partner.The MidAmerica group would build only the Alaskan portion of the pipeline;TransCanada would built the Cana- dian portion. However,it is worth remembering that what the MidAmerica group is basically offer- 7 ing is similar to what TransCanada and its subsidiary,Foothills Pipe Lines,offered the producers with less fanfare two years ago.The producers turned the deal down.Times and circumstances change,of course,so perhaps the producers will view the idea of working with a pipeline consortium more favorably now.Or,maybe not. *Ideal scenario would be having producers and pipeline companies together -Continued on next page Insert -b | 4 Alaska Legislative Digest #4/04 The ideal would be for both groups to get together (Continued)What would be ideal is for the producers and the pipeline consortium to get together.That would bring the producers with their financial and technical strength into the group,and avoid some messy political problems if the producers try to go it alone.Is such a grouping possible?We think it is,because this is what happened in two previous efforts on Alaskan gas pipelines,the Arctic Gas consortium in the 1970s and the Northwest Energy-led Alaska Natural Gas Transmission System consortium in the 1980s. Producers and pipeline companies finally got together in both groups. Involving TransCanada may be a must We also believe any system going though Canada will almost have to involve TransCanada in some way.Remember too,that Exxon Mobil (through itself and Imperial Oil),ConocoPhillips,and others are in a consortium with TransCanada planning the Mackenzie gas pipeline,now well along in engineering and regulatory procedures. Whether these groups get together depends on them.The mating dance has yet to be- gin,because as this is written there has been no real contact between MidAmerica and the producer group.MidAmerica says it soon plans to contact the producers,but to talk about moving the producers'gas,not inviting them into the deal.Let's hope the talks broaden, because that's the only way this deal is going to really get done,in our view. Why should producers be part of the deal? Do the producers have to be in the consortium?In theory,no.In reality,probably yes. MidAmerica is a big company but its assets aren't big enough to assume the kind of risks this project entails.That goes in spades for the Alaska Native corporations involved.Nor- mally a pipeline company doesn't assume a lot of risk.Pipeline companies build and run a kind of railroad,carrying freight for a tariff.The tariff is based on what the project costs plus a government-allowed profit margin. The producers sign take-or-pay contracts to ship gas (which means they pay whethertheyshipornot)and these contracts allows Wall Street to buy the bonds the pipeline companies sell to finance construction.With this particular project,this traditional model leaves the producers carrying the risk of cost overruns or market price downturns.This is not an arrangement they are likely to go for.If they're going to assume most of the risk they'll want to also own part or all of the project.That's partly to make some of the profit from the pipeline,but also to make sure it is constructed efficiently and properly. '-Continued on next page .Insert -c Alaska Legislative Digest #4/04 Producers nightmare is that pipeline costs will be underestimated The producers'nightmare is that the pipeline consortium,being new to Arctic con- struction,will underestimate construction costs,which will result in an unrealistically low tariff estimate.The tariff would climb when the total bill comes in,of course.Things could then turn ugly. The consortium already seems to have an unrealistic sense of the schedule.One source within a producer company told us that getting into construction in 2006 or 2007, as MidAmerica said was its goal in the Jan.22 announcement,would require the extra- strong steel pipe that is needed to be ordered "right now.”A more realistic schedule would add at least one to two years to that,meaning completion in 2012 or 2013. Pipeline consortium assumption of risk The producers'attitude could change if the pipeline consortium agrees to assume a substantial part of the risk.The consortium can do this by guaranteeing a tariff,so theprojectjustisn't cost-plus with any mistakes in construction passed on to the shippers. We understand Foothills and TransCanada discussed this kind of arrangement with the producers two years ago through a guarantee of a construction cost.Maybe this is pos-sible,but it's will entail a huge liability for MidAmerica and its Native corporation part-_ ners.It's a sobering thought. Given all this,the acid test for this deal is whether the producers and the consortium can come together,whether the consortium will be willing to share some of the risk and whether Wall Street will buy into that arrangement. Where does this leave the state gas authority,and the LNG option? The Alaska Natural Gas Development Authority is still lobbying in Juneau for a $2.1 million appropriation to allow it to complete its required conceptual feasibility study of a liquefied natural gas (LNG)project by a June deadline.The Legislature,meanwhile,is likely to broaden the authority's mandate to include financing or building the Alaska por- _tion of the Alaska Highway pipeline.The authority last week in Juneau acknowledged they might be in a position to build an Alaska segment of the highway route offering sub- stantial tax advantages.Such legislation would also extend the deadlines for the authority's LNG study,and a similar study of a highway pipeline,by six months.Theauthority's potential tax-free status could be an advantage for the producers or the pipe- line consortium,the authority says. Insert -d Alaska Legislative Digest #4/04 &Alaska:Legislative Digest:pecial supp e only toInsidecommentary¢onkey resource&development issues _Tepular report sulsubscribersis byspecial|order se Resources Supplement No.15/03 Natural gas brief: New state gas authority sets its work plan The new state gas pipeline authority is up and running,and there's a lot of curiosityaboutwhatitwilldo,particularlynow that it has H inze,a former state DNRCommissionerandseniorexecutiveofAtlanticRichfieldCo.,2d its executive director. The authority is mandated by a state law created by voter initiative to finance and build a liquefied natural gas (LNG)project,and -for now -the law sets out the marching ordersfortheboard.The planning underway now is aimed at producing a plan for building an LNG project by June,2004.It's important to note that the authority's mandate may well'change.Gov.Murkowski has introduced a billin the Legislature that would widen its scope to include any major gas project.State lawmakers will take up that proposalin the spring,2004 session.Butin the meantime the authority is focused on what the law tells it to do,which is plan an LNG project.The board has set a June 14,2004 deadline for com- pleting that plan. Authority should be supportive of producers'Lower 48 pipeline In one initial policy move,however,Heinze recommended to the board,at its July 28 meeting,that the group play a positive and supportive role to the North Slope producers' efforts to build an all-land pipeline from Alaska to the Lower 48.This is important be- causein the past some proponents of an Alaska LNG project have seen their project as in competition with the all-land pipeline proposal.Heinze sees little future in that approach. Heinze believes that what the authority can do is create a fallback position in case the Lower 48 pipeline project falls apart,as happened with a similar project put forth in the late 1970s and early 1980s.This time around,there are considerable uncertainties facing Continued on next page ©Special Resource Supplement,available onlyto regular subscribers of the'Alaska Economic 'Report or dlask oemoeLegislative°Digest at an,additional rate of $125/year;3037 South CirclNsoe(907)522-0195-Fax (907).522-1761- SS Producers must focus on "getting to Chicago” Continued from previous page proposed federal tax incentives that two of the three major North Slope gas producers involved in the project say they need,and won't do the pipeline project without.Also,the gas authority _can work on access to the gas and its use in Alaska,Heinze said.For example,analysis and planning for a "spur”pipeline to Southcentral Alaska from a large-diameter pipeline will be a part of the authority's work-plan.The producers'focus will be on the all-land pipeline if that moves forward.In-state access and use of gas is something that will not be a priority.Heinze _told the board:"The producers will be consumed with the task of this project.They will be very focused on getting to Chicago,and they won't be looking right or left.”However,there are a lot of other opportunities for gas,within Alaska,that should be the authority's mission to facilitate, Heinze said. _It's important also that the authority be seen by Alaskans as working in the public interest, Heinze told the board.The initiative creating the authority was approved almost two-to-one by voters despite a serious opposition campaign,and Heinze said he believes the reason why the initiative was supported so widely is because "Alaskans don't want to leave the development of their gas resource entirely in someone else's hands,”in this case the North Slope producers. Can authority really do what statute tells it to do?In theory,yes All that said,is it really possible that the authority can do what its mandate,now set out in law,tells it to do?That is to plan,finance and build a $10 billion-plus pipeline from the North Slope to Valdez and an LNG plant in Valdez,and to buy gas from the producers and sell it to customers in Asia and the west coast of North America, On paper,it is in fact plausible.In the real world,however,probably no.The gas projectis so | large that a consortium will be required to build it,and the best role for a public authority will be to become part of the consortium or to build parts of it,like a spur line.In theory the idea ap- pears possible,however.There are several feasibility studies,including one that included two of the three North Slope producers which are generally in the ballpark as to construction costs and cost of delivering the LNG to market,although the producers'project was smaller in size.And while there are some assumptions in some of the studies to date which can be argued,particu- larly the role of propane and other gas liquids in the project economics,there's little doubt that - the basic premise of the authority has some validity.That is that public financing and exemption from federal taxes can dramatically improve an LNG project's economics. Page 2 Alaska Economic Report Supplement No.15/03. yyCheap financing won't make uneconomic project viable Continued from previous page However,the producers correctly point out that cheaper financing can't really make an uneco- nomic project viable.The project must be sound on its own.Cheaper financingcan then im- prove its economics.However,an exemption from federal taxes can improve the economics a lot.The stateDepartment of Revenue,in an analysis,developed some numbers as to what that benefit might be.DOR developed a model with a base case of a Lower-48 pipeline with a $16.8 billion capital cost carrying 4.5 billion cubic feet of gas per day for 30 years financed with a conventional mix of 30 percent equity and 70 percent debt.Under DOR's model,the base case would have a 9 percent rate of return and the base case tariff would be $1.94 per thousand cubic feet.If the project can finance its debt tax-free,the reduced cost of capital would lower the tariff to $1.41 per mcf.If the project is also exempt from payment of federal income and other taxes, the tariff is reduced to $1.04 per mcf. There are questions over tax exemption,and debt-financing Those advantages aside,there are somequestions as to whether the Internal Revenue Service x Congress,for that matter)will allow such a large project to be free of federal income tax.If a _-ate or other public entity,such as a municipal port authority,owned the gas project,it would NS seem to be clearly exempt from federal income tax under current law.That would still leave some uneasiness,however,as to whether Congress,mindful of losing such a large pot of poten- tial tax revenues,might change the law.Those uncertainties would have to be settled.Also,if the project is partly owned by private investors,the tax status could be further clouded. There is also wide belief that a large project like what is being discussed cannot be totally debt-financed,which is also a premise behind the idea of a public authority doing the project. Despite the fact that bonds would be backed by gas throughput contracts (meaning in effect that the producers carry most of the risk indirectly)the feeling is that buyers of bonds will want to see some equity financing in the project,ideally from the producers who own the resource.The producers,in fact,are the only practical sourceof major equity financing because the state has -no cash to invest outside the Permanent Fund,which voters are unlikely to allow._ Spur pipeline to Southcentral will become a priority One project the authority is likely to tackle soon,however,is a possible spur line to Southcentral Alaska.In discussions at the July 29 board meeting,Heinze said that the base case "still a project to Valdez but that the authority will have to "understand”the spur line to Continued on next page Page 3 Alaska Economic Report Supplement No.15/03 JZ, "4 One focus for authority will be in-state use of gas Continued from previous page Southcentral.Whether the pipeline goes down the Alaska Highway (a Lower 48 pipeline)or to 'Valdez (an LNG project),a spur line to Anchorage will be discussed,if nothing else,then as an al-ternative.Michael Baker&Associates,the pipeline engineering company,has offered to do a con- ceptual study of a 137-mile spur line from Glennallen to Palmer for $15,000.Also,others have looked at times at the cost of an Anchorage-Fairbanks pipeline and the authority might be able to take advantage of some of that work._ Some years ago Enstar looked at prospects for a line to Fairbanks that could supply gas to theInteriorcity,and then be reversed if a large-diameter pipeline from the slope were eventually built.Williams Companies also looked at a liquids pipeline from its refinery in Fairbanks,to ship jet fuel to Anchorage.The company concluded at the time that using the Alaska Railroad,shipping jet fuel in tank cars,was more economic.The pipeline study,if it is available,might be useful. Immediate task:Develop|justification for more money The authority's immedi:is to develop a justification for asking the Legislature for more money in January.The $150,000 given the group by legislators in their 2003 session isn't enough to do much.To develop any kind of realistic proposal for an LNG project will require another ap- propriation in early 2004.Money will be tight,and lawmakers will have to be given some assur- ances that the LNG project is indeed possibly economic,Heinze told the authority board. Board members indicated to Heinze that he should give a high priority to developing the justi- fication to present to the Legislature next January.They also told him that there must be some as-surance that producers,or at least one or two of them,will make gas available to the authority,al- though there is always the option of the state's one-eighth royalty gas.Focusing on this,some way of demonstrating that the LNG project has a future,will be the authority's top priority between now and January. Meanwhile,the authority's board has made some tools available.First,Heinze was given the authority to negotiate for an advisory relationship with Wood Mackenzie,the international energy consulting firm.Wood Mackenzie has the data base to advise the group on trends in LNG and gas markets.It:would also assist the authority in understanding the differing strategies and priorities of the three producers,so the group can develop individual approaches to BP,ConocoPhillips and _ Exxon Mobil.Heinze has also been given authorization to develop a mutual option relationship with Sempra Energy,owner of major gas utilities in southern California.This could be significant in a symbolic way because it could help the authority demonstrate there really could be a market for LNG from Alaska.: Page 4 Alaska Economic Report Supplement No.15/03 (=; >) Authority will need money anyway.Proposal is to get it early.© Continued from previous pagewillbeawayfromcommunities or tourist areas,which are political advantages.If Sempra's is thefirstBajaprojecttobecome"real,”it is felt that competing projects will fade away.However,theMitsubishiCorp.proposal for a terminal at Long Beach,which is not as far along as Sempra's project,is also a good option for Alaska LNG and that company is also interestedin working withtheauthority.If Sempra doesn't work,the Long Beach project could be Alaska's "anchor”cus- tomer.Mitsubishiis stillin the early stages of permitting but the fact that the company has its land position locked down with a lease from the Port of Long Beach is an advantage.One disadvan- tage for Alaska is that the Jones Act will require shipping LNG from Alaska in U.S.-built LNG ships,and there are none of those in the world.Some kind of exemption from the Jones Act is needed because building LNG tankers in U.S.shipyards will be very costly and may not meet the schedules because U.S.yards are now busy.) Sempra could be "anchor customer”that allows LNG project to proceed - Heinze argues that if Alaska get a contract from one of the two for 1 to 1.5 billion cubic feet adayofgas(as LNG)it's enough of a commitment to launch the project.Other contracts will thencomealong,including some to Asia.Heinze points out that Shell and its partners have launched QOconstructionoftheSakhalinLNGproject,which includes a long-distance pipeline,without hav- ing all of its LNG committedin sales contracts.In fact,decisions by Shell and its partners were made based on initial contracts for LNG volumes similar to thosee being discussed by Sempra. The West Coast will likely become a growth market for LNG because the region is not now well served by the U.S.pipeline grid.Alaska has an advantage in serving that market because of much shorter shipping distances,and the cost of shipping weighs heavily in the economics of long distance LNG delivery.Valdez to Long Beach is half the distance of the nearest other competitor, in Sakhalin,and a third the distance of most other competitors,in Southeast Asia.However, Sempra managers say that while Alaska does have a big advantage because of a shorter shipping distance,costs aren't the only factor that will weigh in purchasing decisions.For Sempra,the ability of a supplier to make a firm commitment in time to meet its deadline is as important. Heinze argues that the authority's legal mandate of having a plan for an LNG project scopedoutbymid-2004 requires more money than the $150,000 the Legislature gave the authority last spring,and that money would have to be appropriated next spring to allow the authority to meet its June deadline.Giving the money early allows the work to be done earlier,in time to meetSempra's early-spring deadline. Page 4 . Alaska Economic Report Supplement No.18/03NS L Resources Supplement September 20,2003 Natural gas brief What now for state gas authority? The new state natural gas pipeline authority has gone to the governor and Legislature for $2.5 million in "early funding”to compete for a liquefied natural gas (LNG)contract with Sempra Energy International.While there's a lot of political noise (Democrats in the Legislature are calling for a special session to consider the deal)the answer back appearstobe"no.” All of this makes Alaska look undecided and uncommitted in Sempra's eyes.The company has spent some time developing contacts here,but by now it may have con- cluded that Alaska can't really decide whether it really wants an LNG project.For Gover- nor Frank Murkowski,however,the question is pretty clear.The governor is committed to supporting the North Slope producersin their efforts to build an all-land pipeline to theLower48.An LNG project is secondary,ifit happens at all. Interesting dynamic:Governor would like to ignore authority,but can't What's really going on here?An interesting political dynamic is developing,for one thing.The North Slope producers,particularly ConocoPhillips,are working hard on getting approval for the overland pipeline.They feel good progress is being made on critical federal incentives in the congressional House-Senate conference committee,and they don't want talk about an LNG project distracting people (it's assumed by most that the two projects can't be done simultaneously).The producers are leaning hard on theMurkowskiadministrationwiththismessage.For his part,Governor Murkowski has always been lukewarm on the state LNG authority,which was created by a voter initiativeintheNovember,2002 elections.However,because the ballot proposition was widely . Continued on next page Governor hoped gas authority would remain low-profile Continued from previous pagesupported(it won by a two-to-one margin)the governor and the Legislature feel they have to pay some attention to the authority and the idea of an LNG project.With Sempra on the scene as an apparent real customer,the administration,and legislators can't appear to throw cold water on the company's proposal. Murkowski's chief of staff,Jim Clark,has written to the authority's board with a series of detailed questions,and has asked the board to nail down more specifics on what Sempra wants from Murkowski.Clark said a response could be developed for Sempra using the state's in-. house staff resources.This is,of course,not really viable.What the authority was asking for in its $2.5 million request was to do conceptual engineering that is needed for a more reliable cost estimate.The level of information neededis similar to that the producers spent $125 million | gathering to do conceptual engineering and cost estimates for a lower 48 pipeline.Heinzeis hoping the authority can take advantage of enough previous work on the LNG project to develop the estimates for less money.But for state agencies to do it with their present staffis unrealistic. The administration was clearly hoping that the authority would remain quiet and low-profile.But the governor's selection of the board members,which include some independent-thinkers disinclined to just take direction from the state administration,and the board's selection of Heinze as its chief executive,insured the authority wouldn't stay low profile.Heinze is a former senior Atlantic Richfield Co.executive and state Natural Resources Commissioner.He is high- energy,and what's happening now is no surprise to those who know him.To a certain extent thisisamatterofluck,too.No one expected the West Coast LNG market to develop as fast as it has, and for Sempra to move as quickly as it hasin securing permits for its project. Continued on next page Is an LNG project really possible?Is an LNG project really possible?ConocoPhillips and other firms that have looked at LNG exports from Alaska say it's uneconomic.The new state gas authority,however,says that exemp- tion from federal tax if the project is built by a public entity would lower costs enough to make an Alaska LNG project attractive.ConocoPhillips doesn't disagree with that statement,either.If that is the case,the question is whether an LNG project can be done along with the Lower 48 pipeline' (i.e.a spur line to Valdez)whether the project can be debt-financed (any private equity financing would jeopardize the project's tax-free status)and whether,despite politicians'utterings,the -public is really comfortable with such a large project being done bya state authority. rr ) > Page 2 Alaska Economic Report Supplement No.18/03 West coast LNG market presents opportunities Continuedfrom previous pageLegislativecommitteesmet Sept.10 and 11in Anchorage to hear the authority's chief execu- tive,Harold Heinze,make the pitch,backed up by presentations from senior Sempra managers. The state's deputy commissioner for revenue Steve Porter told legislators the administration _ feels the request is "premature.”The Murkowski administration supports the producers'efforts to get needed federal incentives for the all-land Alaska Highway pipeline and prefers that the authority work on local issues like in-state use of gas rather than push the LNG project.There isn't enough proven gas reserves on the North Slope for both projects to be built simultaneously, Porter said. Heinze's response to this is that the authority's focus is on spin-off benefits of.alarge gas _ project,but that many of these benefits -gas to Southcentral,LNG deliveries to coastal commu- nities,more jobs for Alaskans,etc.-can only be obtained through an LNG project.For example, a spur pipeline to Anchorage from Fairbanks to supply gas to Southcentral from an Alaska High- way pipeline will probably be too expensive to make the gas affordable,he feels.But a shorterspurpipelinefromGlennallenfromapipelinetoValdez(as part of the LNG project)might deliver the gas at competitive prices,he feels.Other options,like delivery of LNG to coastal communities,require a large liquefaction plant on the coast (i.e.Valdez),and delivery of fuels like propane to Yukon River communities is more likely under a project developed by the state authority rather than the producers.(The producers would be less receptive to taps on the pipe- line for taking off gas to extract liquids,it is felt.) Authority's frustration:Alaska could lose the opportunity with Sempra Heinze and the authority's board members are frustrated because they see a real market oppor- tunity for Alaska LNG on the West Coast that will slip by unless Alaska moves aggressively.The$2.5 million would pay for conceptual engineering and other work needed for the state andSempratojudgewhethertheprojectisreallyviable.Sempra needs to know that by the end of the year,it says.Itis recognized,however,that Sempra's deadline may be just too short for the state to meet. Sempra,which owns major southern California gas utilities,is one of several companies working to advance LNG receiving terminals in Baja California.It is the first one to receive all of its major Mexican government permits and will be the first to begin construction,which is now set for next spring.Also,Sempra owns the land its project will be built on,and the plant Continued on next page Page 3 Alaska Economic Report Supplement No.18/03 5 NS "Y (n special service of:\Special Resource Supplement Alaska _--Alaska Economic Report Economic Report &Alaska Legislative Digest ,--A special supplement available only toregularreportsubscribersbyspecialorder.JD X. Resource Supplement -June 7,2010 Donlin Creek natural gas requirement Mine needs to solve energy dilemma There hasn't been a lot published recently about the Donlin Creek gold project northwest of Anchorage on the middle Kuskokwim River.This is a joint-venture of Barrick Gold U.S.Inc.and NovaGold Resources Alaska LLC and,if it is developed, would be one of the world's largest gold mines.It is on land owned by Alaska Native corporations -the subsurface is Calista Corp.,the regional corporation for the Yukon- Kuskokwim delta;the surface lands are owned by the Kuskokwim Corp.,jointly owned by several local villages. After years of exploration and planning Donlin Creek is at an advanced stage and is basically ready to begin an Environmental Impact Statement process and to apply for needed federal and state permits.The bugaboo remains energy costs.We hope this isn't the Achilles heel of the project.As an alternative to diesel the Donlin Creek joint-venture is now investigating a 12-inch,325-mile gas pipeline to Cook Inlet. -Continued on next page Independent explorer wants new lease extension in Cook Inlet The recently-enacted jack-up rig incentive for Cook Inlet oil and gas exploration is a big win for the small Houston-based independent that has aggressively pursued a jack-up rig option for exploring prospective areas of Cook Inlet that are too far from shore to reach with a land-based rig.The problem now is that the state leases held by Escopeta Oil and Gas Co.are set to expire in December.The company had hopes of getting a jack-up rig in the Inlet this summer but it will now be unable to do so before next spring.The company has asked the state Division of Oil and Gas for a 180-day extension.The division has already given the company several extensions. Escopeta says it has received offers to buy its leases,which are now in the Kitchen Lights Unit of Cook Inlet,from Apache Corp.,a major U.S.independent oil and gas company.Shell has also expressed interest as well as a Chinese oil company,Es- copeta has told the state. Legislative Digest at an additional rate of $130/year;3037 South Circle,Anchorage,Alaska 99507SpecialResourceSupplement,available only to regular subscribers of the Alaska Economic Report or Alaska (907)440-6068 Fax (907)345-5683 "(A Question:Where could gas for Donlin come from? -Continued from previous page If this is feasible it would lower energy costs and overall operating costs by about 25 percent.An obvious question,however,is whom the group will buy gas from and, most important,the effect of this on the dwindling Cook Inlet gas reserve picture.The estimate we have derived is that Donlin Creek will probably need about 10 billion to 11 billion cubic feet per year.More on this later in this report. The "base case”for energy,meanwhile,is on-site diesel generation.The plan is to ship 85 million gallons of diesel to the project. ct up the Kuskokwim River and by road built south from the mine,and to have a local wind project that would meet a small part,about 7.5 percent,of the electricity require- ment.Of the 85 million gallons of fuel,60 million would be for power generation and 25 million gallons for vehicles and equipment.We're told that about 75 large ore trucks will be needed for the project at full capacity as well as shovels for the open-pit mining operation.The power generation requirement is an annual average of 127 Megawatts with an expected peak requirement of 152 MW. We estimate gas need at 32.5 million cubic feet/day We derived the natural gas requirement by converting the energy content of the 85 million gallons of diesel to a natural gas equivalent,then adding 7.5 percent of the pow- er portion of this (60 million gallons)for the wind portion of the power (which would not be built in a gas pipeline scenario)which would add an additional 4.5 million gal- lons per day to the fuel requirement.The total would be 89.5 million gallons of diesel for all energy.We convert this to the British Thermal Unit (Btu)equivalent of 32.5 mil- lion Btus a day,which translates roughly to about 32 million cubic feet per day,or 11.6 billion cubic feet per year.However,the total gas requirement will include gas used to operate the pipeline,which will depend on the pipe's size and configuration,amount of compression needed,etc.The Donlin Creek people are working on this. (For those wanting to do the math,the conversion is thus:A gallon of diesel contains 132,000 Btu/gallon.Multiply this by 89.5 million gallons per year to get a Btu total, then divide by 365 to get the daily requirement in Btus.A cubic foot of natural gas contains about 1,000 Btus,so dividing the Btu total/day by 1,000 gets us to about 32.5 million cubic feet per day.) -Continued on next page Page 2 Alaska Economic Report Resources Supplement June 7,2010 >) NS ( Gas requirement a big increment for Cook Inlet -Continued from previous page This isn't huge but it's still a sizeable increment.It appears to be about a third of what Southcentral utilities now use on a daily annual average.Given the rather grim regional gas supply picture,that we'll be short of meeting utility annual requirements by 2014 because of declining gas production,the ability of the gas fields to supply an additional 32 billion feet-plus per year seems improbable. However,another way to look at this is that Donlin Creek is the kind of large industri- al customer that could,by paying a bit more for the gas,provide incentives for explor- ers to find the new gas that geologists say is there in the Cook Inlet basin.Alternatively, if the explorers are unlucky,Donlin Creek could be an anchor industrial customer for a small LNG import facility that would serve until gas can be brought from the North Slope.The LNG import facility could serve local utilities too,as would a pipeline to Southcentral built from a large pipeline through Interior Alaska or a line from the North Slope ("bullet”line).All of these possibilities would run the cost to consumers for natu- ral gas up,though,because imported LNG and gas delivered from the slope won't be cheap.That's the price that will be paid for energy security for the region,however. What is capital cost of pipe?Comparison with diesel? A more direct question the Donlin Creek group will have to figure out is whether the project can afford a 325-mile pipeline delivering 32 million cubic feet per day.The part- ners will have to estimate the capital cost of the pipeline (a starting guesstimate might be $1 million or more per mile)and its operating cost,including gas used to move the gas,and compare that with the cost of diesel moved up the Kuskokwim River.We did some simple estimates and found that a $400 million pipeline moving 30 million cubic feet per day would probably have to charge $2.50 per thouand cubic feet (mcf)to re- cover capital costs.A $1 billion pipeline would require about $6.30/mcf. We can't estimate how this stacks up againt diesel delivered to the site but an intangi- ble factor is the risk that must be weighed is that of possible fuel spills with such a large amount of fuel being moved up the Kuskokwim.There is also the carbon footprint, assuming we eventually move to a world of carbon regulation or taxation (natural gas emits fewer greenhouse gases than does diesel).Natural gas eliminates the risk of fuel spills and reduces the greenhouse gas release. -Continued on next page Page 3 Alaska Economic Report Resources Supplement June 7,2010 ( Donlin Creek would be major employer in western Alaska -Continuedfrom previous page The Donlin Creek people will have to figure all this out,and we wish them luck.How- ever,gas appears to be the key as to whether the big project moves forward.Our sense is that it might not work with diesel and the added small wind increment.It's an impor- tant issue for the people of the region.Not only will Calista Corp.and The Kuskokwim Corp.earn royalties and other income from gold production,but more important the mine will employ a lot of people in the region.The Yukon-Kuskowim is now one of the more economically distressed areas of the state,and the mine could be an important source of good-paying jobs.NovaGold said May 5 that if the gas pipeline is found to be feasible,permit applications will be made in late 2011. Here's some background on Donlin Creek:Approximately 33.6 million ounces of con- firmed gold reserves have been estimated along with an additional 8.5 million ounces of resources of which about half are "measured and indicated resources”(in which there is a high degree of confidence)and about half in "inferred”resources (in which there is less confidence).The mine life is now estimated at 25 years but there is potential that other gold mineralization in the immediate area can be mined in the future using the infrastructure that would be built at Donlin Creek. In terms of infrastructure,there is now a 1,500-foot year-round runway capable of han- dling C-130 aircraft along with temporary camp facilities.The current plan is to build barge facilities at Bethel and at Birch Tree Crossing upriver from Bethel,from which a 76-mile road would be built to the mine.If diesel is to be the energy source,a fuel pipe- line would be built alongside the road.The planned wind project involves 14 turbine generators on a ridge 7.5 miles from the mine site. Downriver road still needed,even with gas If the gas pipeline is built the wind project would be eliminated,we're told,but the road and port would still be built to handle heavy freight moved to the mine,although the road would be shorter.In terms of the long-term closure plan,a technical report pre- pared for the partners by AMEC Americans Ltd.estimates the reclamation costs at $96.1 million.This amount,and possibly more,would be placed in a reclamation,closure and post-closure maintenance trust fund that established in a negotiation with the state Dept. of Natural Resources.Some form of perpetual water treatment will be needed,so the trust fund will have to be large enough to pay capital costs for reclamation and to gener- ate income for perpetual treatment. Page 4 Alaska Economic Report Resources Supplement June 7,2010 y, Borough Assembly member wants public vote on whether to truck liquefied natural gas to... é print 3orough Assembly member wants public vote on whether to -ruck liquefied natural gas to Fairbanks by Amanda Bohman /abohman@newsminer.com 07.09.10 -03:06 am FAIRBANKS -Assemblyman Guy Sattley has drafted an ordinance requiring a public vote on the plan to truck liquefied natural gas to Fairbanks,but Borough Mayor Luke Hopkins said delaying the $250 million project is risky. "If we stretch this timeline out,”Hopkins said Thursday at a Borough Assembly work session,"basically,the project is going to be very difficult to be financed in the way the port authority wants it to be.” Hopkins,who belongs to the governing board of the Alaska Gasline Port Authority,said the main problem with delaying the project for a public vote is an expected rise in interest rates. "As financing money begins to cost more,it could cost the project greater and greater amounts,”Hopkins said."That would take away from the revenue stream.” Sattley drew up his ordinance after the borough attorney told the assembly she thinks there's a pending legal question as to whether the voters were approving a trucking operation when they voted to inaugurate the port authority,whose official mandate is to advance a natural gas pipeline.Voters in Fairbanks,Valdez and the North Slope created the agency 10 years ago.The North Slope has since withdrawn. "This is not a pipeline,”Sattley said."It's a trucking company.I agree with our attorney.” Sattley will introduce his measure at the regular assembly meeting on July 15. The soonest it would be subject to a vote is July 29,the same night the assembly votes on Assemblyman Tim Beck's measure asking the panel to approve the port authority's new business plan. The Valdez City Council approved the new mandate without a public vote. "The potential for seeing this project will disappear,”Beck said."I wouldn't want to be one of the elected officials to let this occur.” Various endeavors to build a gas pipeline have yet to succeed,and the port authority developed the project to truck natural gas to Fairbanks as a stop gap measure to bring down energy prices. The Golden Valley Electric Association has signed on as a natural gas customer and members of the cooperative stand to save about six percent on their electric bills. http:/Awww.newsminer.com/printer_friendly/8633178 Page 1 of2 7/12/2010 Borough Assembly member wants public vote on whether to truck liquefied natural gas to... J About 1,100 customers of Fairbanks Natural Gas,which the port authority is yurchasing for $55 million,stand to save an estimated 30 percent on their energy yills,and the port authority promises to expand the system. The project also yields a windfall of propane,most of which would go to Valdez. But questions linger about the trucking project.Assemblywoman Nadine Winters asked for more detail,including the management structure for the new business endeavor. "We are being asked to approve the development when we don't know any details,”she said. Hopkins said some of the details,such as a contract with Exxon Mobile Corp.to provide the natural gas,fall under confidentiality agreements. Contact staff writer Amanda Bohman at 459-7544. ©newsminer.com 2010 http://www.newsminer.com/printer_friendly/8633178 Page 2 of 2 7/12/2010 (Special Resource Y (2 special service of:;Y AlaskaSupplement|Economic Report .-Alaska Economic Report conomic Nepor &Alaska Legislative Digest --A special supplement available only toregularreportsubscribersbyspecialorder.|JD Resources Supplement August 26,2008-No.14/08 Mine would last 25-30 years,and probably longer Donlin Creek project to seek permits in early 2009 The Donlin Creek Joint Venture (Barrick Gold and Novagold Resources)say they plan to finish the feasibility study and begin permitting the big Donlin Creek gold mine in early 2009.The company has identified a "preferred”design for the project, a mine that would mine and process 50,000 tons of ore daily and produce 1 million to 1.5 million ounces of gold yearly for 25 to 30 years,although new drilling has identified additional resources that would no doubt add to the mine life.The latest official resource estimate is 31.67 million ounces of Measured and Indicated (a clas- sification of high reliability)resources,based on drilling through 2007.There are an additional 4.2 million ounces of inferred resources,where the drilling has been widely spaced and there is less certainty as to the continuity of the mineralization. Results from additional drilling in 2008 are not yet included in the resource esti- mate.The schedule would see construction beginning in 2012.The mining plan is based on a $750 per ounce price for gold. On power,two companies stick with diesel and wind Power supply is a key issue,and the joint-venture has settled on a combination of diesel-fueled generation and wind power,NovaGold said.A long-distance intertie to connect to the state's railbelt power grid was investigated but is not considered economic,the two companies say. Donlin Creek project is on a 27,000-acre lease from Calista Corp.,the subsurface owners,and The Kuskokwim Corp.,the surface owner.The mine is 12 miles from the Kuskokwim River near Crooked Creek village.[fit is successfully built,the mine would become a major employer and an economic engine in the Yukon-Kus- kokwim region,now an economically-depressed area. -Continued on next page (Special Resource Supplement,available only to regular subscribers of the Alaska Economic Report or AlaskaLegislativeDigestatanadditionalrateof$130/year;3037 South Circle,Anchorage,Alaska 99507: "(907)522-0195-.Fax (907)522-1761 \ Legislature:AGIA worth the $500 million -Continued from previous page TransCanada Corp.finally has its state AGIA pipeline license after Gov.Palin signed it Aug.27.The late signing,caused by a long delay in the Legislature's formal transmission of the bill authorizing the license to the governor,will effectively cost TransCanada the 2008 summer field season.It will be too late to secure permits and do work this year.This would push the "open season”the company is to hold into 2010,the same year the rival Denali pipeline group will hold its open season. Denali,the pipeline company formed by BP and ConocoPhillips,got an early start on its 2008 season and will have spent $40 million by the end of this year.Denali plans to spend $600 million in preparation for its open season.TransCanada plans to spend about $80 million. Is TransCanada wondering about its Alaska partner? TransCanada may be wondering how committed Alaska really is to the new AGIA partnership.As it finally approved the AGIA license the Legislature balked at three key funding requests the governor made,one being an appropriation for the matching funds for TransCanada (up to $500 million),the second and third being appropriations for pipeline-related transportation infrastructure (bridges,road improvements,etc.)to the state Department of Transportation and Public Facilities as well as training funds to the Department of Labor and Workforce Development. Legislators were opposed to these initiatives,but what they told the administra- tion is that the requests should be brought back for consideration during the regular session,which begins in January 2009.This is not surprising in that lawmakers had enough on their hands during the summer special sessions dealing with the AGIA license and the separate issues related to energy assistance. However,it must be a little disconcerting to TransCanada to realize that the state's ability to really fork over the matching funds for the pipeline company's work will be part of the year-to-year appropriations cycle of the Legislature.That means there will always be uncertainties,and that creates planning problems for a private company like TransCanada.Will the company put its own funds at risk to make commitments to contractors,for example,without the sguarantee that the state's dollars (50 percent to open season,80 percent after)will be there? -Continued on next page Page 2 Alaska Economic Report Supplement No.14/08 NS la \ Many hope Denali and TransCanada can get together -Continued from previous page While it's unlikely that the Legislature would welch on such a high-profile commit- ment,there are still no real guarantees.Meanwhile,for what it's all worth AGIA is done.The vote was very political,of course,and many legislators held their nose in approving a contract with certain objectionable terms,but in the end many felt it was worth the state's $500 million to keep a third party pipeline in the game and not be solely dependent on the producer-led Denali project.Many still hope that TransCanada and the producers can somehow get together,perhaps preserving a few of the state's goals in pursuing the AGIA deal,but whether than can happen is very uncertain. We "privatized”negotiation of the state's interests What is certain is that the politics are out of the pipeline deal for now,and perhaps for good.Basically what the governor and Legislature have done is delegate the nego- tiations to protect the state's interests (the so-called "must haves”)to a private party, TransCanada.The alternative was for the state to deal directly with the producers in negotiations,which was the course pursued by former Gov.Murkowski.The Palin administration chose to take a different course. TransCanada's managers are big boys and know the ropes,of course.What the Cana- dian pipeline company really needs is new gas flowing through its Canadian system in a few years,after production from the existing producers feeding the system declines. If the Denali group does somehow cut a deal with TransCanada,for example to use part of its Canadian system,we might see TransCanada back quickly out of the con- tract with the state.If that happens the governor's entire strategy would have backfired, and the state has no way of controlling or influencing the outcome.In fact,despite the AGIA contract the state will have no way of really knowing what's going on in terms of commercial talks between these entities. Dueling Denali-TransCanada open seasons in 2010? Aside from that,what we will definitely see is a 2010 open season by the Denali pipe group with cost estimates backed by a robust technical evaluation,and a 2010 Trans- Canada open season that will have involved less expenditures and thus less confidence -Continued on next page Page 3 Alaska Economic Report Supplement No.14/08 c NS TransCanada will spend less on its cost estimates -Continued from previous page in the costs.(An open season is the period in which a pipeline group solicits contracts to ship gas.) TransCanada would argue with this assessment,saying for example that it has far more information and experience in building the Canadian segments than does Denali. That is true enough,but TransCanada lacks information on the Alaska segments which the Denali group does have,although it is dated,from the 2001 pipeline cost studies by the producers.So,in 2010 the Denali group could have a cost estimate with a plus- or-minus 20 percent level of confidence,while TransCanada has an estimate that might have a much wider plus-or-minus,like maybe 40 percent. The problem TransCanada will have is that even if a gas owner wants to ship gas through its system the offer will so highly conditioned that no bank will touch a financ- ing deal.The only companies that can stand the risks (i.e.not have to depend on banks) are the three big producers,and two of those are already committed to the Denali pipe- line.The only major company that hasn't yet decided which way it wants to market its gas is ExxonMobil.It's ironic that the state hopes to lure ExxonMobil into using Trans- Canada and salvaging its AGIA strategy. Is Point Thomson part of the administration's strategy? There are also those who believe the state is attempting to use its Point Thomson card in "persuading”the producers to use TransCanada (all three major Prudhoe producers are involved at Point Thomson.)In fact the state's actions make this fair obvious. There are no signs that the state has budged from its plan to pursue regaining the Point Thomson leases and the issue is firmly locked up in court.The only realistic solution is a settlement but the state appears to show no interest in this.The street talk is that the state is just waiting until the time is right to use the Point Thomson dispute as leverage in securing gas pipeline commitments.Thisis just speculation,though.State ResourcesCommissionerTomIrwiniskeepinghiscardsclose. The three producing companies argue that Point Thomson's gas resources,estimated at 8 trillion cubic feet (tcf)are needed for a gas pipeline no matter who builds it.The administration disagrees,arguing that the Prudhoe Bay field alone,with 26 tcf of gas, can handle the gas production needed for the pipeline.This question would ultimately be decided by the Alaska Oil and Gas Conservation Commission,an independent regu- Page 4 Alaska Economic Report Supplement No.14/08 \e C \ Bradner'sAlaska Economic Report (c)ISSN:1072-8139 ™) -Tracking resource,business,industry&construction issues since 1974 Publishers:Mike &Tim Bradner (907)440-60683037SouthCircle,Anchorage,Ak.-99507 Zz June 30,2010 -No.10/2010 AIDEA loan data shows business picking up In an important economic signal,business participation loan deals by the Alaska Industrial Development and Export Authority,the state's development corporation,are up sharply.These are commercial loans,typically for real estate or capital investment,originated by banks and brought to AIDEA as a partner. As of early June AIDEA has done $38 million in loans with another $11 million where closure is pending.The agency hopes to finish out the 2010 fiscal year,which concludes June 30,with $48 million in new loans on the books.That's a sharp contrast to $26.7 million in FY 2009 lend- ing.The Alaska economy was not all that affect- ed by the national recession but business confi- dence was,resulting in very low loan demand. The uptick in commercial loan demand signals a return of confidence,AIDEA says. In another development AIDEA will be pro- cessing $90 million in low-cost money available for business expansion under a federal stimulus project.The rates will be essentially tax-exempt. Some municipalities will be able to issue bonds for such activity but AIDEA may be the main conduit.Applications have to be to the agency by Aug.31,with the program expiring at years end. Similar low-cost financing for development proj- ects,typically for infrastructure,will be available through the Alaska Municipal Bond Bank. (-;)In this Issue:¢Donlin Creek gas pipeline Pg.3 ¢Fairbanks employment Pg.4 ¢BP:No immediate effects Pg.6 ¢ITH cranks up at Livengood Pg.7 q Resource Supplement published separately D Tourism season about equal to 2009,still below '08 levels Surprisingly,the 2010 tourist season isn't turning out to be the disaster many had feared. The decline in cruise ship visitors is as expected because of ship redeployments,which hurts com- munities like Fairbanks which depend heavily on cruise tourists.But that decline appears to be offset by an increase in independent travellers. Those volumes are far better than last year al- though not quite back to 2008 levels,tour opera- tors report.Looking at the big picture,however, the total number of visitors may be about at 2009 levels or even slightly up.Meanwhile,hopes are the reduced state cruise passenger tax may tempt some of the cruise ship operators to increase ves- sel calls next year.Increased promotion funding, from $11.7 million to $18.7 million,will also help boost next year's visitor season. [»-.Bradners'ALASKA ECONOMIC REPORT:Published by Alaska Information and Research Services3037SouthCircle,Anchorage,Alaska 99507 TEL:(907)440-6068 FAX:(907)345-5683 Email:timbradner@pobox alaska.n J General Business: EPA:Lead restriction on aviation gas The comment period closed June 28 on the U.S.EPA's rule limiting use of low-lead aviation gasoline used mainly in piston-engine aircraft commonly flown by bush air carriers in rural Alaska.Larger turbine and jet aircraft can use lead-free fuel but some lead in fuel is needed for piston aircraft engines to perform safely, particularly in cold temperatures.Calista Corp. is particularly concerned with the proposed EPA rule because most villages in Calista's region of Southwest Alaska have runways less than 3,300 feet,too short for medium-size turbine-engine aircraft.The region is heavily dependent on the smaller aircraft. OK RCA nixes Southeast power rate hike The Regulatory Commission of Alaska turned down Alaska Electric Light &Power's request for a temporary 18 percent rate increase but is still considering the company's request for a permanent 22 percent increase,which the com- mission may take as long as a year to decide. AEL&P said it may go to court to appeal the denial of the temporary increase,arguing the revenues are needed to help pay for a new proj- ect that went on-line last year as well as other costs that have increased. KK Annual aerial exercises in Alaska The US.Air Force concluded its annual "Red Flag”summer aerial training exercises at Elmen- dorf and Eielson air force bases,an event that brought more than 2,000 American and foreign pilots,support and maintenance staff to Alaska for training.The exercises are done in the 67,000- square-mile Interior Alaska training area where airspace is reserved.The availability of training space in Alaska,both in airspace and on land,is a key advantage of the Alaska military installations and for the state in its efforts to retain the bases. *KK $16 million new Juneau cultural site Sealaska Corp.took an initial step toward con- struction of a $16 million new Southeast Alaska Native cultural and visitors center in Juneau with the purchase of a lot in the capital city's down- town adjacent to Sealaska's corporate offices.The corporation will take ownership of the property in mid-July and will do landscaping to enhance its appearance until work on the building begins. The state has appropriated $2 million to aid in the planning for the facility.The center will provide a facility for the study of Native cultures and the preservation of historical papers and collections. Construction,which will provide about 80 jobs, is expected to take two years. kK 25 cargo flights/week now overfly;new jet fuel coming to Anchorage Overflights of Anchorage by international air carriers has increased to about 25 a week,up from 15 a few weeks ago,due to lack of jet fuel availability.However,Flint Hills has restarted its third oil process unit and is now shipping fuel to Anchorage,somewhat alleviating the situation.Airport of- ficials are now working to get those flights back.About 600 widebodies land in Anchorage weekly, mostly cargo refueling stops,so the lost 25 isn't a crisis but the trend has caused concern.Carriers will still be worried about fuel because Flint Hills has told the state it will shut the unit down in October.Meanwhile,AIDEA,the state development corporation,has issued a contract to scope out costs for building additional fuel storage capacity at the Port of Anchorage for possible use by tank- ers bringing in fuel.The report is due July 30.If fuel storage issues are impeding market competi- Page 2 Alaska Economic Report No 10/10 Donlin Creek to decide on its gas pipeline next year Most state and community leaders have considered the idea of a gas pipeline to the big Don- lin Creek gold project near the Kuskokwim River another pipeline "pie-in-the-sky”(pretty much as the "bullet line”is talked about by politicians).However,the Donlin Creek Joint Ven- ture is putting serious money into the idea.The company (a venture of Barrick Gold and Nova- Gold Resources)announced that $18 million will be spent on pipeline studies this year,but we were told recently the idea is more advanced than was previously believed.The pipeline would be 325 miles long at 12 inches in diameter.While the $18 million is to fund just pipeline work, mostly geotechnical and environmental studies,much of Donlin Creek's $47 million budget this year is aimed at updating the overall mine economic study to include the gas option. The goal is to have the work completed by late spring or early summer so the joint venture can decide by mid-summer between its current base case,which is relying mainly on diesel, and gas shipped in from Cook Inlet by pipeline.The goal is to be able to apply for permits by late 2011.NovaGold told us that a conceptual study of the pipeline idea,including reliance on imported liquefied natural gas (LNG)if no other gas were available,indicates that the pipeline (and LNG imports)ideas were worthy of further study,which led to the public announcement and the work underway now. Route through Skwentna and Rainy Pass is being considered The route being considered would depart the Beluga field area,with its existing pipelines,go through Skwentna and Rainy Pass (alternative passes are also being studied)and then straight to Donlin Creek near the Kuskokwim.There are only two significant river crossings,one of them being the Kuskokwim.The initial plan is for underground river crossings.While it's possible the line could eventually serve communities in the region the permit applications will indicate a sole industrial user,the mine.Donlin Creek doesn't want to becomea utility serving others besides itself.However,the 12-inch pipe is sized so that more gas could eventually be shipped in the event a utility is formed to get into the regional gas distribution business. We previously estimated Donlin would require about 10 billion to 11 billion cubic feet of gas per year,about a third of what Enstar Natural Gas Co.supplies to its customers.We calculated this a couple of different ways but relied mainly on a straight conversion of the energy delivered through diesel for mine power and vehicles in the base case to equivalent energy delivered by gas.The Donlin group doesn't yet have an estimate of gas demand,at least one it is willing to release,but NovaGold told us our estimate was probably in the ballpark.As to a gas source,we were told the pipeline and updated mine feasibility study must come first,followed by the com- panies'decision on the preferred alternative,before any talks are held on gas supply. -Continued on page 7 Page 3 Alaska Economic Report No 10/10 Business Intelligence Confirmed:60 percent of Fairbanks jobs government-funded It should be no surprise,but 6 of 10 jobs in the Fairbanks Borough are directly or indirectly cre- ated by state or federal dollar spending.That's one outcome of a Social Accounting Matrix recent- ly completed by Fairbanks Economic Development Corp.and reported by the borough govern- ment in its quarterly economic report just issued.The model developed by FDIC,based on 2006 data,showed federal spending creating 42 percent of jobs;the private sector 36 percent,and state spending (90 percent funded by oil revenues)accounting for 22 percent of Fairbanks-area jobs. The model estimates that 20 percent of all public spending (state and federal)was spent on local contracts,which stimulates the private economy.This money generates 50 percent of all con- struction jobs and 25 percent of professional services jobs (a category that includes engineering, environmental services,etc.),the study said.The dominant economic driver is the military.Fort Wainwright and Eielson Air Force Base bring $1.2 billion into the local economy each year and generate 30 percent of all jobs in the region.FDIC also reported that the top-wage jobs are,again no surprise,in petroleum,with pipeline-related work paying average salaries of $156,664 per year;refineries paying $142,747 on average;and oil and gas generally paying $107,890 on aver- age.Utilities jobs paid well,too,averaging $140,023 per year. IS ANCHORAGE'S ECONOMY GROWING?Anchorage's economy is holding steady and may actually be growing slowly,outperforming expectations.Anchorage Economic Development Corp.reported that the local economy gained 575 jobs as of April,year-to-date,as compared to the same period of 2009.In its 2010 forecast AEDC had projected a gain of 200 jobs for the year.Anchorage's population increased 2.7 percent in 2009 over 2008,to 290,588,according to estimates by the Alaska Dept.of Labor and Workforce Development. ALASKA AEROSPACE TEAMS WITH LOCKHEED MARTIN;Alaska Aerospace Corp.,the state corporation that operates the Kodiak Launch Facility,has teamed up with major defense contractor Lockheed Martin to pursue a major contract to maintain and enhance the national missile defense system.Alaska Aerospace has been a contractor for several years to the Missile Defense Agency in support of testing of the ground-based missile interceptors.The two compa- nies are going after a support contract held by Boeing for 10 years. In attempting to land the contract,which the Defense Department reopened May 14,Alaska Aerospace will propose ideas for management enhancements at the existing missile intercep- tor launch facility at Fort Greely,east of Fairbanks,and will support its arguments based on its track record of successful operations and launches at the state-owned launch complex at Kodiak. Lockheed Martin will propose ideas for improving reliability of the interceptors.The contract will be awarded in 2011 and would be for five years.It will be worth about $600 million a year. Page 4 Alaska Economic Report No 10/10 ' 7 SPILL CLEANUP COSTS FOR SUNKEN STEAMER COULD HIT $12 MILLION:The US. Coast Guard officials said a project to recover 110,000 gallons of bunker oil from the sunken steamer Princess Kathleen is complete and that costs may reach $12 million.Federal funding for the cleanup came from the Oil Spill Liability Trust Fund.The 369-foot Canadian Pacific steamer, a passenger vessel,sank in 1952 north of Juneau.All on board were rescued but the ship has peri- odically leaked bunker fuel stored on board. SEALASKA DIVIDEND INJECTS $3.7 MILLION INTO SOUTHEAST ALASKA:SealaskaCorp.made an April 2010 dividend distribution injecting $3.7 million into the Southeast Alaska economy.The Juneau-based Alaska Native regional corporation has about 20,000 shareholders with roughly 40 percent living in Southeast.Sealaska's annual meeting is June 26 in Craig. PARNELL APPROVES STATE BOND ISSUE VOTE ON EDUCATION PROJECTS:Gov.Par-nell signed House Bill 424,placing the $380 million general obligation bond issue on the Novem- ber election ballot.If approved the bonds would finance construction of eight education facilities. Major projects include a new life sciences building at the UAF campus;a new sports complex for UAA in Anchorage,and three major rural schools,in Kwigillingok,Kipnuk and Alakanuk,all in western Alaska.Another bill signed by Parnell,HB 184,increased the university's authoriza- tion for debt from $1 million to $2.5 million,which allows the university to issue $20 million in revenue bonds as part of a financing package for the new life sciences building.The governor also signed SB 237,making permanent a 70 percent state reimbursement for debt service on municipal school bonds.Previously the state sharing was extended on a periodic basis,and sometimes at 50 percent.The bill also established a fund for rural school construction. -Continued on page 8 a Bradners'....Doing our job for 40 years >»Alaska Economic Report -Alaska oldest policy reports &Special Resources Supplement -(907)440-6068 fax:(907)345-5683 3037 South Circle 7 Anchorage,Alaska 99507 ()Billme (__)By Credit Card (see below)¥,can ig +e W()Check enclosed -in process io <}ley enASubscription$450/year Alaska Economic Report ="Aer,&Resources Supplement e i bed *"y Name.Position,Mike Bradner Tim Bradner Company phone E-MailAddressaxtimbradner@pobox.alaska.netCity/State Zip *Credit card:Type No Exp \S Page 5 Alaska Economic Report No 10/10 Petroleum: State fast-tracks tax consultant deal In a strong signal that the state administra- tion expects to conduct negotiations on state oil and gas tax revisions to encourage a natural gas pipeline,the state Department of Revenue issued a fast-track Request for Proposals for oil and gas tax consulting services that could be worth up to $2 million.The RFP was published June 17,and bids expected June 30. The winning bidder is to be announced a day later.A major project under the contract is the development of a computer model of Alaska's oil and gas tax system so that different options for changing taxes can be weighed.Revenue Com- missioner Pat Galvin said the contract would build on work done by Gaffney Cline,a long- time consultant whose contract is expiring. The fast-track bid prompted criticism from some legislators who said the deal is likely wired for a preferred consultant.Galvin denied that. 2K kK Kenai LNG plant license exetension As expected,ConocoPhillips and Marathon Oil formally applied for a two-year extension to the companies'federal license to export liquefied natural gas from the Kenai LNG plant.The cur- rent license is due to expire in March 2011. The request does not increase the amount of LNG that would be exported under a previous li- cense extension,as the volumes of LNG exported have actually been below expectations,but just grants the plant an additional two years to ship the approved amount.One reason why volumes are below projections is that the plant diverted gas supplies from the LNG plant to local utilities to fill shortfalls in gas during winter cold snaps. Such shortfalls are expected to continue as daily production from existing gas fields in Southcen- tral Alaska continues to decline. Kenai LNG license extension (Cont.) Both companies also have contracts to supply local utilities and,if the extension were granted, would honor those contracts first before export- ing the gas as LNG to customers in Japan.The U.S.Department of Energy issues the export license. 2K Enstar to file for gas storage in July Enstar Natural Gas Co.said it will file its long-awaited gas storage lease application with the state Dept.of Natural Resources in early July. The utility proposes to build a storage facility for itself and other customers under terms of a recently-enacted new state law that grants incen- tives and special lease terms. More gas storage is urgently needed in South- central Alaska because of declining production in gas fields in the region to the point that during winter cold snaps daily production can no longer meet demand.Storage,common in the Lower 48, is one solution.Since gas demand is low in sum- mer there is surplus production that can be stored for peak demand periods in winter.Storage isn't cheap,however,and local consumers will bear the cost. 2k ok US.Fish and Wildlife Hearings The U.S.Fish and Wildlife Service held hear- ings in Anchorage June 15 and Barrow June 17 on polar bear critical habitat designations,which were declared endangered in 2008 under the En- dangered Species Act.Development groups and state officials opposed the huge size of the desig- nated area,saying it could complicate petroleum development Contact us:akecon@ gmail.com Page 6 Alaska Economic Report No 10/10 Continued top right Minerals: 75 at work at Livegood gold project International Tower Hill Mines resumed exploration drilling June 1 at the company's Livengood gold project.Five drill rigs and about 75 people will be at work this summer drilling 150,000 feet of core,the goal being to expand boundaries of the known resource now estimated at about 18.5 million ounces of gold.In May,the company released results of a test of its planned gold recovery process,which showed 89 percent: of gold in various types of rock from the site ex- tracted to a concentrate.That's a good result,the company said.ITH will use that data in a prelim- inary feasibility study now underway,which will consider using a mill gold extraction process,a heap-leach extraction,or both.The Livengood mine will be an open-pit project similar to the Fort Knox mine now producing near Fairbanks. Unlike Fort Knox,however,living facilities will likely have to be built at the mine.Livengood may be too far for a commute from Fairbanks. Mat-Su okays Wishbone Hill coal deal The Matanuska-Susitna Borough approved an extension of a lease of borough-owned land Usibelli plans Wishbone Hill mining to Usibelli Mine Inc.to facilitate access to the proposed project to mine bituminous coal at Wishbone Hill,10 miles north of Palmer.The state is considering the company's application for exploration at the mine site this summer,and will decide permits by July,DNR said.Usibelli plans to build an access road and drill seven to eight exploration holes this summer.The company is changing its application for the permit to accom-modate concerns. Usibelli estimates Wishbone Hill contains about 6 million tons of coal that can be economi- cally mined but the reserve figure may grow.Re- serves are believed sufficient for at least 12 years of mining operations.The company is doing a feasibility study of the Wishbone Hill mine in cooperation with its Japanese customer,J-Power. KK Coeur Alaska started production at the Kens- ington gold mine near Juneau ahead of schedule. The mine will employ 200.A Chinese state-owned company agreed to buy half of Kengington's gold concentrates. Donlin Creek:Six years is needed to permit,construct mine and pipeline -Continued from page 3 In terms of timing,the companies are looking at about three years to permit the project once it is decided on and then three years to construct it.Assuming a decision in 2011 that puts first produc- tion,conceptually,in 2017.The timing coincides roughly with a possible "earliest time”that a "bul- let”gas pipeline could be built from the North Slope but NovaGold said it can't base its plans on the hope that a bullet line will actually be built. Barrick and NovaGold also hope the work to revise the mine feasibility assessment will project lower capital costs.The current estimate of over $4 billion was put together a couple of years ago when materials costs were soaring.Donlin Creek has 33.6 million ounces of proven and probable gold resources,and if developed would be one of the world's largest gold mines.The subsurface is owned by Calista Corp.,a regional Alaska Native corporation,with surface lands owned by The Kuskokwim Corp.,a consortium of local village corporations. Page 7 Alaska Economic Report No 10/10 Business Intelligence (Cont.) -Continued from page 5 STATE NOW PARTNERS WITH DOE IN GUARANTEEING ENERGY LOANS:Gov.Parnell istakingflakforhisvetoesofalmost$90 million in renewable energy projects from the state capi- tal budget,but federal money for renewable projects is still coming in and the state development agency,the Alaska Industrial Development and Export Authority,is now authorized to partner with the U.S.Dept.of Energy in guaranteeing 80 percent of loans for qualifying renewable energy proj- ects."Renewable”includes wind,geothermal and certain hydro projects.Loans can also be used to finance electric Interties to connect renewable energy projects to a grid.The DOE funding comes through the federal stimulus act with $6 billion in the project.There is no allocation to states,so Alaskans should move quickly to get loan applications into AIDEA.The Alaska Energy Authority, AIDEA's sister agency,will vet project applications from a technical standpoint. HOME WIND SYSTEM SALES EXPANDING ON KENAI PENINSULA:Homeowner installa- tions of wind turbines are catching on with Kenai Peninsula residents,where Alaska Wind Indus- tries,a local firm,is promoting sales.A renewable energy credit program by Homer Electric Assoc. is helping spur growth,too.Alaska Wind Industries is due to install turbines at 47 locations this year,up from 30 last year.The units aren't cheap-a 49-foot,1,300 Ib.turbine cost one homeowner $41,000,although U.S.Dept.of Agriculture grants are available to cover 25 percent of that. KETCHIKAN'S SHIPYARD GOES AFTER STATE FERRY JOB:Ketchikan's Alaska Ship and Drydock will compete for construction of the new $120 million Alaska-class state ferry set to go to bid July 1,and the company hopes its recent success in building a vessel for the U.S.Navy and the Matanuska-Susitna Borough,involving new-technology systems,will give it a shot at the ferry. The Ketchikan shipyard does a lot of maintenance and overhaul work including on state ferries,but has actually built only two vessels,including the Mat-Su ferry.The new state ferry will be 350 feet long,74 feet wide and will accommodate 499 passengers and 60 standard-sized vehicles. Despite its aspirations,Alaska Ship and Drydock was not successful in its bid for construction of two new tugs and barges for a private company set to begin operating in western Alaska in 2011. The company's bid was several times that of competing Lower 48 yards.With the Mat-Su ferry complete,the shipyard is now at work constructing the 116-foot Ketchikan airport ferry,the MV Ken Eichner,which will join an existing ferry,the MV Oral Freeman,on the Ketchikan airport shuttle.The $7.5 million vessels will have capacity for 100 passengers and 23 vehicles. DUBUQUE UNIVERSITY OUT OF SHELDON JACKSON DEAL:The University of Dubuque ended talks with Sheldon Jackson College in Sitka about taking over part of the campus of the closed college,citing lack of "community support,”mainly the city waffling on a $5 million com- mitment discussed earlier.The University of Dubuque had proposed investing $2 million as its part of a projected $8 million program to renovate buildings at the college,many which date from 1911. Sitka officials said Dubuque had unrealistic expectations of the city's ability to raise the money. Page 8 Alaska Economic Report No 10/10 -DOws Karl Reiche 'm:Anchorage Daily News [adn@nandomedia.com]on behalf of art [acopoulos@aidea.org] t:Thursday,April 29,2004 8:18 AM 0:Karl Reiche Subject:Slope line may replace Inlet gas The following adn.com article was sent by: art (acopoulos@aidea.org) And art had this to say: Karl, This seems alarming to me and may warrant some more meaningful long-term planning.Lets discuss.Do we have a copy of this study and are we commenting on it? Art Slope line may replace Inlet gas STUDY:Pipeline spur could offer cheap fix as local production falls. By KRISTEN NELSON,Petroleum News Published:April 29,2004 ape cliffOot to be a well-known graphic:It shows Cook Inlet natural gas production falling£steeply in this decade,first curtailing industrial uses and then utility and home heating. Known reserves can be developed and more gas can probably be found at existing fields,but beyond that,into the realm of exploration,the costs rise.North Slope gas may be an attractive alternative,if the local market is large enough for gas --not at historically low Cook Inlet stranded gas rates --but still,perhaps,at a favorable price differential to Lower 48 natural gas prices. The U.S.Department of Energy's Arctic Energy Office funded a study to look at future demand and supply of natural gas in Southcentral Alaska and evaluate options to meet the demand. You can read the full story online at: http://www.adn.com/business/story/5017549p-4945943c.html This article is protected by copyright and should not be printed or distributed for anything except personal use. For information on reprinting this article or placing it on your Web site,please contact the Daily News marketing department at (907)257-4429 or marketing@adn.com. G Anchorage Daily News |Slope line may replace Inlet gas Page 1 of 2 adn.com [PrintPage |{Close Window } Anchorage Daily News Slope line may replace Inlet gas STUDY:Pipeline spur could offer cheap fix as local production falls. By KRISTEN NELSON Petroleum News (Published:April 29,2004) The cliff is getting to be a well-known graphic:It shows Cook Inlet natural gas production falling off steeply in this decade, first curtailing industrial uses and then utility and home heating. Known reserves can be developed and more gas can probably be found at existing fields,but beyond that,into the realm of exploration,the costs rise.North Slope gas may be an attractive alternative,if the local market is large enough for gas --not at historically low Cook Inlet stranded gas rates --but still,perhaps,at a favorable price differential to Lower 48 natural gas prices. The U.S,Department of Energy's Arctic Energy Office funded a study to look at future demand and supply of natural gas in Southcentral Alaska and evaluate options to meet the demand. a ine to Southcentral from a North Slope gas pipeline may be an attractive option compared with exploring for andYouisstillindraft,but Charles Thomas of Science Applications International Corp.,one of the study's authors,said thatdepingmoregasintheCookInletbasin,if there is enough of a market for the North Slope gas in Southcentral Alaska. Thomas reviewed study results to date for a recent International Association for Energy Economics meeting in Anchorage.A draft of the report is being circulated for comments,and Thomas said he expects that the final report will in early May. Options considered include conventional natural gas resources,a spur line from a North Slope gas pipeline,and limiting industrial usage. Increased natural gas resources in the Cook Inlet area could come from reserve additions in existing fields,exploration and discovery of additional conventional gas fields or unconventional gas. The study looked at how much gas there might be in the Cook Inlet basin.Thomas said the study concludes that a 25 trillion to 30 trillion cubic feet of additional gas in place is a good estimate. "Now,I emphasize an analysis like this,number one,doesn't prove it's there,and it certainly doesn't tell you where to go look,"Thomas said. The study looked at land classifications,and the authors concluded that because a major portion of the Cook Inlet land area is in federal and state wildlife refuges,parks and restricted areas,and because of historical production in some areas,that up to 30 percent to 50 percent of the prime exploration areas could have restricted access or be off limits. Thomas noted that historically exploration has been for oil,with gas discoveries before 1970 accidental. estimated gas,about 20 trillion to 25 trillion cubic feet should be technically recoverable,with 13 trillion to 17 trillion of t upper Cook Inlet,including 2.5 trillion to 3 trillion cubic feet extra from existing fields. But land access is required,seismic testing and long-reach drilling.He said people advising on the study emphasized the cost, http://www.adn.com/business/v-printer/story/5017549p-4945943¢html 4/29/2004 Anchorage Daily News |Slope line may replace Inlet gas Page 2 of 2 telling study authors,"Yes,we would say there's a lot of gas to be found in the Cook Inlet,it's pretty under-explored,but it's lo}to be freeThtiontobring North Slope gas to Anchorage included Alaska-only capital costs and throughputs based on the MidAmerican proposal for the line from Prudhoe Bay --now defunct,Thomas noted --and used estimates from Enstar Natura! Gas Co.for a spur pipeline.The result was an estimated pipeline shipping fee of $1.40 per thousand cubic feet to bring gas from the North Slope to Anchorage,not including the price of the gas itself. "This is what I'd call definitely our first-cut analysis,”he said,but it does suggest that gas to Anchorage would have about a $1 per thousand cubic feet cost advantage over shipping North Slope gas to Chicago,creating "some opportunities for value- added products in Alaska.” For finding new gas in Cook Inlet,if 50 percent of the estimated undiscovered 13 trillion to 17 trillion cubic feet of gas had a finding and development cost of 75 cents per thousand cubic feet,the total investment would be $5.6 billion for onshore discoveries;more for offshore discoveries. That kind of investment may be hard for Alaska operations to get,based on international competition for investment,Thomas said. At $500 million for a spur pipeline,that "certainly may be an attractive option,but you do have to have a market for the gas." And the price for gas in Anchorage could be less than in the Lower 48. Because of statements made by Agrium about the uncertainty of operating its gas-fired Nikiski fertilizer plant after 2005, Thomas said the study assumed that Agrium operations stop in 2005 and that the LNG plant,also in Nikiski,stops operationsattheendofitscurrentexportlicense,which runs through the first quarter of 2009. Agrium is one of the biggest natural gas consumers in Southcentral.If gas stops going to the Agrium fertilizer plant after 2005,and to the LNG facility after the first quarter of 2009,there is gas to meet commercial and residential consumer d d until 2012 with the existing reserves,but the critical date is 2009 with existing reserves,if gas continues to be d ed to the big Nikiski industrial users. Successful exploration and production effort will be needed to maintain current levels,and the economics look favorable for 30 billion to 100 billion-cubic-feet fields onshore and 120 billion to 220 billion-cubic-feet fields offshore,depending on the price of gas. [Print Page }(_Close Window _] Copyright ©2004 The Anchorage Daily News (www.adn.com) O http://www.adn.com/business/v-printer/story/5017549p-4945943c.html 4/29/2004 Karl Reiche From:Karsten Rodvik Sent:Friday,July 15,2011 1:15 PM To:Sara Fisher-Goad;James Hemsath;Valorie Walker;Peter Crimp;Leona Hakala;Bruce Tiedeman;Mark Davis;Mark Gardiner;Gordon Davis;Bryan Carey;James Strandberg; Brandi L White;Curtis Thayer;Karl Reiche;Aaron RhoadesSubject:_Monday July 18 Chamber Luncheon Importance:High Hello All, |have purchased two AIDEA tables for the following Anchorage Chamber of Commerce luncheon,to be held Monday July 18 at the Dena'ina.You are on the list to attend.Please note that your ticket will be available at the door.Please also note that each table seats eight people.See you there! Karsten "Make it Monday"forum -ASAP Project:An In-State Pipeline for Alaska Date 7/18/2011 Time 11:30 AM TO 1:00 PM Dena'ina Center Event Description: Legislators are enthusiastically considering the idea of building,and possibly owning,a $7.5 billion in-state pipeline tobringNorthSlopenaturalgastoInteriorandSouthcentralAlaskamarkets.But is the "stand alone gas pipeline"feasible? Dan Fauske,Michael Rocereta and Dave Haugen of the Alaska Stand Alone Gas Pipeline/ASAP Project,will give an overview of the project plan and discuss what it will take to build an in-state natural gas pipeline. Karsten Rodvik Project Manager,External Affairs Alaska Industrial Development and Export Authority Alaska Energy Authority (907)771-3024 £IDE SE.i]HOV ASKAENEAO¥! Cook Inlet Gas Study -An Analysis for Meeting the Natural Gas Needs of Cook Inlet Utility Customers prepared for ENSTAR EC Natural Gas Company ENTY-+FiVEYEASCHUGL ianPOWERINGALASHA'S FUTURE ==RseviMarch 2010 Peter J.Stokes,PE William Grether &Thomas P.Walsh Petrotechnical Resources of Alaska 3601 C Street Suite 822 Anchorage,AK 99503 (907)272-1232 Due to the uncertainties of drilling and producing activities of operating and exploration companies and what Alaska state agencies do and do not do in influencing those activities,this study should be considered a best estimate based on current data.It was prepared using generally accepted engineering and geological predictive methods.As such, Petrotechnical Resources of Alaska can make no warranty as to actual future Cook Inlet gas drilling and production. Executive Summary prepared by Cook Inlet Utilities ENSTAR Natural Gas Company,Chugach Electric Association,and Anchorage Municipal Light and Power (Cook Inlet Utilities)commissioned Petrotechnical Resources of Alaska (PRA)to study Cook Inlet natural gas reserves and forecast annual natural gas production.We asked PRA to estimate the cost of the development necessary to meet the immediate needs of Cook Inlet utility customers from 2010 to 2020.The PRA study includes a review of estimated reserves and deliverability of Cook Inlet gas wells drilled between 2001 and 2009,scenarios for potential development activity,a review of a December 2009 Alaska Department of Natural Resources (DNR)reserves analysis,and an analysis of when it might be necessary to rely on non-Cook Inlet natural gas sources,such as liquefied natural gas (LNG)imports or other in-state resources. In the future,Cook Inlet utility customers should expect to pay more for the gas used by Cook Inlet Utilities to generate heat and electricity.PRA examined results from all of the gas wells drilled in Cook Inlet between 2001 and 2009 and determined that producers spent approximately $1.0 to $1.2 billion in development costs to add reserves of approximately 519 billion cubic feet (Bcf)of natural gas.If the current trends for well success rates and costs continue,producers will need to spend two to three times that amount,an estimated $1.9 to $2.8 billion,to meet projected Cook Inlet utility demand from 2010 to 2020.Producers will invest the necessary capital in future drilling activity only if they have a reasonable expectation of a return that is competitive with other investment opportunities.In order to assure continued drilling activities,increased development costs must be reflected in the market price utilities pay for the gas and ultimately pass onto their customers.Cook Inlet Utilities will also require storage services to deliver gas to their customers on the coldest days and enable producers to optimize gas production rates.Theestimatedcostofastoragefacilityis$150 to $200 million'.These storage costs will also be borne by utility customers. 'Storage cost estimates based on ENSTAR's development assessment. 160 140 ue 100ss t)2 80 ation eamitatww$1.9 to $2.8 billion capital investmentPo)required to increase supply of gas 60 needed to meet demand from existing and new wells a a 0 ue 2 40 1 - O Od #4: aga 0 ofesaye 20 'ene bok Inlet!? 0 -r po a -rT re oe i roo 7 -¥f T 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Year Figure t -Cook Inlet Supply &Demand PRA used a decline curve analysis to review the same underlying data analyzed in the 2009 DNR reserves study and reached a similar conclusion regarding when the supply of gas from existingwellswillnotmeetdemand”.The PRA study took the next step,estimating the cost of bringingtheundevelopedgasresourcestomarket®.PRA determined that if significant efforts are undertaken to develop gas from the resources identified by DNR and if the current trends in drilling success rates continue,gas might be available through 2020.However,even if an aggressive development effort were undertaken immediately,that effort may fail to bring new gas to market quickly enough to provide needed gas when demand is projected to exceed supply as soon as 2013.Utilities need to plan for an alternative supply to meet their customers'needs. Having undeveloped gas resources in the ground will not enable Cook Inlet Utilities to provide heat and power to their customers.The gas resources will only be developed and brought to market at prices that incentivize the producers to justify their investment.Contracts with these higher prices will require RCA approval. Cook Inlet Utilities need a viable option if additional Cook Inlet development does not materialize.To provide a stable gas supply,non-Cook Inlet sources such as gas delivered from the North Slope or LNG imports,are alternatives that must be pursued.The "easy"gas has been found in the challenging geology of Cook Inlet.The future costs of developing additional reserves will be substantial.As the cost of continued Cook Inlet gas production increases, alternative gas supply sources may become more economically attractive.Regulatory uncertainty has also discouraged Cook Inlet producers from exploring for and developing Cook ?PRA's study estimates remaining reserves of 729 Bcf from existing wells,compared with DNR's forecast of 863 Bef of Proven Developed Producing reserves.3 The DNR study did not address the cost of bringing undeveloped resources to the market.(see DNR Study Figure 14 Description) Inlet reserves'.In the current regulatory environment,two of the three major Cook Inlet producers have publicly stated that they intend to drill only to meet current contract obligations. Future development depends on a change in the regulatory climate to one where consistent standards are applied to approve negotiated utility gas supply agreements,even if those agreements reflect the increased costs of resource development. The Cook Inlet market is in transition.Current gas fields are in decline and the loss of industrial customers has reduced the producers'incentives to do anything but meet existing contractual obligations.In order for utilities to be able to continue to supply current customers and to accommodate future growth,Cook Inlet Utilities and others must take action. Immediate Actions Needed: ie)New gas supply agreements between Cook Inlet Utilities and Producers must be signed to ensure continued development of Cook Inlet reserves. There must be predictable timelines and standards for regulatory approval of gas supply agreements.The Regulatory Commission of Alaska must be willing to approve gas supply contracts negotiated at arm's length,even if prices under those contracts increase. Cook Inlet Utilities must develop gas storage to assure deliverability on the coldest days and optimize gas production throughout the year. Cook Inlet Utilities should continue raising customer awareness,conservation efforts,and curtailment plans,to prepare for potential shortfalls. Additional well-capitalized exploration and development companies must commit to develop Cook Inlet and other Alaska gas reserves. To assure certainty of supply,Cook Inlet Utilities must determine how they will bring gas into Cook Inlet within the next five years to ensure the needs of their customers are met.Alternative gas supply sources include LNG imports and North Slope gas delivered by pipeline to south central Alaska. Additional regional industrial gas demand must be found to encourage the development of Cook Inlet reserves and spread the increased costs of production. Land management processes must be streamlined to encourage and accelerate reserve and infrastructure development. *Recent favorable regulatory decisions on utility gas supply agreements may bea positive sign. Technical Summary ENSTAR Natural Gas Company,Chugach Electric Association,and Anchorage Municipal Light and Power (Cook Inlet Utilities)hired Petrotechnical Resources of Alaska (PRA)to perform a study of Cook Inlet reserves and deliverability.The components of the study included: Review the deliverability of Cook Inlet gas wells drilled between 2001 and 2009 Forecast potential deliverability of future drilled gas wells Review Alaska Department of Natural Resources (DNR)reserves analysis Analyze timing of demand for a delivery of potential non-Cook Inlet gas sources,such as liquefied natural gas (LNG)imports or other in-state resources High level findings of the study are: Cook Inlet Well Drilling Results -2001 to 2009 e Drivers for Cook Inlet well drilling between 2001 and 2009 included: o Newly executed gas contracts o Reserves development associated with negotiated gas contracts rejected by the RCA o LNG Exports and License Extensions o Increasing Regional Natural Gas Prices o Industrial Fertilizer Operations e Results for Cook Inlet well drilling between 2001 and 2009: o 128 gas wells were drilled between 2001 and 2009,of which,105 were completed with an average rate of 3.6 MMSCF/D for the first 12 months of production =97 wells were permitted and drilled as Gas Development wells;88 of these were completed as gas wells,for a 90.7%success rate «31 wells were permitted and drilled as Gas Exploration wells;18 were completed as gas wells,for a 58.1%success rate «Anestimated 519 BCF of gas was developed by these wells #Ninilchik,Kenai and Deep Creek Units had the most drilling activity during this period;Ninilchik was very successful;Kenai wells were average and Deep Creek wells were marginal «The estimated costs for drilling and facilities of these 128 gas wells are between $1.0 and $1.2 billion Review of DNR Analysis of Available Reserves The DNR completed a Cook Inlet Gas Reserves Study in December 2009 e Inthe DNR study,reserves and resources are systematically estimated,but as stated in the report,the timing of the development of undeveloped reserves is only an estimate as shown in DNR's Figure 14,a "Hypothetical production forecast for Cook Inlet basin showing increments of reserves and resources identified by engineering and geological analysis discussed in text.” e Inthe DNR study,the only firm deliverabilities are for reserves estimated by decline curve analysis and material balance.The material balance resources would be realized through the spending of additional capital for development (Beaver Creek)or for compression (Ninilchik).Timing is determined by economic drivers. e The DNR study forecasted 863 BCF of Proven Developed Producing reservescomparedtothedeclinecurveanalysisperformedbyPRAforecasting729BCF?of reserves. o A major difference in decline curve analysis performed by PRA was apparent at Beluga River Field where the DNR study estimated 377 BCF remaining reserves and PRA estimated 207 BCF. o The predicted production from decline curve analysis was similar in both studies;both DNR and PRA showed decline curve analysis predictions from existing wells falling below projected demand in the 2012-2013 timeframe. e The DNR study forecasted Additional Probable Reserves of 279 BCF based on material balance calculations,while PRA did not perform material balance calculations. e In both studies,the four (4)Fields identified as having greatest remaining potential and selected for detailed geological analysis were:Beluga River,North Cook Inlet, Ninilchik,and McArthur River Grayling gas sands. Reported were: o Potential gas resources (from geologic analysis of 4 fields above)estimated to be 353 BCF o Possible gas resources of 643 BCF (50%Risked case)estimated from lower confidence pay intervals Potential of Future Gas Wells in Cook Inlet: e Drivers required for future Cook Inlet reserve development include: o Execution and RCA approval of gas contracts o Predictable timeline and standard for regulatory approval of negotiated gas pricing structures o Additional regional industrial gas demand,including LNG exports. o Additional well-capitalized exploration and development companies committed to develop Alaskan resources o Government action to facilitate and accelerate development of necessary infrastructure and permitting e Challenges facing future Cook Inlet development include: o Possible discontinuation of LNG exports from the region Reduced industrial demand (e.g.,regional fertilizer manufacturing) Success rates in exploration and development Higher relative regional costs for exploration,development,and production High level of activity in reserve development needed to meet demand o Probable decline in production rates from future wells in existing fields e Minimum requirements to meet demand in Cook Inlet gas market until 2020: o Anew source of gas,such as imported LNG or other in-state reserves,could be required as early as 2013,if ongoing drilling or drilling success does not continue at the 2007-2009 pace.00005 762 BCF in Report included 33.7 BCF estimated for 4 remaining 2009 Wells o Gas storage will maximize Cook Inlet gas deliverability potential and more closely match local demand curves and production rates. o To meet projected demand for the next decade,185 new wells will be needed, which is a 45%increase over the number of wells drilled in the 2001-2009 period o Development costs for this time period are estimated at $1.85 to $2.8 billion,an increase in total capital investment of 54-180% o To incent this substantive increase in investment levels,or to bring a new source of gas to Cook Inlet,utility customers should expect to pay significantly higher gas prices Figure 2 shows recent history and future wells estimated to meet CI gas demands through 2020. The well count assumes average well performance of 2007-2009 wells,with initial rates and developed reserves degraded by 4.3%per year. 35 30 Wells Drilled,Wells Required &Influencing Factors -mene en epeeeeEst.Development Cost $1.0 -1.2 Billion ;Est.Development Cost $1.85 -2.3 Billion g Wells Drilled &Future Wells Needed Figure 2:Wells Dritled,Future Wells Required &Influencing Factors lo [Bo/o4 ANGTL PROPOSES A 70,000 BBL/D GTL PLANT IN SOUTHCENTRAL TO ANCHOR A GAS LINE WHY GTLs? THINK VALUE ADDED ALASKA RESOURCE DEVELOPMENT "A LEGACY DECISION FOR ALASKA” AIDEA October 30,2009 WE ALL WANT A MAJOR GAS PIPELINE ¢THE LNG PROJECT NEEDS THE ALASKA LINE TO WORK ¢THE SPUR LINE NEEDS THE LNG AND GAS LINE TO WORK ¢IS LNG NEED ANY DIFFERENT THAN NATURAL GAS IN LOWER 48 MULTIPLE PIPELINE PROPOSALS THE ALASKA GAS LINE 2 -PIPELINE DEVELOPERS (AGIA-DENALI) 1 -BULLET LINE PROPOSAL 2 -SPUR LINE PROPOSALS 1 -LNG PROPOSAL ALL USE A COMMON ROUTE FROM THE NORTH SLOPE TO FAIRBANKS y,I e af .laaac(on nr,"Sect Sag ,14 Ps Zina Highway RoutejPrudhoeBayja>=-7100-3700 mieg"f we Faitbanks Spur Line/Mee (300 miles -Parks Highway} <_Delta Junction Spur Line(290 miles,Delta juction to Wasilla} \__..Valdez ING '\(120 miles -Glennallen to Valdez} aRos 7 age Wiseman 'eet sg WivesoeountANa MN hey! we ) AL.Momt4wy d yk.yer J LoFa&ioe Glennallen a oe TSoe5ure,Wasilla' Seeat iN ral .fee 4,aeteC7Anchorage2Wldez4STieEge,3 ad f "et gS ftf?f Sue yd al ae A .ot F,i Cong 2008 SND ee PRE-BUILD &BULLET GAS LINE FROM NORTH SLOPE TO SOUTHCENTRAL ,Ge,Ufo Northern Line Producer delivers 1.2 bcf/d iain Gay CCF pay rt "PRE-BUILD”gas to bullet line at 1250 to 1440 psi at the outlet of the Foothills °®tacnenzs North Slope to Fairbanks 500 mi route follows TAPS right of way - 48”pipeline conditioning plant _ oo ..Yukon Fi,Bullet line compression Nenana Basin 900 psi to 1300 psi at >e-Fairbanks Compressor Station 1.1 bcf/d to 'Southcentral Southern Line "BULLET LINE” Fairbanks to Anchorage 350 mi route follows 'the Parks Highway or Alaska Rail Road -recommend a 42” pipeline line 1.1 bcf/d arrives in” Southcentral at 750 psi ALL PIPELINE PROJECTS NEED AN ANCHOR MARKET ¢ALASKA GAS LINE -4 BCF/D ¢LNG 2 BCF/D PLUS A INSTATE COMMERCIAL CUSTOMER ¢BULLET LINE 1 BCF/D (700 million per day to GTL plant) ¢SOUTHCENTRAL GTL CAN JUSTIFY PRE-BUILD OF ALASKA GAS LINE AND A BULLET LINE TO SOUTHCENTRAL -WHY?,BECAUSE EXISTING FEDERAL SUPPORT PROGRAMS CAN PROVIDE THE ECONOMIC UPLIFT TO MAKE IT HAPPEN fs;|MARKETDEMAND [a Alaska Bullet Line Service Tariffs $4.50 4.48 T 98 4 54.00 r .3.58jIossoL322 1-10 Yr COS f -a-20 Yr COS j 93.00 "1 BCF/D Target n Ky$72.50 2.24 2.49 2.11 m $2.00 m 1.63 b t $1.50 4 1.36 51.00 : T : T 1 T 1 T : T 1 T : T : T 1 T : T : T 4 T NL T 1 T :| Daily Flow Rate mmcf/d Data supplied by Enstar with a 800 +Mile distance Prudhoe Bay to MP 39 Parks Highway with a 24”Pipeline 7 Pre-Build Gas Line 24”or 48° °48”from the North Slope to Fairbanks no compression *Capacity 1.25 bcf/d °48”from North Slope to Fairbanks with 5-8 compressors *Capacity 4 bcf/d 24”from the North slope to Fairbanks no compression (500 psi delivery) *Capacity .2 bcf/d (202 million per day) °24”from the North Slope to Fairbanks with 8 -12 compressors *Capacity1 bcf/d The Point -A 48”line is expandable whereas a 24”line is not ALASKA MUST BUILD FOR TODAY PLUS PROVIDE FOR THE FUTURE THE BULLET LINE WILL IT DOOM THE BIG LINE TO THE LOWER 48? THE BULLET LINE NEEDS LESS THAN 7.5 Tcf or 20%OF THE CURRENTLY PROVEN PRUDHOE BAY NATURAL GAS RESERVES LESS THAN 1/3 OF THE CURRENTLY IDENTIFIED NORTH SLOPE NATURAL GAS RESOURCES NO! BUT THE BULLET LINE WILL DELIVER ALASKA NORTH SLOPE NATURAL GAS RESERVES TO MUCH HIGHER VALUE MARKETS YEARS IF NOT DECADES BEFORE THE ALASKA GAS LINE WILL;WITH ALL OF THE JOBS &CAPITAL EXPENDITURES STAYING IN ALASKA! DO YOU WANT TO WAIT ANOTHER 25 YEARS? WE DON'T! LOCATION -LOCATION WHY THE COOK INLET? BECAUSE YOU HAVE DEPLETED OIL AND NATURAL GAS RESERVOIRS TO DISPOSE OF CO, BECAUSE YOU HAVE AN EXISTING RAIL BELT ELECTRIC GRID TO SELL WASTE HEAT ELECTRICITY BECAUSE YOU HAVE A TIDE WATER LOCATION &EXISTING EXPORT TERMINAL TO DELIVER F-T FUELS TO THE LOWER 48 BECAUSE YOU HAVE A LARGE MILITARY NEED IN ALASKA AND PACIFIC RIM 10 More than 75%of Alaska's COOK INLET OIL &GAS FACILITIES a positive benefits from the GTL plant idie/Abandoned a Ptationms [_]State Lands population will receive direct }{°°>K Interv _ Potential home for CO,in depleted Cook Inlet oil and gas reservoirs.Plus potential EOR program to extend life of existing oil fields and add 300 to Tr 400 million of bbls of additional oil production. foe bo ae _|Rail Belt Power gridand [OA avy oy rs :i \}Chugach 350 MW Power fo oa >|Plant .Existing 80,000 bbi/d jet fuel ts :;_?|Markets 40 miles from the GTL site A MED 2 »pf { (60,000 bb!/d commercial -20,000 (CO)aera...eo E |bbl/d military)importing 20,000 aon .bbI/d today ar (7 _-¢Le 4 ty -_ add "ee P a t,; J -a ° AS co rh or beeen Teeot-4 A |Sica 8 armored LE comsunh -e /The majority of Alaska Oil and Gas ,Area f workers and fabrication facilities are within 50 miles of the GTL plant location --F i ae *{I en ne a A |Tide water locations allow for full scale F-T &Gasifier vessels improved economics and operating efficiency Locations will include Kenai,Pt MacKenzie, ! markets or possibly a new terminal at Pt.MacKenzie Tyonek,Ladd Landing and Chugach Beluga Power Plant al *i sO ;ms -ena FordsAlaskaGTLprojectproposestousetheexistingDriftRiver';Mamonet Par Export pier to move F-T products to U.S.West Coast and Military ,wee 11 COOK INLET TIDE WATER LOCATION 33'Diameter,196'Tall,2,200 tons can only be delivered via ship/barge at a tide water location 12 The Fischer-Tropsch Synthesis 2 CO(g)+H2(g)-(-CH,-),(I)+CO2(9)+HO Okay,don't let the chemistry scare you! Let's take a look......... 13 Three Steps in GTL/BTL/CTL Refining to make F-T Fuels The F-T Processes use 3 distinct steps,all commerciallyproventoconvertagas,liquid or solid into syntheticransportfuelslikegasoline,diesel and jet fuel: sStep 1 -Syn-Gas generation (H,&CO)G®+ie 5G, aStep 2 -The F-T reaction (long paraffin chains =»wax) ©oaan @8 a @ a @ @ccececececc\ie ¢@ +@CYH (water)wwe wo wo ©&)®@ aStep 3 -Product upgrading (hydrocracking of the long chain F-Tparaffintoproducethedesiredendproduct-similar to a crude oil refinery) "Kerosene -Diesel -Gasoline -Jet Fuel -Naphtha Cr9-Cy3 C44-Coo C5-Ci9 Cy9-Cy3 Cy-Cy9 14 Note:Althoug..woo!FT reactor isiNustratedhere,the SheltF-T technolo(SMDS)is also commerciatly proven OXYGEN STEAM --> COAL Pew BIO-MASS Rome SOLIDS ||GASIFICATION 9¥-FISCHER-TROPSCH REACTOR BIO-RENEWABLES STEP 1 ©SYN GAS GENERATION OXYGEN METHANE CEe7 CONDENSATE Cee R NATURAL GAS EFORMING The Fischer-Tropsch Process (F-T)has three main processingstepsshownhere,all of which are commercially proven. STEP 1,SynGas Generation represents -50+%of the total cost STEP 2,F-T Conversion -25%of the total cost STEP 3,Product Upgrading-15%to 25%of the total cost The type of SynGas Generation,gas reformation or gasification GASEOUS PRODUCTS F-T FUELS THE ONE FUEL FOR OUR FUTURE The first sep converts natural gas,coal or bio-mass into synthesis gas,a mixture of carbon monoxide (CO)and hydrogen (H,)-syngas. ¢a(¢©) This mature process technology has been used in many commercial facilities as the first step for pro- ducing emmonia,hydrogen,methanol. Sasol and Shell,the recognized world leaders in F-T technology use both gas reformation and coal gas- ification to produce syngas for its F-T production. called Gas-to-Liquids (GTL)and Coal-to-Liquids (CTL)respectively F-T FUELS -THE SENSI- BLE SOLUTION FOR A NEW GENERATION OF ULTRA CLEAN ENVIRONMENTALLY FRIENDLY DIESEL FUELS STEP 3»HYDROCRACKING -PRODUCT WORKUP WAXY HYDROCARBON PRODUCTS -G + >,mane.em- of solids,depends upon the rew matcrial or feed stock avail able.Around the world stranded Natural Gas is the choice; however,in the US with the exception of North Slope Natu- ral Gas,coal,bio-mass (garbage),bio-renewables (trees and plants)represent the majority of available feedstock for a US based F-T program! |STEAM GENERATION |SLURRY PHASE >- SYNTHESIS GAS (H,&CO) STEP 2+F-T CONVERSION 15 CHOREN,a German company has been operating a bio-mass gasifier to produce syngas for methanol and electric production since 1998.This plant is considered the worlds first bio-renewable energy gasifier and has the distinction of producing fuels and electricity with a net zero impact on the worlds CO,and called Biomass-to-Liquids (BTL) Step two,the Fischer-Tropsch conversion,discov- ered by the Germans in the 1920's,upgrades the syngas into a waxy hydrocarbon.Simplified this reaction is : xCO+2xH,=a xCH,+HO The length of the hydrocarbon chain (x)is deter- mined by the composition (or ratio of H,to CO)ofthesyngas,the catalyst sclectivity and the reaction conditions Sasol has pioneered scveral types of F-T conversion technologies to produce over 150 different prod- ucts from their F-T plants in South Africa alone. The hydrocarbon stream (xCH,)is sent to productworkupandthewater(H,O)is sent to the water recovery unit. KEROSENE DIESEL =)Us | ,JET FUEL PRODUCT -te et|UPGRADING NAPHTHA esSe | Z GASOLINE The third step,Product Upgrading: Upgrading can produce a wide range of commer- cial products from gasoline to diesel to candle wax. For a US based LT program we would recommend middle distillate fucls:kerosene,diesel and naphtha. This process makes use of standard hydrocracking and hydroisomerisation processes commonly found in the refinery world.As with the First Step of syngas production,suitable technology is widdy available from several licensors around the world. The F-T process produces sulfur free fuels that contain essentially no aromatics or ring chain hydrocarbons that are toxic and harmful to the environment.The CTL/GTL/BTL process docs produce CO,but it isin a pure stream and is casily contained for sale to third parties or can be seques- tered for injection into underground wells, F-T Fuels,dean fuels for our fature that will reduce US dependence on foreign crude oll and products. A FEW OF THE F-T PLANTS ACROSS THE WORLD orMEatteTieay|Boyt pte Sn South African Secunda 150,000 BPD Coal to Liquids (CTL)South African Mossgas 47,000 BPD Gas/Condensate to Liquids (GTL) fee ts mS re pearenater en-=red Br paca scnn eeegeONseeaSeS,<.te -ida eee CHOREN Freiberg 500 BPD Biomass to Liquids (BT po. 16 U.S.EPA* APPROVED NON-TOXIC F-T WAX U.S.FDA APPROVED SYNTHETIC DIESEL F-T DIESEL AS CLEAN AS NATURAL GAS ZERO SULFUR ZERO AROMATICS 70 +CETANE PM10 <CNG "EPA Water Docket,EB 57 located at 401 M Street SW Washington DC,20460 Reference Docket No.W-98-26 in UNOCAL data file 4.A.a.3,Vol 13 17 WHY F-T FUELS 1.VALUE ADDED PRODUCTS 2.FEDERAL ECONOMIC SUPPORT 3.MARKET DEMAND IS REAL 'a Gasoline and Diesel Always Sell | at a Premium to Natural Gas ona rs) mmbtu Basis in the Lower 48 Market "Natural gas is sold $/mmbtu (million BTUs)based upon the energy content of the natural gas as measured in BTUs or British Thermal Units.Gasoline and diesel are sold on the basis of $/gallon but each contain a certain amount of BTUs per gallon.When you convert $/gallon for gasoline or diesel to $/mmbtu you can directly compare the value of natural gas to gasoline and diesel. Comparison of Diesel -Gasoline -Natural Gas on a mmbtu basis $35 _ s30 MON$25 L Pw I ™\Y Gasoline,$19.13$20 +*a i 2 =<sis [| $10 a Diesel,$15.38 $5 [--an a F Natural Gas,$3.53 $O , -** SD BD BH BH H BH i)>>©»>DSSS©Se ©©se ©Se ©Se ©awe a ox”oe we mony aX'awe an pr <x”ow *California wholesale rack price at refinery outlet **Avg of AECO,Henry Hub,CA City Gate and US wellhead 19 WHY F-T FUELS 2.FEDERAL ECONOMIC SUPPORT FEDERAL AND STATE \wA)TRANSPORTATION EXCISE TAX RATES FOR PETROLEUM BASED DIESEL AND CNG IN THE SAME VEHICLE savings 31 ¢/gal -$13/bbl Diesel 42.3¢/gallon CNG 11.7¢/gallon r- ---CA Excise Tax18¢ one eeFederalExciseTax"\"tncectamae aasasnemnnessstSTATE&FEDERALEXCISETAXSTATE&FEDERALEXCISETAX*could be as low as 1¢/gal ALL ALTERNATIVE TRANSPORTATION FUELS ARE TAXED AT LOWER RATES THAN CRUDE OIL BASED FUELS SHOULDN'T GTLs BE TAXED AT THE SAME RATE AS CNG?| IN THE FORM OF A 50¢/GALLON ($21/BARREL) ENERGY CREDIT FOR F-T FUELS (CTL AND BTL) WAS OBTAINED BY ALASKA SENATOR TED STEVENS AND ALASKA NATURAL RESOURCES TO LIQUIDS IN 2005 WE CAN ADD NATURAL GAS (GTL)TO THIS EXISTING LEGISLATION 22 Current Energy Credits for F-T Fuels (CTL -BTL) On a $/million btu basis vs Biodiesel &Ethanol (At the Federal level only) <Biodiesel Refund r 1<Ethanol Refund* *The first Ethanol credits were for 20 years to allow this new technology to recover debt Hf co °F-T Diesel Refund 3 -->.CTLIBTL 7 3fog wr=woGo Ethanol 75,000 Btu/gal F-T Diesel 130,000 Btu/gal3Biodiesel121,000 Btu/gal .:=CNG 82,800 Btu/gal equivalent be ha E 3 (mmbtu =1 million btu) 5i¢/gal 50¢/gal 23 Cook Inlet Area GTL Project Natural Gas Netback February 1,2009 CARB Diesel Price ($3s/pbi crude)1.15/gal $48.30/bbI Estimated Natural Gas value at GTL plant \$1.15/mmbtu Now add in two federal programs that support alternative transport fuels Excise Tax savings $0.31/gal $13.00/bbI* Energy Credits $0.50/gal $21.00/bbl* Estimated Natural Gas value at GTL plant increases to $5.16/mmbtu Thus both federal programs provide a subsidy for the Bullet line by providing economic uplift to alternative transportation fuels such as GTLs July 9,2008 Price of CARB Diesel ($130/bI crude)$4.15/gal $174.3/bbl Estimated Natural Gas Value at GTL plant "$20.07/mmbtu_ *Combined uplift per mmbtu of inlet natural gas diesel $4.3/mmbtu -gasoline $4.92/mmbtu 24 WHY F-T FUELS 3.MARKET DEMAND IS REAL MARKET DEMAND IS REAL The US imports 1-2%of its natural gas needs but almost 70%of its transportation fuel needs 15 MILLION BARRELS PER DAY 220 BILLION GALLONS PER YEAR SOUTHCENTRAL GTL PLANT AT 70,000 BBL/D 1 BILLION GALLONS PER YEAR CALIFORNIA MARKET 22 BILLION GALLONS PER YR In 1980 California imported 2%of its crude oil &transportation fuels 2008 California imported 48%of its crude oil and transportation fuels 26 -A North Slope Bullet Gas Line - Phase 1 of the Future Alaska Gas Line -maybe With a Bullet Line We Can Deliver ENERGY TO FAIRBANKS? ENERGY TO RAILBELT? ENERGY TO SOUTHCENTRAL? ENERGY TO ANCHORAGE? ENERGY TO MAT-SU? ENERGY TO KENAI? ENERGY TO HOMER? ENERGY TO PEBBLE? ENERGY TO DONLIN CREEK? WHAT DOES A SOUTHCENTRAL GTL PROJECT NEED TO BE SUCCESSFUL ALASKA NEEDS TO PUBLICLY SUPPORT A BULLET GASLINE AND SOUTHCENTRAL GTL PROGRAM ALASKA MUST WORK WITH CONGRESS TO TWEAK EXISTING LEGISLATION TO IMPROVE THE ECONOMICS OF COOK INLET GTL ="GTLs taxed at the same excise rate as CNG (compressed natural gas)in the transportation market =Amend existing federal 50¢/gal Energy Credits for F-T fuels to include natural gas 28 CONCLUSIONS FAIRBANKS NEEDS AN ALTERNATIVE SUPPLY OF ENERGY =THIS ENERGY MUST BE CLEAN BURNING SOUTHCENTRAL NEEDS ADDITIONAL NATURAL GAS SUPPLIES TO =STEM THE LOSS OF INDUSTRY,AND =TO PROVIDE RESIDENTIAL AND COMMERCIAL CUSTOMERS WITH LONG TERM WINTER DELIVERABILITY AND RELIABILITY ALASKAS'ADMINISTRATION AND LEGISLATURE =1S FOCUSED ON A GASLINE/LNG PROJECT AS THE ONLY PROGRAM, =WHILE A BULLET GAS LINE WITH A VALUE ADDED GTL CAN START TODAY,AND =ITS NOT AN "EITHER -OR”TYPE OF DECISION =MOST PEOPLE OUTSIDE BELIEVE THE STATE ONLY SUPPORTS A GASLINE PROJECT ALASKANS'MUST GET INVOLVED --2010 IS AN ELECTION YEAR .70 TO 75%OF ALASKA'S POPULATION WILL POSITIVELY BENEFIT FROM A BULLET GAS LINE AND GTL PLANT 7 IF YOU AGREE,CONTACT YOUR REPRESENTATIVE,SENATOR,CONGRESSMAN AND GOVERNOR TODAY.CALL,E-MAIL,WRITE DO WHAT EVER IT TAKES -LET YOUR VOICE BE HEARD! 29 GAS LINE WITH AN ANCHOR GTL PLANT WHERE DO YOU STAND ON THIS ISSUE? ANGTL Richard Peterson 310 K Street,Suite 200 Anchorage,AK 99501 (907)264-6709 office (907)360-0909 cell rpeterson@angtl.com TO LEARN MORE GO TO WWW.ANGTL.COM Alaska Legislature Representative Mark Neuman (907)376-2679 Representative_Mark_Neuman@legis.state.ak.us McGraw_HillCONSTRUCTION HOME |NEWS NEWS 1.comEngineeringNews-Record Brought to you b EKIMMEL 6.2ASSOCIATES Buildings Cost Indexes Education Environment F &Business Power &Industrial Information Technology International Construction Technology Construction Week Transportation Safety &Health Workplace WashingtonObserver Corrections -advertisement- Tis your move, REGISTER TODAY._ Visit OurSites =8g Search -Enter here |FEATURES |PROJECTS |PRODUCTS |PEOPLE |OPINIONS |RESOURCES |TOPLi digital wire news from AP and other sources Natural gas reservoir may hike U.S.output January 17,2008 STATE COLLEGE,Pa.,Jan 17,2008 (UPI via COMTEX)--Geoscientists said a natural gas black shale reservoir in northern Appalachia could conservatively boost proven U.S. reserves by trillions of cubic feet. However,that depends upon gas production companies employing horizontal drilling techniques,said Penn State and State University of New York-Fredonia geologists. "The value of this science could increment the net worth of U.S.energy resources by a trillion dollars,plus or minus billions,"said Penn State Professor Terry Engelder.Purct 2007 | The Marcellus shale field stretches from southern New York,through western Pennsylvania into the eastern half of Ohio and across West Virginia.(free to Engelder and SUNY Professor Gary Lash said the Marcellus shale conservatively contains 168 trillion cubic feet of natural gas in place,but the figure might be as high as 516 trillion cubic feet. The researchers said the U.S.currently produces roughly 30 trillion cubic feet of gas annually.Engelder said the technology exists to recover 50 trillion cubic feet of gas just from the Marcellus,making it a super giant gas field. Engelder and Lash will present their findings in San Antonio this spring during the annual meeting of the American Association of Petroleum Geologists. URL:www.upi.com Copyright 2008 by United Press International Most Viewed Stories On ENR.com (Past 7 Days) http://enr.construction.com/news/othersources/article.asp?SMDOCID=comtex_2008 01.17...1/22/2008 + >>Marketplace e Las Vegas Megaresort Suffers Another Fatality ; e Crane Mishap Kills Worker at Trump Site Sponsored Links e NTSB Finds Fractured Gussets in I-35W Span e Bovis Had Earlier Problems at NY Trump SiteWeb-based4unwsgandPM ©Safety Board Finds I-35W Bridge Plates Too Thin Software Award winning construction software suite for GCs,subs,and bull...If you would like to read more articles like thislickheretosubscribe ProEst CostEstimatingSoftware Create Quick,Accurate Estimates.Free Demo CD. 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Anchorage,AK 99503 AIDEA AEA Dear Mr.Reiche, On September 20 and 21,2006,the Alaska Oil and Gas Conservation Commission brought together community leaders,gas producers,large consumers,geologists,engineers,economists,and members of the public together for a two-day forum in Anchorage to discuss South Central Alaska's looming natural gas shortage and to propose solutions for meeting the region's future energy needs. Enclosed is a summary of the presentations made at this forum as prepared by ISER,the Institute of Social and Economic Research,University of Alaska Anchorage.A transcript of all presentations can be viewed at the AOGCC website:www.aogcc.alaska.gov/, Gas was first discovered in Cook Inlet in the 1950's.Since that time,growing residential,utility,and industrial demand have depleted 80%of the known Cook Inlet gas reserves. Nearly 70%of Alaskans currently rely on relatively inexpensive natural gas from Cook Inlet.That gas heats homes and businesses,generates electricity,and fuels industrial processes.Many Alaskans are concerned about where South Central Alaska will get affordable energy in the future and believe that a shortfall will occur within the next ten years.Some producers believe that new exploration and development in the Cook Inlet Basin can push the shortfall beyond ten years;however,if the regions demand for energy is not met,it could have a significant effect on the economy of the State. There are big unknowns. Can the Cook Inlet producers be encouraged to look for more gas? When will a natural gas pipeline from the North Slope be built? Will there be a spur line to bring gas to South-central? What will future industrial demand be? Can alternative energy sources help offset some of the demand for natural gas? These issues will come more to the forefront as time goes by and gas reserves deplete.The AOGCC intends to continue to monitor the situation but successfully meeting this challenge will require the combined efforts of gas producers,industrial users,utilities,elected officials and various State and Federal agencies. If you would like more information or have comments on this very important matter,please contact us.There will be a way to comment on the AOGCC website as well as traditional methods of phone, email,and letter as mentioned in the attached summary document. Sincerely, an Seamount,Commissioner Wuat Asout Economic CONTRIBUTIONS OF COOK INLET GAs? So far in this summary we've talked about the importance of Cook Inlet gas to residential,commercial,and industrial consumers.The gas also broadly contributes to the state economy,because it is an inexpensive source of energy.ENSTAR estimates,for example,that it makes an annual economic contribution of $230 million to the economy. People attending the forum pointed out that petroleumoperationsinCookInletalsocreatejobsforAlaskansandaddtolocaltaxbases.The economic effects of Cook Inlet gas are most concentrated in the Kenai Peninsula Borough. In 2006,the oil and gas industry paid property taxes of over $10 million in that borough.The Cook Inlet producers and Agrium made up nine of the top ten taxpayers,withthehighestassessedpropertyvaluationsintheborough.In2005,the industry supported 1,340 jobs,or 7.4%of boroughemployment,and 18.7%of total borough payroll. Petroleum industry jobs also pay well-the average annual wage for oil and gas workers in 2005 was $88,764,compared with the average of $35,148 among all workers in the Kenai Peninsula Borough. Statistics on the economic contribution of Cook Inlet gas for the other two boroughs were not provided at the forum. But it is clear that the petroleum industry also provides a significant wage and tax base for both Anchorage and the Mat-Su Borough. Wuat Dip We LEARN FROM THE FORUM? In the past few decades,residents of Southcentral Alaska have enjoyed abundant gas supplies at low prices. Unfortunately for consumers,demand is now starting to run ahead of supply.Opinions differ on how much more gas is yet to be found in Cook Inlet and on the best way tostimulateexplorationfornewsupplies. Whether the two biggest current users of Cook Inlet gas- the LNG and fertilizer plants on the Kenai Peninsula-will keep operating in the face of shrinking supplies and risingpricesmakesthefuturemarketforgasuncertain.However,residential and commercial demand for both heating and gas-generated electricity are expected to keep growing. Uncertainty also surrounds the future sources of gassupply(including gas from the North Slope)and thefeasibilityofdevelopingalternativefuelsthatmaybeabletohelpoffsetsomeofthedemandfornaturalgas.Manyoftheproposedalternativescomewithlongleadtimesand unpredictable costs. But one thing is clear.Southcentral Alaska needs tofindadditionalsuppliesofgas,or ways to offset demand.Otherwise,the region may soon see large-scale shortages. A list offorum participants and transcripts of presentations are on AOGCC's Web site:www.aogcc.alaska.gov Comments on this summary or the forum can be mailed or sent by e-mail to: Jody Colombie,AOGCC 333 West 7th Ave.,Suite 100 Anchorage,Alaska 99501 jody_colombie@admin.state.ak.us For More INFORMATION Agrium Inc.:www.agrium.com/home.jsp SUMMARY OF THE 2006 SOUTHCENTRAL ENERGY FORUM SPONSORED BY ALASKA OIL AND GAS CONSERVATION COMMISSION Anchorage ¢Sept.20-21,2006 Prepared by Peter Larsen,Pamela Cravez,and Scott Goldsmith Institute of Social and Economic Research,University of Alaska Anchorage Alaska Department of Natural Resources:www.dnrstate.ak.us Division of Oil and Gas:www.dog.dnr.state.ak.us OAlaskaDepartmentofRevenue,Tax Division:www.tax.state.ak.us Alaska Natural Gas Development Authority:www.angda.state.ak.us Alaska Oil and Gas Association:www.aoga.org Alaska Oil and Gas Conservation Commission:www.aogcc.alaska.gov Anchorage Chamber of Commerce:www.anchoragechamber.org Anchorage,Municipality of:www.ci-anchorage.ak.us/homepage/index.cfm Aurora Power:www.aurorapower.com Benchmark Oil and Gas:www.benchmarkoil.se BP:www.bp.com Chevron:www.chevron.com Chugach Electric Association:www.chugachelectric.com Conoco Phillips:www.conocophillips.com/index.htm Cook Inlet Regional Citizens Advisory Council:www.circac.org Dunmire Consulting,Carolyn Dunmire:dunmire@fone.net ENSTAR Natural Gas Company:www.enstarnaturalgas.com Kenai Peninsula Borough:www.borough.kenai.ak.us Matanuska-Susitna Borough:www.matsugov.us Municipal Light and Power:www.mlandp.com National Energy Technology Laboratory: www.netl.doe.gov/technologies/oil-gas/index.html Pioneer Natural Resources:www.pioneernrc.com Regulatory Commission of Alaska:www.state.ak.us/rca Science Applications International Corporation:www.saic.com Stormcat Energy:www.stormcatenergy.com OU.S.Department of the Interior,Minerals Management Service: www.mms.gov/alaska/re Usibelli Coal Mine:www.usibelli.com/index.html Information on Coal to Liquids and Fischer-Tropsch refining processes: www.aidea.org Cook Inlet Energy Supply Alternatives Study available at: www.angda.state.ak.us Kenai Peninsula Borough information on Cook Inlet oil and gas: www.cookinletoilandgas.org ACKNOWLEDGMENTS The authors thank many people for help with this summary. AOGCC commissioners Dan Seamount and John Norman sponsored the preparation of the summary and tried to ensure that the forum's agenda was objective and represented as many stakeholders as possible.Bill Popp of the Kenai Peninsula Borough also helped the commission line up participants for this forum.The Oil and Gas Division of the Alaska Department of Natural Resources also contributed to the forum's success. Jody Colombie and Ceresa Tolley at the AOGCC provided the forum with logistical support and helped the authors collect and disseminate information from the proceedings. Dan Dieckgraeff of ENSTAR,Will Nebesky and Brian Havelock of the Alaska Division of Oil and Gas,and Charles promptly answered follow-up questions from the authors. The authors appreciate help from Fran Ulmer,Linda Leask, Clemencia Merrill,and Darla Siver of ISER. Finally,the authors thank all the forum participants for taking the time to discuss this important issue. Thomas of Science Applications International suo ©) Why Was THERE AN ENERGY Forum? Nearly 70%of Alaskans rely on relatively inexpensive natural gas from Cook Inlet.That gas heats homes and businesses, generates electricity,and fuels industrial processes. Cook Inlet gas benefits the state economy not only because it provides inexpensive energy for homes and businesses but also because industrial uses of the gas create jobs and add to the local tax base.More than half the gas currently being produced is either processed and exported as liquefied natural gas (LNG)or used to create fertilizer for export. But growing demand has depleted 80%of the known Cook Inlet gas reserves.Many Alaskans are concerned about where Southcentral Alaska will get affordable energy in the future. There are big unknowns.Will the Cook Inlet producers look for more gas?When will a natural gas pipeline from the North Slope be built,and will there be a spur line to bring gas to Southcentral?What will future industrial demand be? Will alternative energy sources help offset demand for gas? In September 2006,the Alaska Oil and Gas Conservation Commission brought community leaders,gas producers, large consumers,geologists,engineers,economists,and the eral public together at a two-day forum in Anchorage toOrtheproblemandproposesolutionsformeetingegion's future energy needs. The commission asked the Institute of Social and Economic Research (ISER)at the University of Alaska Anchorage to summarize forum proceedings.The information presented here is not a product of ISER research.It is a summary of statements, opinions,and projections of those attending the forum. Why Is Tus GAS "INEXPENSIVE”? "Inexpensive”natural gas from Cook Inlet means relative to prices of gas in the rest of the country and to prices of other energy sources in Alaska.The price residential customers pay for Cook Inlet gas has more than doubled since 1996-but it remains 30%to 50%below prices in other states,according to ENSTAR Natural Gas Company.It's also far cheaper than the diesel Alaskans without access to natural gas rely on. Area of Anchorage,Mat-Su,and Kenai Peninsula boroughs AN Cook Inlet owe wot oe The price of Cook Inlet gas has historically been low because oil companies incidentally found trillions of cubic feet in the 1950s and 1960s,while they were looking for oil. The absence of a ready market for that gas provided Alaskans with a much less expensive energy source,compared with oil, and it made some industrial development possible. WHO ARE CONSUMERS AND How Do Tuey Use Gas? Most of the consumers are in Anchorage and the Kenai Peninsula and Mat-Su boroughs-where more than 60% of all Alaskans live (see map).That regional population has almost tripled since 1970.Communities along the railbelt north to Fairbanks also use electricity generated by Cook Inlet gas,and some gas is super-chilled to a liquid form so it can be trucked to Fairbanks . The biggest current uses of Cook Inlet gas are industrial- 37%is liquefied and exported and another 19%is used to produce fertilizer for export.Heating homes and businesses in Southcentral Alaska takes about 16%of production, and another 20%is used to generate electricity throughout Southcentral and into the Interior.The remaining 8%is used for oil and gas field operations and refining oil. Population ofAnchorage,Mat-Su,and Kenai Known reserves down 80% Supply from knownreservesprojectedtomeethalfofdemand Peninsula up 270%for residential and since 1970 commercial heating 398,626 and electricity by 2017(In trillion cubic feet) O 147,150 1970 2005 All 2005 discoveries reserves (in billion cubic feet) 95 |44 'reqop otindbut Supply Demand Figure 1.Snapshot of Cook Inlet Natural Gas Sources:Alaska Department of Labor,Alaska Division of Oil and Gas;Science Applications International Corporation Uses of Gas,2005 (Total used:208 billion cubic feet) Generating electricity for 473,000Alaskans(67%of state population)in homes and businesses, Exported as liquefiednaturalgas(LNG) Heating homes andbusinessesfor324,000 - Alaskans (50% of state population) \Field operationsUsedtoproducefertilizelandrefining How Does Cook INLET Gas GET TO CONSUMERS? Current gas producers in Cook Inlet include Chevron, Marathon Oil,Conoco Phillips,and others.Most,but not all, the gas for heating goes through ENSTAR Natural Gas Company, a major public utility in Alaska and a subsidiary of Semco Energy,headquartered in Michigan.The producers themselves also market a small amount of gas directly to consumers. ENSTAR is regulated by the Regulatory Commission of Alaska (RCA).ENSTAR and the producers negotiate,with RCA oversight,future prices and conditions for gas delivery from the producing fields to the consumer.The RCA must approve rates ENSTAR proposes to charge consumers. ENSTAR supplies gas to about 325,000 commercial and residential users and also delivers gas to electric utilities.It has about 3,000 miles of distribution and transmission mains. Municipal Light and Power and Chugach Electric Association are electric utilities also regulated by the RCA. They generate electricity almost entirely with gas.Together they serve about 473,000 residential and commercial customers from Southcentral into the Interior,either directly or through sales to other electric utilities. Way Worry? With the reserves declining,it's become harder to deliver gas to consumers as they need it,on a daily basis.Assuming no new investments in exploration or development,that problem c The projected decline in gas supply is essentially based' on known reserves.Economists would argue that as supply shrinks,prices rise-and that rising prices would ultimately cause the producers to look for more gas.(But in the lz " regulated Cook Inlet market,that might not happen). Is THERE More UNDISCOVERED GAS? In the 1950s and 1960s,oil companies drilled as many as 30 wells a year in Cook Inlet (Figure 3).They were looking for oil-and found oil as well as trillions of cubic feet of natural gas.Those gas reserves,large enough to last for many years, left no need to look for more. Then,in the late 1960s,world-class oil reserves were discovered at Prudhoe Bay,on the North Slope,and the petroleum industry's focus shifted away from Cook Inlet.The last commercial gas discovery in Cook Inlet was in 1979 and the last major oil discovery in 1991. Net gas production-that is,production beyond what the producers re-injected to increase oil recovery-peaked in 1996 at 223 billion cubic feet.By 2005,net production had dropped to 208 billion cubic feet. Many geologists think Cook Inlet basin is under-explored, compared with other gas exploration regions.Speakers at the forum said analysis of the distribution of field sizes in the basin suggests there may be large undiscovered fields remaining. is expected to worsen,especially in the winter.Consultants to the U.S.Department of Energy and others have projected the future demand for and supply of Cook Inlet gas. The assumptions used in individual studies vary somewhat,but they all show the same general result:that the demand for Cook Inlet gas will soon exceed the current supply,even if industrial uses drop sharply. Projections by Science Applications International Corporation (Figure 2),a consultant to the US. Department of Energy,are based on specific assumptions that other analysts may disagree with.Those include: ¢Assumption:that the Agrium fertilizer plant will cease operating in the near future.Agrium hasn't run at full capacity since 2001,and it recently announced it will shut down during peak use winter months.Agrium 250.0 oo . ESSLPH pr piper ss Pep MP PH PPh MP FPG egy” Figure 2 .Projected Supply of and Demand for __CookInletGas Fertizzer.O Renee Power for Pebbdie Minsa ee| ReatenatCommercat Source:NETL/DOE Study (2006)and Division of Oil and Gas (2006) has identified high gas prices as the main reason ;;;” for the cutbacks-but high prices are related to Figure 3.Exploration Wells Drilled in Cook Inlet short supply.(Agrium is,however,investigating and Natural Gas Price 500alternativestogas;see page 7.)" ¢Assumption:that the federal Office of Fossil 35 J = "% Energy in the U.S.Department of Energy will 0.won On 400 not renew the export license for the LNG facility,--Price|350gwhichexpiresin2009.To have the license |y %--L300 8renewed,the operator has to show that exporting |§,,eee ent eda es publicly |60LNGwillnotjeopardizelocalgassupplies.2 regulated utilities in Cook Inlet >0 5*Assumptions:that a spur pipeline to carry North #154 i Slope natural gas to the Southcentral region will be 0 ||150 Hibuiltby2015andthatmostofthefuturedemand+100 will be residential and commercial,including the 5 |im)proposed Pebble mine in southwest Alaska.0,at pall iif Tem ilditiifa |3.00 ¢Assumption:that some industrial uses might be 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 feasible,but that the cost of North Slope natural £88 Sources:Alaska Departments of Revenue and Natural Resources;AOGCCwillmakethecurrentmethane-intensive industrial uses (like producing fertilizer)uneconomic.2 » *"Conservation.If Alaskans conserved more natural gas and electricity,they could save anywhere from 3.0 to 7.5 billion cubic feet of gas a year,according to estimates of inmire Consulting.Conservation measures include things e upgrading residential and commercial appliances and improving weatherization of houses and businesses.Some analysts believe Alaskans won't conserve more unless the prices of residential and commercial heat and electricity increase more than they already have. ¢North Slope Gas.A major uncertainty affecting the future of Cook Inlet gas development is when North Slope gas might be available to Southcentral consumers.That uncertainty makes it more complicated for Cook Inlet producers to decide how much to invest in exploration and development in Cook Inlet and for utilities and other consumers to decide about investing in gas-using equipment. The North Slope has very large known reserves of natural gas.The North Slope oil producers have said they support construction of a pipeline to carry natural gas to world markets-although by the end of 2006 they hadn't actually committed to building a pipeline. But at some future time,Southcentral consumers could get North Slope gas either through a spur line from a main pipeline or through a direct bullet line-that is,a pipeline direct from the North Slope to Southcentral.A pipeline bringing North Slope gas to Southcentral could also be enriched with hydrocarbons,to make certain kinds of industrial development feasible. O-Gasification.Agrium is investigating a proposal toFibstitutesyntheticgasfromcoalfornaturalgasfromCook Inlet.The proposed Project Blue Sky would take coal from Healy in the Interior south by rail,transfer it to barge,and ship it to a coal gasification plant on the Kenai Peninsula. The synthetic gas would be used to produce fertilizer and could also add electricity to the Southcentral power grid. Proponents say coal gasification allows for efficientcaptureofconcentratedstreamsofcarbondioxide(CO,),virtually eliminating emissions of this greenhouse gas.The captured CO,could then be used for advanced oil recovery.Its estimated that 13 Cook Inlet oil fields might produce an additional 300 million barrels,through enhanced oil recovery using CO,,. ¢Other Potential Sources of Gas in Southcentral.The Bristol Bay area and Alaska Peninsula have been estimated to hold anywhere from 7 to 23 trillion cubic feet of gas and the Nenana Basin 3 to 10.It's beyond the scope of this paper to describe how this gas could be brought to market. ¢Import LNG.Southcentral Alaska could import LNG via the Kenai LNG plant,if the plant were modified to import rather than export LNG.This option would not have as long a lead time as some other alternatives and it would ensure ample supply-but Alaskans would be exposed to world arket prices (which are significantly higher than currentO:prices).A big consideration in the feasibility of this optionouldbethecapitalcostsofmodifyingtheLNGplant. *Coal-Bed Methane.Coal-bed methane is a form of natural gas that has been identified in the Susitna Basin north of Anchorage.However,the economic potential of coal-bed natural gas has not been established,and its development in Alaska has been controversial. °Coal.Alaska has abundant sources of coal.An objection to coal is that it has higher CO,emissions than other energysources.But the state government sponsored construction of a clean-coal plant at Healy,to help generate electricity.That plant has yet to be operated,because the utility originally planning to use the coal decided not to-but there are now plans to start it up,possibly within the next 18 months.It could offset some demand for gas to generate electricity. Additional coal supplies could further reduce natural gas use for electricity but at a high capital cost. ¢Wind Power.With support from Chugach Electric, Municipal Light and Power,and others,the Fire Island Wind project is underway,with preliminary permitting and feasibility to be completed by 2011.This project would involve construction of wind turbines on Fire Island,just offshore from Anchorage.The turbines would be able to supply electricity to the Southcentral power grid and help offset demand for natural gas.However,there is uncertainty about how the wind turbines might affect air traffic at Anchorage's nearby international airport. ¢Hydropower.Chugach Electric already uses hydropower to a small extent.Proponents say use of this renewable resource has relatively few effects on land and water systems. But further development of hydropower in this regionwouldrequirealongleadtimeforlicensingandasignificantamountofcapitalforplantdevelopment. ¢Nuclear Power.A small-scale nuclear "demonstration project”is being proposed for the community of Galena along the Yukon River.It would start up in 2012.Power from this facility,if it were built,would not be available for Southcentral.However,ifit were successful it could promote more local interest in this abundant but controversial source of energy.Problems with nuclear power include long-term land use,the risk of accidents,and nuclear waste storage. ¢Tidal Power.A demonstration project of tidal power in Knik Arm is scheduled to be under construction by 2015. Tidal power is a renewable resource-but it might affect aquatic life and boat traffic. *Geothermal Power.A geothermal unit began operating at Chena Hot Springs Resort in the Interior in August 2006. Other potential geothermal sites,including Mt.Spurr in Southcentral,are under consideration.Geothermal power is a renewable resource,but the costs of connecting to the local electrical grid may make many sites uneconomic to develop. *Distributed Generation.Distributed generation is the practice of replacing central gas-fired generation with on-site co-generation,or fuel cells.If those systems were fueled by sources other than gas,they could reduce gas consumption.Distributed generation may eventually become a realistic option in Southcentral,as the costs of the technology continue to fall. Why Isn'T THERE More EXPLORATION? There is some ongoing exploration in Cook Inlet basin.A number of both established and new companies are looking for oil and gas in the basin,according to petroleum industry presenters at the forum.Chevron,Marathon Oil,AuroraGas,Forest Oil,and Conoco Phillips are among the Cook Inlet producers exploring for oil or gas. Chevron reported in late 2006 that it has found about 150 billion cubic feet of gas since 2000,and that Chevron and its partner companies expect to spend $300 to $350 million for exploration and capital projects in Cook Inlet over the next several years. Newer companies include Benchmark Oil and Gas,which is focusing on Upper Cook Inlet;Pioneer Natural Resources,which has one oil-producing project in Southcentral;and Rutter and Wilbanks,which is operating three projects: the Copper River project (gas),the Northern Lights project(oil),and the onshore Eagle/West Eagle project (oil and gas).Renaissance Resources and Stormcat Energy are also involved in exploration of undeveloped areas. Many of the smaller companies are staying onshore, according to industry spokesmen,and all companies areaffectedbythehighercostsofexplorationinAlaskaandthelowerpriceofgas,compared with other areas of the country. The number of exploratory wells in the past few years falls far short of the numbers in the 1960s,despite rising prices. At the forum,representatives of the gas producers said the price still hasn't offset the high costs of doing business in theinlet.The U.S.Department of Energy estimates the cost of identifying and developing just half the reserves it believesmayremainintheinlet(13 to 17 trillion cubic feet)at more than $5 billion,in current dollars. Figure 12 shows the U.S.Minerals Management Service'estimate of how much the supply of Cook Inlet gas would increase,at different wholesale prices for that gas.MMS estimates that at a price of $4.50 per thousand cubic feet,the additionalsupplymightbe0.64 trillion cubic feet.But at double that price,the additional new supply would also nearly double-because the oil companies would have more incentive to explore. The Cook Inlet producers also argue that they need more access to prospective fields.The producers estimate thatbetween30%and 50%of the prime exploration areas have restricted access or are entirely off limits,because they fall within protected areas of federal or state conservation units. Industry spokesmen and representatives of the MineralsManagementServiceidentifiedotherthingshinderinglarge-scale exploration in Cook Inlet.Those include aging platforms,lack of a jack-up rig,regulatory matters-including gas wellspacingandbondingrequirements-and a general lack of 3-Dseismicdataofthebasin.They say that these problems,as well as company reorganizations and the limited sale area in 1997,continue to hinder exploration. The next Cook Inlet Special Interest lease sales are scheduled for 2009 and 2011. Figure 12.Estimated Effects of Price Additional supply at: $4.50/thousand cubic feet .64 trillion cubic feet $9.00/thousand cubic feet 1.1 trillion cubic feet Source:U.S.Department of the Interior,Minerals Management Service Wuat AsBout Tax INCENTIVES? In 2006 the Alaska Legislature passed the Petroleum Production Tax (PPT),a major revision in the state's method of taxing oil and gas production.Among other things,the new PPT is intended to encourage more investment in oil and gas exploration. The PPT operates differently on the North Slope and in Cook Inlet.It caps per-unit tax liability for Cook Inlet producers at the level of the old production tax system,during the year before the PPT was passed in April 2006.This means that even if the price of gas or production rises,Cook Inlet producers-current and future-will never pay more than the average per-unit tax rate in April 2006. In essence,the PPT will not just limit or lower taxes in Cook Inlet-it should also encourage new exploration and production.Because the PPT is so new,its too early to say what effect it might have on future gas supplies. WHuaAT ARE THE ALTERNATIVES? What about finding other energy sources or reducingconsumptionasameansofdealingwithfallinggasreser)iAttheforumDunmireConsultingdiscussedalternatives increasing gas supplies from outside Cook Inlet,reducing consumption,and replacing gas with other sources. The Dunmire analysis was funded by the Alaska Natural Gas Development Authority,which is a state corporation approved by Alaska voters in 2002 to promote construction of a natural gas pipeline from the North Slope.ANGDA has so far concentrated on plans for some sort of pipeline- either a spur from a main pipeline or a pipeline directly from the North Slope to Southcentral Alaska-to supply in-state consumers with North Slope gas. Below we just report the alternatives Dunmire Consulting identified.Their order below doesn't indicate feasibility or the length of time they would take to develop,if they were feasible.Some could help ease potential gas shortages relatively soon,but many would have long lead times and uncertain capital costs. O on Additional Cook Inlet Gas Supply O OHistoricalGasPrice,WMef,thencurrent$Figure 4.U.S.and Cook Inlet Natural Gas Price (Wellhead Price per Thousand Cubic Feet,In Current Dollars)Figure 5.Residential Natural Gas Price (Per Thousand Cubic Feet) ES Producers'Share WM ENSTAR Share (Transportation Charge)$8.73 $6.71 4.44 $4.82$3.5]HEn q nf 1996 1998 2000 2002 2004 2005 2006 2007 Source:ENSTAR Natural Gas Company ENSTAR also reports that despite sharp increases0.00 =T T T T T T T T T T Source:Alaska Department of Revenue and EIA 1966 1960)1966 1970 1976 1980 1386 0 1990 4996 ©2000 2006 20101 |in what Alaskans pay for natural gas,they still payabout30%to 50%less than other Americans. Figure 6 compares 2007 contract prices for But no one is certain how much gas may be left in the basin,because few exploratory gas wells have been drilled there since the 1970s.Data from the Alaska Department of Revenue show that the bulk of the 240 exploration wells drilled in Cook Inlet since 1955 have been for oil.Only in the last five years has there been any focus on locating more natural gas-and that increased exploration coincides with rising gas prices (Figure 3). O:e Alaska Department of Natural Resources estimates8.8 trillion cubic feet of gas have been found in Cook Inlet basin to date,with 7.1 already produced and 1.7 remaining.The U.S.Department of Energy estimates potential undiscovered natural gas reserves at between 13 and 17 trillion cubic feet.Other estimates are lower,with no analysis conclusively showing where new fields may be located.Whatever the remaining residential customers nationwide.In 2007 Alaskans will pay $8.65 per million Btus (British thermal unit, a standard energy measurement).Customers in the mountain states and the north-central states will pay $12 to $13.The highest natural gas prices will be in the mid-Atlantic,south- Atlantic,and New England states,where prices are expected to be nearly double the Alaska price. Natural gas is also much less expensive than alternative ways of heating homes and businesses in Alaska.Figure 7, provided by ENSTAR,shows that natural gas for heating is about one-quarter to one-half the price of diesel,propane,or electricity,as measured by energy content. reserves,the level of future exploration will depend on gas prices. How Have Prices CHANGED?WEST As the supply dwindles,the price Pacific 614.19ofCookInletgashasincreasedrapidly -although not as rapidly as elsewhere in the nation (Figure 4 ). The price residential customers pay for Cook Inlet gas roughly doubled between 1996 and 2006,and it will increase another 30%in 2007 (Figure 5). But that price includes both what the oil companies get for producing the gas and what ENSTAR charges for transporting it to customers. ENSTAR is a regulated utility,and ipeteports charging about the sameOPoscubicfeet)to transport |" * today as in 1996.Virtually all the *Contract prices for 2007 recent increase in the pri i i **8_65/MMBtuis a comparable cost SOUTHPricetoresidentialtothe$8.73/Mcf value reportedin Figure 5customershasgonetotheproducers. Figure 6.Prices of Natural Gas for Residential Customers,2007* (Per Million Btu) MIDWEST NORTHEAST Mountain West East Middle New $12.26 North Central North Central Atlantic England $13.00 $13.08 $15.18 $17.0 West EastaiaSouthSouthCentralouthCentralAtlantic $14.17 $15.01 $15.67 Source:ENSTAR Natural Gas Company Figure 7.Comparing Current Costs of Home HeatingSourcesforSouthcentralAlaska (Costs per Million Btu)$36.07 . As for the electric utilities using Cook Inlet gas,*Municipal Light and Power is not actively seeking new gas contracts now-because it owns part of a Cook Inlet gas field estimated to meet its demand for the next15years.Chugach Electric Association has a @) *These forecasts are based on the best current information-but it is difficult to predict future costs of natural gas,because Onn:gas and electric utility contracts are Figure 10.Seasonal Residential and Commercial Demand for Cook Inlet Gas,1999-2002 (in Heating Degree Days and Millions of Cubic Feet per Day) $29.06 $28 36 ower $32.65 $33.32 $18.77 $8.65 LP -LILI Natural Gas Propane |Matanuska Electric #2 Fuel Oil Municipal Light and Chugach Electric Source:ENSTAR Natural Gas Company under contract to meet demand only until 2011. WHERE IS THE PRicE HEADED? As Figure 8 shows,the Alaska Division of Oil and Gas forecasts that the price of Cook Inlet gas will increase until 2008 and then drop,staying in the range of $6 per thousand cubic feet through 2016.(This forecast takes into account the recent ruling by the RCA.) Figure 9 shows the division's estimates of the potential cnt range of future demand from residential and commercialHomerElectricconsumers,at higher or lower gas prices.The higher the price,the less consumption increases. peerss Wuat DETERMINES PRICE? The price residential customers pay for Cook Inlet gas is actually the average of various prices in several contracts ENSTAR currently has with the producers.The contracts were all negotiated separately,and each has its own terms that can influence price. In some contracts,for instance,the gas price is linked to oil prices.In two of the most recent contracts,Cook Inlet gas prices are linked to gas prices at what is known as the Henry Hub.That hub is in Louisiana,near where gas supplies from the Gulf of Mexico arrive.It is the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange. Increasingly,gas contracts in the USS. are being set in relation to the Henry Hub benchmark price,with transportation and other charges added to that base to determine local prices. Some analysts believe linking Cook Inlet prices to that hub will stimulate exploration,by raising those prices closer to the U.S.average. However,application of Henry Hub prices to Cook Inlet gas has been controversial,and the RCA recently rejected a proposed new contract between ENSTAR and Marathon Oil Company,benchmarking a portion of ENSTAR's future purchases of Cook Inlet gas to that hub. The RCA found that "responsibility for paying gas prices that encourage new gas exploration and production should not rest exclusively with gas ratepayers.” ENSTAR is now in the process of renegotiating that contract with Marathon, which-if successful-would give it enough gas to meet its projected requirements through 2017.Today the utility has enough gas contracted only through 2008.$perMcfFigure 8.Projected Price of Natural Gas (Price per Thousand Cubic Feet) $6.02 96-13 $5we!O $4.00 - 2006 2008 2010 2012 2014 2016 Estimates based on DOE oil and gas price forecasts and four ENSTAR gas supply contracts:Marathon-APL4;Beluga;Moquawkie;Unocal Source:Alaska Division of Oil and Gas Figure 9.Projected Residential And Commercial Demand for Cook Inlet Gas (In Billions of Cubic Feet per Year) ome Actual so o «»Forecast ==Fitted Values .err 460 -=«Upper ote eee°»--«Lower ee ee .3 s e> =2 S o 1971 1976 14981 1986 1991 1996 2001 2006 2011 2016 2021 Source:Alaska Division of Oil and Gas Oo ject to approval by the RCA.a --anchorage HDD 280.000 WHAT IS THE CURRENT SITUATION?wo +-rac Consumption (Mcfid) The Alaska Division of Oil and Gas reports |00 000thatwithgasreservesshrinking,increased bar residential and commercial consumption in eo the winter has occasionally outstripped the 150.000 system's capacity to deliver.Figure 10 shows P iad |the sharp winter increases in demand for Cook =3 Inlet gas.Spokesmen for the division say that 100,000 if no new reserves are added,the number of 0:\days when peak demand exceeds the system's capacity will increase as time goes on.»$0,000 Current industrial users-the Agrium 0. and LNG plants and oil and gas field operations-consume almost two-thirds of "3 8thegasproducedinCookInlet.(See Figure a 8 1).Industry representatives at the forum Peete eeiggir::2G PETEETTTG Source:Alaska Division of Oil and Gas said that industrial demand for gas is driven by export markets and depends on the availability of cheap gas to use in industrial processes. The fertilizer plant has not run at full capacity since 2001. With the price of gas rising and supplies uncertain,Agrium reported at the forum that it is now making only year-to-year contracts for Cook Inlet natural gas.It is looking for long-term One coal gasification-to replace Cook Inlet gas.The other big industrial user is the LNG plant at Nikiski,which currently uses more than a third of the gas produced.However,the plant needs approval from the federal Office of Fossil Energy to export LNG,and its current export license will expire in early 2009.(As of late 2006,no application to renew had been filed.) To renew the license,the company needs to show that it is in the public interest to extend the contract and that exporting LNG would not jeopardize gas supplies for local consumers. Demonstrating that will become increasingly difficult as the two gas storage leases for active facilities at Chevron's PrettyCreekfieldandMarathon's Kenai field. Figure 11 shows how draw-downs for utility demand from the storage facilities at the Swanson River field vary with the season,spiking in the winter. Another way of easing short-term supply problems is interruptible contracts (allowing producers to curtail sales when demand is high).Agrium's fertilizer plant uses them to accommodate winter shutdowns.Also,as long as theLNGplantisoperating,it can continue its historical role of providing "swing”gas that can be diverted to consumers when needed. But industry speakers said at the forum that in the long run better solutions are needed-encouraging more exploration in Cook Inlet;bringing gas in from elsewhere (North Slope gas or imported LNG);or examining the feasibility of alternatives to natural gas-ranging from coal to tidal power. supply of Cook Inlet gas declines. However,representatives of the producers said at the forum that the loss of these big industrial Figure 11.Seasonal Draw-Downs for Utility Demand from Cook Inlet Storage,2001-2006userswouldreducetheirincentivetoexplore300 and,consequently,hurt long-term stability of the 280 supply of Cook Inlet gas 280 249WHATARESHORT-TERM SOLUTIONS?220 One short-term way of meeting peak utility demand is temporarily storing gas.Since 2001, producers in Cook Inlet have stored their own gas underground in depleted reservoirs,to help meet utility demand. To date the federal Bureau of Land Management 80 as approved three gas storage agreements with 60OvattheSwansonRiverfield;two of those 40ecurrentlystoringanddeliveringgas.The Alaska *MMCF/monthF'--KGSF 7A KGS 4 Department of Natural Resources and the Alaska Oil and Gas Conservation Commission have approved SON NS +eySotfefae'ye SESrsees"eeee Source:Alaska Division of Oil and Gas d_MQ A+(vy F town MUA MEMORANDUM Cerf So (-OF To:Steve Porter Deputy Commissioner Department of Revenue From:Roger Marks Petroleum Economist Department of Revenue Tax Division Date:3/12/04 Re:Issues Regarding the LNG Project Recently you asked me to prepare an analysis of the ANGDA LNG project to Valdez. I attempted to make the revenue analysis using the economic models of the LNG project put forward by the Yukon Pacific Corporation ("YPC”)and the Port Authority.These arethemodelsembracedbytheMaskaNaturalGasDevelopmentAuthority(""ANGDA”) (and presumably Backbone II,as well).These models conclude that the project is economic. The picture of the project put forward in these models is based on a series of assumptions.In order to understand the veracity of their project it is useful to analyze these assumptions on their merits. An analysis of each assumption follows: 1.LNG Marketability> The economics of the LNG project are dependent _on being able to market 2 billion cubicfeetperday(bef/d)in order to bring the per unit costs down to a reasonable level.”Theproblemsofmarketing2bef/d of North Slope gas eS LNG Are very serious. -- The West Coast is a rather isolated market.There is not an East-West infrastructure such 'that Excés8s Supplies can be moved out of the market.Most forecasts find that about 2bef/d of additional supplies may be required in the next 10-15 years.”Shell and BP have already committed to supply Sempra a combined 1 bef of Asian and Australian gas of that 2 bcf market need.Thus,to get the remaining 1 bef/d into the market Alaska would have to capture 100%of the market in an environment where multiple other projects are 'The YPC scenario is for approximately 2 bef/d of LNG sales,as is the Port Authority's base case.The latter also has scenarios ranging up to 4.5 bcf/d to Canada and a 6 bef/d "Y-line.” ?This includes forecasts from Cambridge Energy and the California Energy Commission. trying to enter.This would be challenging given the competitive problem stemming from the high pipeline costs,as well as the other issues described here. Moreover,this market will grow incrementally,not all at once.Getting the entire remaining |bcf/d into the market at once will be particularly difficult.However,because of the large fixed cost of the pipeline it is necessary to market all of the gas rather quickly.Projects that do not have that large fixed cost,and can put smaller amounts of gas into the market over time,will have an advantage.(The implications of a slow ramp- up period are discussed below.) Even if 1 bef/d can be marketed into the West Coast,the remaining 1 bcf/d would have to go to Asia.This market is even more difficult: -The distance disadvantage is exaggerated. -There is more competition. -Demand growth is sluggish. -.There appears to be a movement away from long-term contracts. Cambridge Energy has estimated thay Qatar,Sting on 250 trillion cubic feet (tcf)ofreserves,can market LNG anywhere inthe world for $3.50.My modeling suggests it would bedifficult for Alaska to beaf that cost. The YPC and Port Authority models assume a two-year ramp-up to full production.Even if the gas can be marketed,the demand forecasts suggest the rate of demand growth is such that it may take as long as six years,rather than the two years in the aforementioned models,to place all the gas in the market.On a present value basis this has a significant effect on the project. I estimate that going from a two-year ramp-up to a six-year ramp-up adds 48 cents permcftothecostofservice.” Research needs to be conducted to determine the marketability of the gas to the West Coast and.to the Pacific.Rim. YPC and the Port Authority predicate their cost of service numbers based on a fixed purchase price for gas from the producers on the North Slope,a price that could be characterized as low.Yukon Pacific is using $1 per million BTUs.The Port Authority is using a 30 cent base price,plus a subordinated payment depending on annual profitability after the Port Authority has paid all the project costs and retained over $500 million for itself. 3 This and all subsequent estimates are predicated on a publicly-owned 2.2 bef/d LNG project costing $12 billion,with a 70/30 debt/equity ratio with the cost of debt at 8%and the cost of equity at 12%.The model is publicly available from the Department of Revenue. However,the producers have the exclusive right through their leases to produce and market the working interest gas.Their commercial goal may be to maximize the value ofthegastothembyretainingtheupsidepricepotentialinherentintheHighwayproject (along with facing the downside risk,as well).At Chicago prices of $4 and above they would realize higher values than if they sell their gas for any of the proposed LNG projects. In addition,this all begs the entire question of 1)the producers'willingness to commercialize for an LNG project only half as much gas as they would with a Highway project,and 2)the producers taking the risk of committing to sell the gas to ANGDA (or the Port Authority)early,foregoing their Highway line commercialization efforts. Also,under the Port Authority gas purchase structure,all profits go to the producers after the Port Authority has retained its $500 million.The Port Authority would have very little incentive to make a profit at that point since it would be turned over to the producers. It has been suggested that producers elsewhere in the world are receiving fixed prices of 50 cents for gas at the wellhead.This is not true.In feedgas pricing arrangements the government,which owns the gas,will receive a fixed price to transfer ownership to the downstream,structured much like a royalty.This occurs,for example,in Qatar,Oman, and Iran.The producers pay for the LNG facilities and shipments and make the profits on the difference between the fixed price and the market price. Elsewhere in the world gas prices at the wellhead are determined on a netback basis based on market prices. Research needs to be conducted on the price the producers would receive for gas in the international market. 3.Jones Under the Jones Act anything shipped from an American destination to another American destination must be carried on a ship built in the United States,on a ship with a US.flag, and staffed by a U.S.crew.In the case where Alaska gas may go to Mexico for re- gasification and marketing back to the U.S.,the Jones Act also applies.The only possible exemptions appear to be for national defense.Reflagging old U.S_built LNG tankers thathavebeenoperatingoverseasunderforeignflagsisclearlyprecludedintheAct._ There are no U.S.shipyards that build LNG tankers.The start-up and construction costs would be high.In the oil trade Jones Act tankers cost more than twice as much to build and operate as foreign tankers.There are three main reasons for this:first,the U.S.labor costs are higher than foreign.Second,there is little or no competition between shipyards in the U.S.to contain costs.Third,the simple lack of experience and "assembly-line” structure causes inefficiencies. Thus in the case of LNG there is no reason to believe the shipping costs for Alaska LNG would not be at least twice as much as shipping LNG from foreign jurisdictions,and perhaps three times as much,given the start-up challenges.Thus,for a scenario where 2 _bef/d of Alaska LNG is going to the West Coast,the increased costs could be $2 billion to $4 billion.This would more than offset any shipping distance advantage Alaska may have,and put Alaska at a further competitive marketing disadvantage. I estimate that the difference between foreign LNG tankers crryfig 2.2 vol the WestCoast,and Jones Act tankers adds between 55 cents and $1.10 per mcf to the cost ofservice.'- I recommend research into the cost of Jones Act tankers. 4.Federal Income Tax The YPC and Port Authority models assume no federal taxation on income generated by the pipeline or the sale of gas.: The idea that income generated by ANGDA or the Port Authority,either through tariff income,or profit on gas sales,may be exempt from federal income taxes originated in the efforts by Alaska Gasline Port Authority in 1999-2000 to ascertain their federal tax status. During this time period the Port Authority sought an I.R.S.letter ruling.The Port _Authority sent a letter to the I.R.S.describing the intended operation of the Port Authority. In January 2000 the Port Authority received a letter from the I-R.S.The letter stated that based on the representations made by the Port Authority in their request letter,that their income would be exempt from federal income tax. In reciting the representations made to the .R.S.from the Port Authority,the LR.S.letter says: The Authority's revenues will be derived primarily from the sale of natural gas to municipalities within the State and to other purchasers,which are expected to include governmental and private entities. However,it appears that given the rather limited opportunities for in-state use of gas, most of the Port Authority's revenues would be derived from the commercial sales of gastoeitherEastAsiaortheWestCoast.°The I.R.S.may not have understood that. 4 The YPC model includes Jones Act ships for the 1.3 bef/d going to the West Coast,at a 50%cost premium to foreign tankers.The Port Authority model has all the LNG going to Asia.There is no evidence of any gas sales within Alaska in the Port Authority model.In the YPC model about 2%of the gas is sold in-state. This distinction may be very significant for the ruling.Creditors would require clarity from the I.R.S.that they understood the exact marketing conditions. _In addition even if the Port Authority were tax-e t.that does not mean that ANGDA __would be.There may be important differences in how they are seuchied-For instance,The I.R.S-found the Port Authority to be a political subdivision.Because of differences inthedegreeofsovereignpower,it is not clear that ANGDA is one,in which case it may not be tax-exempt.That issue could possibly be rectified through state statutory action. The tax exempt status should be researched. Note that any tax exemption privileges would not apply to the extent there is private equity financing the project. I estimate that the presence of federal taxation adds 15 cents per mef to the cost of service(tariff).°The federal tax exemption would be worth more if the gas sales generated a profit after paying for the gas and the cost of service for conditioning,pipeline, liquefaction,and shipping.For example,if the project made $100 million in a year (pre- tax)after paying the cost of service,at a 35%tax rate,the exemption would be worth $35 million. A project sponsored by a state entity would be exempt from the property tax and the state corporate income tax.Of course,the State could also grant these exemptions to a privateproject.'I estimate that being exempt from those two taxes would reduce the cost of service by 20 cents per mcf.Insofar as those foregone taxes would be paidin a private project,the exemption for a public project represents a loss of money for the State.The tax exemptions are the only feature a public project would have that a private project would not have. I recommend research into the business structure of the ANGDA to assure it has the best opportunity to be tax exempt. 5.Reserves There are 35 tcf of discovered reserves of natural gas on the North Slope.Financing will be secured by the commitment to ship gas.Gas that is not discovered cannot be committed without substantial risk to committing to ship the gas. My modeling shows that it takes the Entire 35 tcf for the highway project at 4.5 billion cubic feet per day (bcf/d)over approximately 20 years to amortize the estimated $20 billion estimated cost down to a competitive per unit transportation cost of approximately °In the cost of service the only income is the return on unrecovered equity.Everything else in the cost of service is simply a pass-through of costs.Since this income is the only income subject to tax,the exemption from that tax is not large.Note that if the project were financed with all debt and no equity,as many of the LNG promoters maintain (see issue #8),there would be no return on equity and the income tax exemption on the cost of service would have no value. For example,this could occur through negotiations pursuant to the Stranded Gas Development Act (AS 43.82). $2.40 per thousand cubic feet (mcf).®Thus if some of the gas is diverted for LNG (the "Y-Line”concept),there will be insufficient reserves for the highway project.The issue of reserve requirements for financing should be studied. Also,the Port Authority project is predicated on the sale of 157,000 barrels a day of liquefied petroleum gas (LPG:mainly propane and butane),or 1.7 billion barrels over 30 years.This is nearly three times the estimated remaining reserves.Their "Y-line”case of 6 bef/d commercializes 66 tcf of gas over 30 years,nearly twice the known reserves.'The issue of the amount of reserves of propane available for shipping should be studied. 6.Gas Price Natural gasprices-are-very-velatile-Most important,there is downside risk.For example, a recent analysis by Goldman-Sachs suggests that two consecutive winters with temperatures ten percent above normal could results in gas prices near $2.50,and this scenario has a 20%chance of occurrence. Moreover,the long-term prospect of increased LNG imports casts a significant veil of uncertainty regarding price.In any market the price of a commodity will be set by the cost of the marginal supply,which will be the lowest cost supply available.As mentioned above,Qatar can place LNG anywhere in the world for $3.50,covering all costs. The excess supply of potential LNG for Asia is already pushing prices down to the costofmarginalsupply.Indonesia recently made a 15-year deal witkyChindto supply LNG at The proposed commodity price provisions in the national energy bill addressed the price risk.It remains one of the most significant obstacles in building the pipeline,because coupled with the significant size of this project,low prices could create huge losses for project sponsors. Most long-term gas price forecast are in the $3.50-$4.50 range in current dollars.YPC has added 2.5%compound annual inflation on to current prices for 30 years.This results in very high gas prices,approaching $10 after several years.A great deal of the value of the project is simply attributable to inflation.(The Port Authority model uses flat prices and looked at price sensitivities.) Obviously,nobody knows what gas prices are going to be in thirty years.Indeed they could be subject to compound inflationary forces.In fact,the Department of Energy's own gas forecast has inflation assumptions that are not dissimilar. ®This model is publicly available from the Department of Revenue. °The original YPC model also overestimated propane reserves.They subsequently reduced the reserves, but increased the propane price so that their results were unchanged.The issue of an appropriate forecast price for propane should be researched. However,there are many reasons to believe gas prices will not be subject to such forces. In general,commodity prices usually reflect technical forces of supply and demand,rather than the price forces in the general economy-Fornaturalgas,this would include weather,the price of substitutes,such as coal or oil,and production costs.Higher prices would also drive much industrial demand out of the market.Again,reflecting on the Qatar example,with technological improvements LNG,the marginal supply,has declining costs,and there is no reason to believe the costs of Qatari LNG should increase. In the last 20 years the inflation rate for gas has averaged 0.6%.The inflation rate for oil has been negative.Having a higher rate of inflation tacked on to the current gas price, itself reflective of recent price run-ups,may be ambitious. Finally,if prices are high,they are high for everyone;they do nothing for making the project more competitive,and in fact bring forth more competition. It is doubtful that financing that depends on the optimistic prices put forward under the YPC model could be obtained.The risk of low prices is very serious and needs to be evaluated.Price projections as an element of financing should be researched. 7.Project Cost The YPC and Port Authority models do not recognize the prospect of cost overruns.Theprospectforoverrunsislikelygivenempiricalevidenceonsimilarprojectscoupledwith the scope and novelty of the project.Overruns are much more likely than coming in under cost.Again,financing would depend on addressing cost overruns.A reasonable cost overrun analysis should be included in the model. 8.Capital Structure The YPC and Port Authority models assume 100%debt financing It is difficult to find any similar single purpose commercial endeavor that has beenfinancedat100%debt.!!The re s are clear.Creditors always have priority access to re-payment befor ity holders?They are generally uncomfortable not beingSin thefrontoftheline.”Eetty is also the shock absorber for financial distress.Otherwise,ifsomethinggoeswrongthedebtisatrisk.In addition,equity contributions make creditors comfortable that project sponsors are serious.Since equity holders are paid last they demanda higher return. The determination by the lenders regarding what percentage of the project to fund is one of risk allocation between debt and equity and a determination of how risky the project is. The more risky the project,the more debt holders want additional equity in the project.(Gpicaly,LNG projects have 70%debt._> 'YPC also has a scenario with equity financing. '!There is some municipal infrastructure financed without equity. To the extent there is less equity,the cost of debt increases to compensate for the risks of default.For this reason,it is fundamental to finance that the cost of capital (the sum of the debt and the equity)is not changed by changing the mix of debt and equity.If there is less equity the cost of debt increases so that the total cost of capital is unchanged To the extent there is equity or higher cost debt it will raise the cost of capital,and subsequently tariffs (cost of service).Furthermore,the source of the needed equity is unclear.If it is the Permanent Fund the earnings and dividends may-be at higher risk.If the equity comes from private capital,any benefits from being a political subdivision, such as State tax exemptions,are,of course,negated. I estimate that using the more usual 70%debt structure,rather than 100%debt,adds 69 cents per mcf to the cost of service.This assumption is very significant.This element should be researched. 9.Cost of DebtCostofDebt a The YPC and Port Authority models assume the cost of debt in the 7%-8%range,not too much different than what the major North Slope producers would pay. With no assets and no collateral,borrowing by a public entity (not backed by the full faith and credit of the State)of any amount will be difficult,especially for the commercialization of an asset with so much price volatility.Accordingly,any debt so issued may be at high interest rates.Even if debt is issued in tranches,the latter tranches'may carry costs higher than that of equity because,unlike equity,debt has no upside potential. Building a pipeline/LNG facility of this magnitude by any company,let alone an untested public entity,is not an easy proposition.There are many moving parts.The lenders are well aware of this and will therefore extract risk premiums by not only the amount of equity they will want to see put at risk (see #8),but the interest rate as well. Note that even if the debt turns out to be tax-exempt (see #10),it could still be high cost debt. I estimate that an extra-twe percentage points.on the cost af debt ddds 29 dents per mcf to the cost of service.This element should be researched. 10.Tax-free Debt The State has been advised by some bond counsel that under the federal legislation that transferred ownership of the Alaska Railroad to the State,the Railroad could issue tax- exempt bonds for a gas pipeline project,even if that project was built and owned by private enterprise.Tax-exempt bonds generally carry a lower rate of interest. '2 VPC has a taxable debt scenario at 8%and a non-taxable debt scenario at 5%.The Port Authority has a mixture of taxable and non-taxable debt that averages about 7%. Though this interpretation ef the law may-be solid,it has never been tested.Creditorswouldneedassurancesbeyondcounselopinion,either from se aoerne aa itCalapprovaloranL.R.S.letter ruling.Absent these assurances (at a minimum)no such tax-exempt instruments could be sold.Thisissue should be researched. I estimate that using non-taxable debt would reduce the cost of service by 21 cents per mef. 11.LP The YPC model includes the "spiking”of the (mostly methane)natural gas stream with 50,000 barrels a day of LPG (mostly propane)to be sold in Asia.This raises the BTU content,raises the price received per average BTU,and bifurcates the market for easier entry. Currently this LPG is the major constituent of the usec injectant (MD)that is producedattheCentralGasFacility(CGF)at the Prudhoe Bay Unit,and provides-significant_ cmnnancerent to or recovery operations at Prudhoe Bey.However,the use of the MI atrudhoeBaymay(or may not)end next decade.In addition,North Slope opportunities also exist to transfer the MI to other fields.For instance,the MI could be used at West Sak to help produce thousands of barrels a day of oil.If the LNG project precludes the enhanced recovery,the net benefits of the LNG project should be appropriately discounted. Again,the Port Authority model commercializes 1.7 billion barrels of LPG over 30 years, nearly three times the known reserves.The issues of the effect of reduced MI on oil production,the liquid reserves,and the liquids composition of the gas should be researched. 12.Conclusion The voters approved the ballot initiative creating ANGDA and now the onus is on ANGDA to ensure that the development plan properly incorporates an assessment of all risks. The promoters of an LNG project have formulated a spreadsheet that shows the project to be viable.Many critical assumptions in the model are uncertain and should be researched to increase the certainty of the project. There may ultimately be a role for LNG or public ownership in commercializing North Slope gas.However,such a project should be based on solid commercial principles. Direct Benefits to All Alaskans The Port Authority is a "Benefit-Driven Project.”Our highest priority is to bring maximum benefit to Alaska with the gas pipeline.In addition to providing the potential for billions of dollars in new revenues to the State and Municipalities,the Port Authority project also brings direct benefits to Alaskans in the following ways: Earliest Opportunity for an Alaska Gas Pipeline -With the senior permits already in place,projections show our project can fill the shortage of natural gas in South Central Alaska and deliver LNG to North American markets at least three to four years earlier than all other pipeline proposals.aeeyOEcateetGas for Alaskans -Our focus is to guarantee maximum availability of gas to Alaskan communities whether through additional spur lines,propane and compressed gas shipments to villages,or other methods. Cleaner,More Affordable Energy -Most Alaskan communities rely on expensive diesel for electricity and heat,and the high cost is threatening their survival.The Port Authority project can provide cleaner burning natural gas for Alaskans at stable,affordable prices. Value-Added Industry -The guaranteed availability of natural gas liquids for in-state use means an opportunity for additional petrochemical industries throughout Alaska. Highest Number of In-state Jobs -The State and labor organizations have already begun preparing Alaskans with the skills to build and operate the gasline. With the entire pipeline and liquefaction facilities of our project located in Alaska,all the jobs associated with construction and operation are in-state and will provide employment opportunities for several generations of Alaskans. The Future of Alaska is on the All-Alaska Gasline Masksase' PORT AUTHORITY 411 4th Avenue,Suite 200 Fairbanks,AK 99701 www.alaskagaslineportauthority.com 00175*.********ECRWSS**C-024 RESIDENT 3410 ALEXANDER AVE ANCHORAGE AK 99508-3422 PRSRT STD US Postage PAID Anchorage,AK Permit #537 The Alaska Gasline ne 4 Beaufort Sea OasiGasConanfoningPiant/CS @ Lfudhoe Baya?wae cee Be etyoe Ready Gas at Point Thomson spiBsPoint Thomson is Alaska's second largest oil and gas field behind Prudhoe Bay and the largest undeveloped gas field in North America.It contains several hundred million barrels of oil and at least 8 trillion cubic feet of natural gas,or about one quarter of the State's known gas resources. Yt |If the State makes Point Thomson gas available for the All- :Alaska gasline now,the project will have the anchor supply it needs to move forward. Franklin Bluffs Camp (A/S)00 esis"3 Franklin Bluffs Pipe Yard sia(AGPA)is dedicated to one thing: Putting Alaska's natural gas to work 2 Happy Valley Camp {AIS)_ SopotHappyValleyPipeYard_:ht * i {Galbraith Lake Camp (A/S)=>» Galbraith Lake Pipe Yard | ¢550 miles progress toward ibuildingaLiquefiedNaturalGas(LNG) project including a pipeline fromtheNorthSlope to Be ie, ?=Prospect Pipe Y: ; '*Oldman Camp | 2 @ Livengood "og ,Livengood Camp (A/S) LEGEND:"Fort wainwright \: one :nim *Sater fire a to allow the Portandthefutureofceameiballae;Authority to launch >Glennallen ee Pipe Yard |.geriigWe'd like to take a moment to reflect upon where we started,and where we're going. ___Tensina Bong ; PORTS AUTHORITY www.alaskagaslineportauthority.com Abi Gposline Gulf of Alaska Jones Act-Compliant Ships You hear a lot about the Jones Act,but most people probably don't know what it means.In short,the Jones Act is a federal law that requires ships sailing between U.S.ports to be U.S.built, US.crewed,and U.S.flagged.Currently,there are no LNG tankers that meet all these criteria,but the Port Authority has worked to resolve this issue,and has the solution in hand. We've entered into a Memorandum of Understanding with BGT Limited and Mitsui OSK Lines to provide transportation of LNG and liquefied petroleum gases.BGT and Mitsui OSK Lines will act as the Port Authority's strategic partners in the West Coast LNG Receiving Terminals The Port Authority has bid on capacity for the second phase of Sempra LNG's Energia Costa Azul receiving terminal, currently under construction in Baja,Mexico.Additionally, it has received proposals from several LNG receiving terminals in various degrees of permitting and development. Energy forecasters predict that LNG could account for as much as 25%of U.S.natural gas usage by 2020.The demand is there,and the market is ready to accept Alaskan LNG as soon as it's available. development of the project's shipping component, and ensure that ships meet the requirements of the Jones Act. BGT,with headquarters in Stamford,Connecticut, controls and operates a fleet of eight LNG carriers, built in the United States and serving overseas. These vessels will need to be re-flagged under the US flag,a fairly common practice that legal advisers believe should go smoothly,as re-flagging US-built ships back into the U.S.coastwise trade puts Americans to work. These vessels have been thoroughly inspected, and inspectors concluded that the vessels are in sound condition,and will continue to provide safe and reliable LNG Construction .is underway at|Sempra LNG'|receiving ter- minal in Costa Azul,Mexico. transportation for many years to come.ceeemm,O oy 4 Nash,'ashivrePORTSAUTHORITY www.alaskagaslineportauthority.com AGPA's Beginning and Mission In the fall of 1999,the citizens of the City of Valdez,the Fairbanks North Star Borough and the North Slope Borough overwhelmingly passed the ballot propositions that created the Alaska Gasline Port Authority,a municipal entity formed to "build or cause to be built,a natural gas pipeline project from Prudhoe Bay to Valdez,”and advance the commercialization of Alaska's vast natural gas resources. 'The original members of the Port Authority board of directors oversaw the creation of what has come to be called the "All- Alaska Gasline,”a project structured to bring maximum benefit to the people of the state of Alaska by: Enabling the earliest delivery of Alaska's North lope gas to in-state,North American and potential export markets. Providing for cleaner,more cost effective energy throughout the state. Distributing Port Authority revenues to the state and directly to every Alaskan municipality. Providing for maximum Alaska hire during construction and for the life of the gas pipeline. Providing natural gas for existing and additional petro-chemical industries;creating greater employment opportunities for generations to come. Providing for greater competition in the development of Alaska North Slope natural gas. Bringing Alaskan natural gas to North American markets at long-term competitive prices. Orinsing the benefits of a tax-exempt structure to a gas pipeline project. The All-Alaska Gasline Liquid Natural Gas (LNG)Project The Port Authority is developing a North Slope gas project that includes a pipeline from Prudhoe Bay to Valdez, liquefaction and liquids extraction facilities in Valdez and a gas conditioning plant (GCP)in Prudhoe Bay. Gas Pipeline The gas pipeline is a buried 800-mile line from Prudhoe Bay to tidewater at Valdez that will run parallel to the Trans- Alaska Oil Pipeline (TAPS).The Project is designed to include extra capacity to allow a later Alaska Highway project to branch off at Delta Junction to the Alaska/ Canadian border. Gas Conditioning Plant Before the gas is shipped down the line,conditioning removes impurities and compresses and chills the gas to meet pipeline specifications.The GCP could be owned and operated by the North Slope producers or the Port Authority. Liquefaction/Fractionation,Storage and Loading When the gas reaches Valdez,it will be fractionated into its various components,then converted to LNG and liquid petroleum gases (LPG)for shipping,and for Alaskan homes and industries.Tankers will be loaded at this facility. Spurline from Glennallen 'The pipeline will include a tie-in at Glennallen for a spurline to connect with the existing South Central natural gas grid and provide gas to South-Central Alaska and the Kenai Peninsula to ensure a ready supply of affordable natural gas for in-state use. Building,Owning and Operating the All-Alaska Gasline LNG Project At least some of the Project facilities will be owned by the Port Authority although strong interest has been exhibited by private interests in owning the Valdez liquefaction/fractionation facilities.The project will be built and operated by world-class industry leaders.4Pee aa44i3Fy a?be, S e hoy > . =oe bi H 40 P *b 4 e rs i bard c :ee TRONSO Project Economics:Strong &Healthy The All Alaska Gasline LNG project has robust economics, providing strong returns to the producers and the State of Alaska.Based on current cost estimates and conservative lower 48 gas price assumptions,the Port Authority has forecast an internal rate of return to the upstream producers in excess of 30 percent,with no state tax concessions.The projected returns compare very favorably to oil and gas projects currently developed throughout the world. These favorable economics take into account the costs the Port Authority is willing to incur to pre-build a larger capacity line from Prudhoe Bay to Delta Junction to accommodate and assist a later highway project. Plus,once a highway project is ready to proceed and tie into the mainline at Delta Junction,both projects will benefit substantially from the economies of scale achieved on the shared line.The All Alaska gasline will actually lower the construction cost of a future Alcan Highway project, and make both more profitable for the state.OTheState's Own Analysts Agree: The Alaska State Legislature's independent consultants, Econ One Research,Inc.,concluded that the project is viable on a stand-alone basis,generating strong returns for the upstream gas producers.The report further concluded that the LNG project would result in the maximum benefit to the State of Alaska and the producers if it can deliver gas to market at least three years earlier than the North Slope producers'proposed highway project. There is good reason to believe the Port Authority has more than a three-year time advantage over a highway project. This is based,in part,on our existing permits,and the fact that the proposed highway gasline requires four years of studies before a decision is made on whether to proceed with the gasline. Econ One's analysis took into account the costs of pre- building a larger capacity line from Prudhoe Bay to Delta Junction to accommodate and assist a later highway project. The win-win for Alaska is for the LNG project to proceed now to capture West Coast markets while allowing the "CSlinetoproceedwhenthatprojectisready. O Advantage AGPA: Existing permits give us a big head start In the mid-1980's,former Alaska Governors William Egan and Walter Hickel formed the Yukon Pacific Corporation (YPC) to commercialize Alaska's North Slope gas for the maximum benefit of Alaskans.YPC expended over $100 million towards the development of an All-Alaska Gasline to Valdez,and obtained twelve senior federal and state regulatory and environmental permits necessary for the All-Alaska Gasline project. In 2004,the Port Authority negotiated the purchase of the exclusive rights to YPC,including the permits and environmental data.The permits include the final Federal Environmental Impact Statement (FEIS),federal and state grants of right of way for the pipeline route and the LNG terminal site permit at Valdez. By having these permits in hand right now,with no added uncertainty in negotiating with different states and different couptries,the timeline for the building of the All-Alaska projectOnshortened.The Port Authority project couldbconstructionbeforethe end of the decade,with gas flowing through the line by as early as 2013. will be created duringconstructionandoperationofthepipeline. Thousands ofjobs for Alaskans $18 Billion Federal Loan Guarantee It took an act of Congress in 2004 and the efforts of Governor Wally Hickel and U.S.Senator Ted Stevens to secure loan guarantee eligibility for an Alaskan LNG project.The legislation allows the Port Authority to negotiate with the Department of Energy for up to $18 billion in federal loan guarantees. A federal loan guarantee is a contractual commitment by the United States Government to pay off a loan if the borrower defaults.Securing the loan guarantees would mean two things for the Port Authority.First,because Uncle Sam would be acting as guarantor,it would be easy to find a private lender to finance the project.Second,because the federal government has excellent credit,the Port Authority would be able to borrow funds to construct the project at very low interest rates,significantly reducing the cost of construction. Studies &Updated Cost Estimates by Bechtel Corporation:An Industry Leader A world-class project needs a world-class team.That's why, shortly after the Port Authority's formation,our representatives met in San Francisco with the Board of Directors of the Bechtel Corporation.With 40 offices worldwide,Bechtel is a global engineering,construction and project management company with more than a century of experience on complex projects in challenging locations. _How strongly does BechtelbelieveinthePortAuthority |project?Well,to date,Bechtel has contributed over 55,000 job hours to develop an engineering,procurement and construction study,and update cost estimates for the|All-Alaska Gasline project. Sevth CE/VVTLAL CBS STUY DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE SOUTH-CENTRAL ALASKA NATURAL GAS STUDY Regional Overview Charles P.Thomas Tom C.Doughty David D.Faulder David M.Hite DRAFT Final Report April 2004 Prepared for the U.S.Department of Energy National Energy Technology Laboratory Arctic Energy Office Performed by E2S/SAIC under Contract No. SAIC -Anchorage,AK 5/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE DISCLAIMER 'This report was prepared 49 an account of work sponsored by an agency of thaUnitedStalesGovernmant.Neither the United Slates Gavarnment nor any agencytherecl,nor any of ther employees,maxes any warranty,express or implied,orassumesanylegalfiabiityorresponsthilityforthesccurmoy,complelenesy,orusefulnessofanyinformation,apparalus,product or pracess disciassd,orrepresentsthatitsusswouldnotinfringepriwalelyownedrights.Realarances heraintoanyapeciliccomrnanialproduct,process,or service by rade name,Nademark,ranulachieer,of otherwigu,deus not necessarily vonsituie or imply isendorsement,recommendation,of favoring by the United States Governmentoraayagencythereof.The wews and opinions of authors expressed herein do notnecessailystateorreliectthoseoftheUnitedStatesGevemmentoranyagency;TE:> SAIC -Anchorage,AK 2 5/3/2004 DRAFT FINAL REPORT SUBJECT TO REVIEW AND CHANGE SOUTH-CENTRAL ALASKA NATURAL GAS STUDY ABSTRACT The south-central Alaska Natural Gas Study is a geologic,engineering,and economic assessment of the options to meet the intermediate-and long-term natural gas demand for the region.An abundant supply of low-cost natural gas from the Cook Inlet Basin was discovered more than 30 years ago as a by-product of oil exploration.This low-cost gas has supplied all of south-central Alaska's residential,commercial,and industrial demand including manufacture and export of large quantities of fertilizer and liquefied natural gas (LNG)since the late 1960's. Consumers and businesses throughout the region have also benefited from low-cost gas. The estimated ultimate recovery from existing Cook Inlet gas fields is approximately 8.5 trillion cubic feet (Tcf)and the proven reserves remaining on January 1,2004 were 1.8 Tcf.Proven reserves in known Cook Inlet fields are forecast to meet demand until 2012,if the Agrium fertilizer plant is shut down in 2005 because of a lack of adequate affordable gas supplies and LNG export ends when the export license expires in 2009.A shortage could occur as early as 2009 unless industrial use is reduced or new gas reserves are developed. Ninety-five percent of the Cook Inlet gas was found before 1970 during exploration for structurally trapped oil.A total Cook Inlet gas resource endowment of 25 to 30 Tcf original-gas- in-place (OGIP),more than two times the amount already discovered,is postulated.Land access,market price,and technology issues will determine the success of developing some portion of this gas endowment.Reserves growth in existing fields is expected to play a major role and is the lowest cost option with investment estimated to be $0.35/thousand cubic feet (Mcf)compared to a finding and development cost for exploration of approximately $0.75/Mcf, or over $5 billion to find and develop 50%of the undiscovered resources.For this to occur, prices will have to be high enough for Cook Inlet investment to complete with investment opportunities worldwide. A spur gas pipeline from a North Slope pipeline with a takeoff point at Fairbanks to the Anchorage area is estimated to cost $500 million for 330 million cubic feet per day capacity (120 billion cubic feet/year,Bcf/yr)and may allow North Slope gas to be delivered to south-central Alaska at a price advantage of $1.00/Mcf below Lower 48 prices.Sufficient long-term demand must exist in the region to support investment in a spur pipeline.Currently,the total industrial demand is 130 Bcf/yr and commercial and residential demand is about 70 Bef/yr. SAIC -Anchorage,AK 3 §/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE Page Intentionally Blank SAIC -Anchorage,AK 4 §/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE SOUTH-CENTRAL ALASKA NATURAL GAS STUDY EXECUTIVE SUMMARY Summary Conclusions e The Cook Inlet Basin is the source for all of the natural gas used in south-central Alaska. This gas supplies the residential and commercial demand for utility gas and electricity generation and two industrial facilities,Agrium's fertilizer plant and the ConocoPhillips/Marathon LNG plant,in Nikiski,Alaska on the Kenai Peninsula. »The current remaining proven reserves represent about a 9-year supply at current demand rates. 2 The estimated ultimate recovery for existing Cook Inlet gas fields is approximately 8.5 trillion cubic feet (Tcf). =Ninety-five percent of the gas was found before 1970 during exploration for structurally trapped oil. =There was no gas-focused exploration until the late 1990s. e The Cook Inlet Basin lacks numerous medium to large gas fields when viewed from the geologic expectation of a lognormal distribution of field size and reserves.The analysis suggests a total gas resource endowment of 25 to 30 Tcf OGIP best represents the expected lognormal state.This is more than two times the in-place gas volumes already discovered. «The potential exists for an additional 13 to 17 Tcf of conventionally recoverable gas in the Cook Inlet basin in addition to the 8.5 Tcf recoverable gas already discovered. A recovery factor of 85%is used in these estimates. «These resources are expected to be largely biogenic gas in stratigraphic or combination traps. ®No exploration has yet occurred for stratigraphic accumulations. =Land access,market price,and technology issues will determine the degree to which these potential volumes can be achieved. e Proven reserves in known fields are forecast to meet demand until 2012 for the base case, which assumes the Agrium fertilizer plant shuts down in 2005 as a result of lack of sufficient quantities of low-cost gas and that LNG export ends when the current contract and export license expires in the first quarter of 2009. SAIC -Anchorage,AK 5 5/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE e Ashortage will occur by 2009 unless new reserves are found and developed,or industrial use is curtailed.Large seasonal swings in demand and very limited gas storage could lead to seasonal shortages sooner than 2009.Fortunately,new gas is being discovered and developed as a result of the stimulus being provided by higher prices and market demand; e.g.,the recently discovered Ninilchik and Happy Valley fields. e Asecond case involving potential reserves growth in existing fields,including field extensions,of 1.4 Tcf,is sufficient to meet the projected residential and commercial consumer demand through 2025 with a limited amount of gas available for industrial use. «The estimated investment required for reserves growth is $0.35/Mcf,or $500 million, for the additional 1.4 Tcf.Although this magnitude of reserves growth is reasonable to expect in this basin,it will not occur without investment and thorough geologic and engineering revaluation of the larger producing fields. *Reserves growth is expected to occur in response to an increase in real prices.A recent contract has indexed prices to a 36-month average of Lower 48 reference prices (Henry Hub). e The minimum economic field sizes (MEFS)at $4.50/Mcf are 108 billion cubic feet (Bcf)for offshore locations,49 Bcf for transition zone locations,and 40 Bcf for onshore locations. Finding and development costs for onshore locations are estimated to vary from about $0.75/Mcf for small fields to $0.30/Mcf for large fields with 400 to 1,500 Bcf OGIP. e Investment required to explore and develop 50%of the estimated 13 to 17 Tcf resources potentially available to be discovered could require investment of $5 to $6 billion,if the fields are predominantly onshore.If they are predominantly offshore,the investment would be higher. e Aspur pipeline from a North Slope gas pipeline (assumed to be built to move 4,500 million cubic feet per day (MMcf/day)or 1,642 Bcf/year)with a takeoff point at Fairbanks to the Anchorage area and connection to the existing distribution system is estimated to cost approximately $500 million dollars for a 330 MMcf/day (120 Becf/year)capacity 24-in.line. This first-cut analysis suggests that North Slope gas could be delivered to south-central Alaska at a structural price advantage of about $1.00/Mcf below Lower 48 prices. «Sufficient demand must be present to support the investment required to construct a spur pipeline.Currently,total demand is 356 MMcf/day (130 Bcf/year)for industrial use and about 192 MMcf/day (70 Bcf/year)for residential and commercial use. »Fora spur line to be viable as a market-driven development,industrial activities must be profitable at prices significantly higher than historical Cook Inlet industrial gas SAIC -Anchorage,AK 6 §/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE contracts,and possibly higher than the current Cook Inlet prevailing gas price for utility use. e Coalbed natural gas is a major potential resource for south-central Alaska with estimated technically recoverable resources of 7 Tcf.The economic viability and timing of any contribution from this resource is highly uncertain because of the high cost of development, the lack of sufficient data to predict gas productivity and the amount of water that must be handled,and land access issues. e Curtailing industrial use and importing LNG from foreign sources are both options for maintaining sufficient supply to meet the critical demand for heating and electric power but are not economically appealing options for Alaska. Purpose The purpose of this investigation is to identify and evaluate the options available to meet future south-central Alaska natural gas demand and provide for economic growth.The primary opportunities for ensuring adequate future supply of natural gas are development of additional gas reserves in existing Cook Inlet fields,exploration and development of new gas fields in the Cook Inlet Basin,and development of a spur pipeline to bring Alaska North Slope gas to the region. Introduction Regional Overview The south-central Alaska jFigureES.1.South Central Alaska region and Cook Inlet region is shown in Figure ES-1,.Basin location map with gas fields and gas pipelines. SAIC -Anchorage,AK 7 §/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE The region includes the upper and lower Cook Inlet Basin including the Outer Continental Shelf (OCS)portion and the Susitna Basin.The coalbed natural gas that is being actively investigated is located north of Anchorage in the Matanuska-Susitna Valley on both sides of the Castle Mountain Fault near Houston and Wasilla.This figure includes the gas fields and the gas pipelines in the Cook Inlet region and the location of the Bristol Bay Basin,Copper River Basin,and the Nenana Basin.These basins may have long-term gas potential. The supply of locally-produced natural gas in south-central Alaska has exceeded demand since discovery of about 8 Tcf of economically recoverable conventional gas resources by 1970.This gas was discovered as a by-product of oil exploration. The large supply of low-cost gas spurred manufacture of fertilizer and allowed Alaska to export large quantities of Cook Inlet Gas CLNGtoJapan.Historically,ption by Major Consumption Groups 1971-2003 250 + industrial use has consumed over 60%of the 200 | gas produced in the Cook Inlet as shown in Figure 150 £ ES.2.This low-cost gas, 1004:consistently below U.S.BillionsofcubicfeetperyearLower-48 gas prices,has benefited residential gas and electric utility . consumers from Homer to SLEEPS EES EP ESEESSEP?E EF Fairbanks.Electricity for Figure ES.2.Historical gas consumption by major groups in south- central Alaska,1971 to 2001 (ADNR,2004).the south-central Alaska region is based exclusively on natural gas. Today the abundant supply of low-cost gas has run out.Fields and accumulations whose estimated ultimate recovery (EUR)is now known to be about 8 Tcf had been discovered by 1970.This was a reserves-to-production ratio of 50 in 1970 but by 2002 the reserves-to- production ratio has decreased to nine as a result of gas use.As a result of the decreased low- cost gas supply,unwanted changes are taking place: SAIC -Anchorage,AK 8 5/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE e Fertilizer production at the Agrium fertilizer plant in Nikiski has been reduced due to lack of access to low-cost gas and the plant could cease production by the end of 2005 resulting in the loss of over 250 jobs.Agrium is also the second highest tax payer in the Kenai Peninsula Borough. e The LNG export license will likely not be renewed after it expires the first quarter of 2009 unless long-term proven supplies of natural gas are developed. e The gas utility,ENSTAR Natural Gas Company,has recently negotiated a contract with a producer indexed to Lower 48 reference prices (36-month trailing average of Henry Hub prices)to encourage exploration for gas to ensure long-term supply and the stimulus has resulted in increased exploration and discoveries of new resources. e {f the upward trend of gas prices in the Cook Inlet continues toward parity with U.S. Lower 48 prices,prices for residential and commercial gas consumers and electric consumers will continue to increase. The Cook Inlet Basin is lightly explored and only in the last five years has there been any effort to look specifically for new gas.The questions to be answered are: e What is the potential for new gas resources? e Will access to the most prospective areas be possible? e What will new gas cost? e What will be the investment required? Scope and Approach The supply options for the south-central Alaska region analyzed in detail are:(a)finding and developing additional conventional Cook Inlet Basin natural gas reserves,and (b)building a spur gas pipeline to bring North Slope gas to the south-central Alaska region.Future demand is based on assumptions about future industrial use,a recent Railbelt Power Study published by the electric utilities,and projection from historical utility gas use. Part of the solution to the supply-demand problem would be to curtail demand by stopping or reducing industrial use but this only delays the problem and will have negative economic impact on Alaska and especially on the Kenai Peninsula Borough.Future demand can also be reduced by:(a)conservation by consumers;(b)more efficient electric generation through investment in more efficient equipment by the utilities (Anchorage Municipal Light and SAIC -Anchorage,AK 9 5/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE Power (ML&P)and Chugach Electric Association);(c)power generation from alternative sources such as coal,wind,or hydropower,which would also require major investments;and (d) gas storage in depleted or near-depleted oil or gas fields for short-term and peaking needs.The impact and cost of these options are not analyzed in this study.More efficient electricity generating equipment and alternatives such as wind,coal,and additional hydropower are being studied by the utilities.Gas storage has occurred in the past in the Swanson River field and is expected to continue;however,storage capacity is likely to be more critical in the future to meet peaking demands if the supply-demand margin continues to decrease. A final option would be to import LNG from foreign sources through existing LNG export facilities at Nikiski,Alaska.This would require facilities to re-gasify the LNG and increase the pressure to levels necessary to input gas to the ENSTAR gas pipeline system.Importing natural gas into Alaska would have negative impact on the region and state through lost revenue from royalty gas and taxes and the economic drain of capital from the region to pay for imports and would make Alaska part of the worldwide LNG market and subject to worldwide -LNG prices.These prices could turn out to be higher or lower than gas can be found and developed in the Cook Inlet basin or delivered from the North Slope. The interaction of supply from new gas reserves in the region and a spur pipeline to bring North Slope gas to the region will impact gas prices in the region and will be an iterative process.Successful exploration and addition of a large quantity of new reserves will tend to moderate prices and possibly slow investment in exploration and production (E&P)activity. Geological Assessment Exploration in the Cook Inlet Basin has historically been focused on structural plays in the search for oil with no attempt to evaluate stratigraphic potential or to look primarily for gas. Only 240 exploration wells have been drilled in the basin and only in the last five years has gas come into its own as a primary exploration and evaluation objective.There is still no effort to explore for the stratigraphic plays that typically account for 50%or more of the ultimate production in basins elsewhere.The exploration well locations and the limits of the Tertiary sediments are shown in Figure ES.3.Modern 3-D seismic technology is also just starting to be used in the basin to locate additional gas resources.The lower Cook Inlet subbasin,basically SAIC -Anchorage,AK 10 §/3/2004 i. DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE the OCS area south of Kalgin Island,and the Susitna Basin have only been lightly explored with little effort directed toward conventional gas exploration. The Cook Inlet oil and associated gas were derived thermogenically from Middle Jurassic and possibly Late Triassic marine source rocks and subsequently reservoired in the lower Tertiary West Foreland,Hemlock and lower Tyonek formations.The non-associated biogenically derived dry gas is sourced from coals and carbonaceous fine-grained sediments in the Tertiary sediments,upper Tyonek,Beluga,and Sterling formations, and is found in reservoirs intimately associated with the source lithologies in these younger sediments. Legend 1.3 RRMLomnaN wei, rue Little OF Tart ary Sackinichote,The vast majority of the proven gas reserves (94%)are non-associated biogenic gas that has no genetic relationship to the origin and distribution of oil,which has Figure ES.3.Cook Inlet exploration wells,1955 to 2003.and limits of Tertiarv sediments. historically been the primary exploration objective.Therefore,it is not realistic to conclude that exploration based on oil prospects will necessarily lead to a true evaluation of the basin's gas potential. Ninety-five percent of the estimated ultimately recoverable gas,8.5 Tcf,was found by 1970.Production to date has been approximately 6.7 Tcf,with proven remaining reserves of about 1.8 Tcf.The 8.5 Tcf of recoverable gas is equivalent to about 10 Tcf OGIP. According to accepted geologic theory and evidence,the number of fields and the size of those fields should be log-normally distributed.This analysis leads to the conclusion that the total conventionally recoverable gas resource endowment in the Cook Inlet Basin is much larger than suggested by the 10 Tcf OGIP in the known fields.There are undiscovered fields with 200 SAIC -Anchorage,AK 11 5/3/2004 a> DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE to 1,500 Bcf OGIP missing from the expected field-size distribution.The estimated total gas resource endowment for upper Cook Inlet suggested by the analysis is 25 to 30 Tcf OGIP.The missing fields needed to fill in the log-normal distribution for a 25 Tcf total gas-in-place endowment are shown in Figure ES.4. Cook inlet 008 Field Size Distribution Cook inlet sooe Gas Resource Distribution25TofTotalEndowmentCase25TcfTotalEndowmentCase bad e000 EEEEESB Diecovered FletisUndtscoveredFiskis ToOe GesResource,Bcf3Figure ES.4.Cook Inlet Basin 25 Tcf gas endowment case:Inferred field size distribution and inferred gas resource distribution by class size. The estimated total conventionally recoverable gas resource is about 13 to 17 Tcf more than the 8.5 Tcf that is expected to be recovered from the existing fields based on current proven reserves estimates and an average 85%recovery factor.These conventionally recoverable gas resources may be accounted for by reserves growth in existing fields and by discovery of new fields.U.S.Geological Survey (USGS)analysis provides an estimate of reserves growth of 2.5 to 3.0 Tcfin existing fields in the upper Cook Inlet Basin.Lower Cook Inlet and the Susitna Basin may have the potential to add another 2 to 3 Tcf of undiscovered conventionally recoverable resources. The bulk of the undiscovered conventional gas resources are believed to be stratigraphic with virtually the entire upper Cook Inlet subbasin having some level of exploration potential. The greatest likelihood for success is along the flanks of the large structures that have had an intermittent structural growth history accompanied by repeated cycles of uplift,erosional truncation,and deposition.The eastern and western margins had similar histories associated with movement along the basin-bounding faults.In these areas and elsewhere in the basin,the interleaved nature of stream channel systems and alluvial fans with finer-grained flood plain, lacustrine,and paludal deposits creates pure stratigraphic traps. SAIC -Anchorage,AK 12 §/3/2004 > DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE The USGS estimated volume of coalbed natural gas is approximately 140 Tcf,of which only 10%is assumed to be accessible,and of that 50%recoverable.This yields a potential resource of 7 Tcf of coalbed natural gas.The economic potential of this resource is currently unknown and the timing for any commercial development is so uncertain that its role in the future gas supply for south-central Alaska cannot be predicted. The geological assessment of the Cook Inlet Basin strongly suggests that there are large remaining natural gas resources to be found.However,exploration cannot proceed if access to prospective lands is hindered or denied by constraints on exploration and development. Constraints may be imposed by the regulations and stipulations associated with many of the various land withdrawals in the Cook Inlet Basin area.These areas could potentially make 30 to 50%of the most prospective areas off limits.Technologies to reduce environmental impact from 3D seismic acquisition and extended reach horizontal drilling may serve to mitigate these impacts on resource evaluation and development. Reserves and Production Rate Forecasts The total remaining proven gas reserves for the Cook Inlet Basin non-associated dry gas fields as of January 1,2004 are estimated to be 1,785 billion cubic feet (Bcf).The estimate of ultimately recoverable reserves for these dry gas fields is 7,927 Bcf.This compares favorably with the estimates prepared by the Alaska Department of Natural Resources (ADNR)Division of Oil and Gas,which lists proven remaining reserves at 1,714 Bcf and estimated ultimate recovery for the same dry gas fields of 7,857 Bcf.Production forecasts are determined for eight fields:Beaver Creek,Belgua River,McArthur River,North Cook Inlet,Swanson River and Ninilchik and Happy Valley,two recent discoveries.These eight fields contain over 90%of the remaining reserves in the Cook Inlet dry gas fields.The aggregated production forecast for all the other non-associated gas fields published by the ADNR Division of Oil and Gas in the December 2003,Oil and Gas Report is used for the economic evaluations for those fields. Economic Analysis The Cook Inlet gas market is clearly in transition as a result of the utilization and monetization of stranded gas found in the 1960's.Cook Inlet gas has been used to meet the needs of two large industrial facilities,and a growing commercial and residential market.The SAIC -Anchorage,AK 13 5/3/2004 t By DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE reserves-to-production (R/P)ratio is now at about nine years,which is approaching the R/P ratio in the Lower 48.The Lower 48 gas supply has repeatedly responded to increasing real price signals with the transfer of probable and possible reserves to proven reserves in existing fields (reserves growth)through development,and through active frontier exploration;e.g.,exploration in deep water in the Gulf of Mexico,and the continuing development and application of new technology such as ultra-deep water drilling,horizontal wells,and 3-D seismic.The Cook Inlet region is at a turning point in its history,with the exploration focus turning to natural gas rather than exclusively on oil and the recent success in adding new gas reserves.In response to increased real prices being seen in the latest contracts,Cook Inlet projects appear to be able to compete for capital with other investment opportunities worldwide. Reserves growth in the Cook Inlet is expected to be a major component of new proven reserves with recent operator activity and increased spending to increase proven and probable reserves through workovers,opening previously undeveloped zones,new wells,and redrills into existing and new reservoirs identified by modern 3-D seismic.Significant reserves additions that occurred in the mid-1980's and again in the mid-1990's were primarily the result of detailed geologic and reservoir engineering analysis of existing data.Future reserves growth will occur as the operators continue to reevaluate existing fields with new technology and make the investments needed to increase reserves based on increasing prices.The recent increase in 3- D seismic activity is further evidence that the operators are responding to the increased value of their proven reserves.Delineation drilling using extended reach and horizontal wells will be used to expand the search for satellite accumulations,similar to what has occurred on the North Slope.The continued high prospectivity of the Cook Inlet bodes well for increased industry interest to add reserves to meet the demand for natural gas provided the opportunities and essential fiscal stability remain in place. The economic analysis conducted is a deterministic evaluation of the south-central Alaska supply of conventional gas from four sources:(1)proven reserves,(2)reserves growth, (3)exploration in the Cook Inlet basin,and (4)a spur gas pipeline to bring North Slope gas from Fairbanks to the south-central Alaska region.The analysis does not examine the impact of public funding or other non-market-based price incentives.Other options such as coalbed natural gas,electricity from coal plants and alternatives such as wind power and hydropower, and conservation are not analyzed but could play a role in the meeting energy needs in the future. SAIC -Anchorage,AK 14 5/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE Gas storage in some form to meet seasonal demand variations and sustained peak demand is likely to become more and more important in the next 5 to 10 years.Gas storage in oil and gas reservoirs,salt domes,and as LNG is used in the Lower 48 to meet seasonal and daily demand swings.The gas storage option will need to be analyzed in detail to assess its viability and cost.Such an analysis is not included in this report. The gas prices used for the existing fields are based on the best available data for the existing contracts for the various fields.The transition to a Lower 48 Henry Hub price basis (based on a recent Unocal and ENSTAR Natural Gas Company contract that indexed prices to a 36-month trailing average of Henry Hub prices)is used for reserves growth,new exploration, and as the comparison basis for the spur gas pipeline analysis.Cook Inlet gas prices have historically been significantly lower that average Lower 48 gas prices and is a major factor in the historical lack of interest by operators to explore for natural gas. Base Case: The base case demand assumes:(1)Agrium's fertilizer plant stops operations at the end of 2005 as a result of limited low-cost gas supply,(2)the LNG plant stops operations in the first quarter of 2009 at the end of the current export license,and (3)gas demand for utility use and for electric power generation continues to increase.Demand projections are based on historic growth trends for utility gas use and the power generation projection is from a recent study of power generation needs by the electric utilities.The analysis shows: 30 -Base Case All Supply AggregatedeForthisscenario,the proven reserves are forecast to meet the commercial and residential needs until 2012.Yearly average demand volumes are shown in Figure ES.5 by the bar graphs and the forecast production for all fields by the top curve.2000 2005 2o10 ais 2020 2025 Demand could exceed suppl Figure ES.5.Base case for total aggregated supply and°PPly demand (top curve),and All Supply less fields dedicated by 2009,if non-industrial to industrial demand (bottom curve). SAIC -Anchorage,AK 15 §/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE demand continues to increase as forecast and all the gas from the fields whose production is dedicated to industrial customers (Kenai River,McArthur River,and North Cook Inlet fields)is used for that purpose.The production forecast for all fields except Kenai,McArthur River,and North Cook Inlet is shown by the lower curve in Figure ES.5. e If all unused gas from industrial consumers (fertilizer and LNG plants),becomes available for utility and power generation use,supply could meet demand for three to five years beyond 2012 based on the yearly average volumes.However,the yearly average volumes mask large seasonal swings in demand (e.g.,the ENSTAR demand swing is 2.7:1)and the spare,on-call production capacity could be less than required to meet peak demand without gas storage or additional production capacity. Such shortfalls could possibly occur before 2009 but a more detailed study of short- term peak demand and field-by-field deliverability would need to be conducted to provide a more precise estimate. Reserves Growth Case: A scenario with potential reserves growth of 1.4 Tcf in the existing fields,including field extensions,was examined using an increase in real prices indexed to Henry Hub prices. Reserves growth of this magnitude is not an unreasonable assumption in and around the existing fields but will require significant new investment to support aggressive development programs through workovers,redrills,and new wells drilled to targets identified by 3-D seismic programs. The addition of 1.4 Tcf through reserves growth is sufficient to supply the projected basic commercial and residential consumer's gas demand through 2025.A limited amount of gas remaining after supplying commercial and residential demand would be available to continue industrial activity at reduced levels. Reserves growth of this magnitude will require an estimated investment of up to $500 million. SAIC -Anchorage,AK 16 5/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE Minimum Economic Field Size: The minimum economic field size (MEFS)for offshore,transition zone,and onshore locations,each having different exploration,development and operating cost structures are examined for a range of prices from $1.00/Mcf to $6.00/Mcf.For a $4.50/Mcf price the offshore field MEFS was 108 Bcf OGIP,49 Bcf OGIP for the transition zone,and 40 Bcf OGIP for the onshore fields.Finding and development costs are estimated to vary from about $0.75/Mcf for the smaller fields,Class 3 to 4 (24 to 96 Bcf),to about $0.30/Mcf for Class 7 and 8 (384 to 1,526 Bcf)sized fields. Exploration Case: Potential new fields in the Class sizes 6 (192 to 384 Bcf),7 (384 to 768 Bcf),and 8 (768 to 1,536 Bcf)were analyzed as unrisked,grass-roots exploration projects using the Henry Hub pricing basis and onshore location costs.The finding and development cost varied by the amount of gas discovered and developed.New capital investments are about $180 million for a Class 6 field,$250 million for a Class 7,and $290 for a Class 8. The total unrisked capital required to explore for and develop 50%of the estimated remaining potential undiscovered reserves in the Cook Inlet (out of the total 13 to 17 Tcf)would require investment of $5 to $6 billion at a $0.75/Mcf finding and development cost for onshore fields.If the new discoveries are offshore,the investment will likely be higher.Additionally, regulatory and permitting challenges to exploration and development offshore and offshore continue to increase and add significant risks and costs to future investments. Spur Pipeline Case: A spur pipeline from a North Slope gas pipeline to the Anchorage area and connection to the existing gas distribution system was examined to determine its potential as a cost effective gas supply option.While a number of issues need to be resolved,the estimated tariffs are $1.40/Mcf to $1.08/Mcf,with the higher tariff for a lower pipeline capacity of 330 MMcf/day (120 Bcf/year)throughput rate and the lower tariff for a higher rate of 670 MMcf/day (245 Bcf/year). This is a first-cut analysis and is based on preliminary design estimates made by ENSTAR from their experience in building pipelines in south-central Alaska.The tariff calculation for the North SAIC -Anchorage,AK 17 5/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE Slope gas pipeline is based on the Mid-American pipeline proposal to the state of Alaska for a North Slope pipeline to the Canadian border.The actual delivered price for gas to South-central Alaska would include the wellhead price for gas on the North Slope.The wellhead price would likely be set by prices in the Lower 48 less the tariff to Chicago city gate or a negotiated price contract with the owners of the gas,which includes the state of Alaska and its royalty gas. The spur pipeline tariff analysis indicates North Slope gas may be delivered to south- central Alaska at a structural price advantage of approximately $1.00/Mcf below Lower 48 prices.However,there must be sufficient long-term demand to support the investment in a spur gas pipeline.The current industrial users have a capacity of 130 Bcf/year and the residential and commercial consumers demand is about 70 Bcf/year.Benefits of a spur pipeline include opportunities to continue and possibly expand operations at the existing LNG and fertilizer plants,or add new energy-intensive value-added industrial activities such as petrochemicals, ore processing,and other industries seeking lower cost energy than can be obtained in the Lower 48. A more detailed conceptual study of a spur pipeline options,economics,and North American gas markets is required to confirm and refine the estimates made in this analysis. The industrial operations must be able to be profitable at prices higher than the historically low Cook Inlet prices.The prices will be at North Slope wellhead price plus transportation costs.Agrium's operations are very price sensitive and they have indicated that they need gas at around $2.00/Mcf or less to be competitive in the Asia fertilizer markets.This price threshold seems unlikely unless large gas discoveries are made in the very near future, creating stranded gas pricing again for Cook Inlet gas,and driving the prices below the prevailing prices being paid by non-industrial users;i.e.,the Cook Inlet Prevailing Value published by the Alaska Department of Revenue for 1*Quarter 2004 is $2.49/Mcf. A potential downside to a spur pipeline,from an exploration and production company point-of-view is that a large supply of gas from the North Slope at a structural price below the Lower 48 prices may establish a price cap for new Cook Inlet reserves in the 10-to 15-year time frame.This could have a dampening effect on exploration and development for new gas reserves in the Cook Inlet.Hence,it is urgent that decisions such as the date and timing for a North Slope pipeline be made soon so that all options for south-central Alaska region can be SAIC -Anchorage,AK 18 §/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE determined in a timely manner so that high-cost reactive solutions are not required to meet critical needs. Income and Tax Revenue from Cook Inlet Production The income to the industry through profits and the state and the federal government from taxes and royalties are estimated to be:53%to industry,27%to the federal government, and 20%to the state of Alaska. Coalbed Natural Gas The potential coalbed natural gas resource in south-central Alaska is estimated to be about 7 Tcf of technically recoverable resources.However,the economic viability of those resources is highly uncertain because sufficient data on gas and water productivity does not exist and the political concerns are very high.Economic projections can not be made until additional information is available. Recommendations e The spur pipeline analysis is a first-cut analysis and a detailed conceptual study to better define the cost and other factors should be performed. e The possible need in the near-term for gas storage to meet seasonal demand swings should be studied and the cost,benefits,and problems with gas storage and deliverability assessed. e The economics of the existing and potential new industrial activities should be analyzed to determine the impact of global and Lower 48 gas markets on the optimum mix of supply options to continue economic growth in Alaska to provide state of Alaska decision-makers with essential information on cost and benefits for all Alaskans. e All the analyses performed in this work are deterministic and unrisked.A probabilistic analysis that accounts for above-ground and below-ground risks may provide useful additional insight into the complex interactions of the options and economic benefits.The deterministic analysis provides the essential basic understanding of the market forces,gas flow,and the unrisked potential for additional gas resource.A more detailed and complex analysis is required to fully delineate the optimum mix of supply and demand options. SAIC -Anchorage,AK 19 §/3/2004 DRAFT FINAL REPORT --SUBJECT TO REVIEW AND CHANGE Page Intentionally Blank SAIC -Anchorage,AK 20 5/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE ACRONYMS AND ABREVIATIONS AND ADNR ADOR AOGCC Bef BLM CBM CIRI DOE DOG EIA E&P LNG Ma MEFS Mcf ML&P MMcf MMS OCS OGJ RCS R/P SAIC SEC Tef USGS SAIC -Anchorage,AK Anchorage Daily News Alaska Department of Natural Resources Alaska Department of Revenue Alaska Oil and Gas Conservation Commission Billions of cubic feet Bureau of Land Management coalbed methane Cook Inlet Region Incorporated U.S.Department of Energy Division of Oil and Gas,Alaska Department of Natural Resources Energy Information Administration,U.S.Department of Energy exploration and production Liquefied natural gas Million years age Minimum economic field size Thousandsofcubicfeet City of Anchorage Metropolitan Light and Power Million of cubic feet Mineral Management Service Outer Continental Shelf Oil and Gas Journal Regulatory Commission of Alaska Reserves to production ratio Science Application International Corporation U.S.Securities and Exchange Commission Trillion cubic feet United States Geological Survey 21 5/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE Page Intentionally Blank SAIC -Anchorage,AK 22 5/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE CONTENTS SOUTH CENTRAL ALASKA NATURAL GAS STUDY..............ecccccsssssscssssesssserscccesceces 1 ABSTRACT ......ccccsccccccscessssncssnstscnscsscccsasssenccessesnassscconasscccesessccsssesersocsnssscanansconnessoneeneccoss 3 EXECUTIVE SUMMARY ...........c::ssccssccsserccssenccnsssssccnnnsenconnssecnnnccccanscccessonepesssccceseoeceseccese 5 ACRONYMS AND ABREVIATIONG.|............ccccssscccnsssncconsnessnassccnscncocancnsonsenensscccecsrsccccsens 6 FIGURES 1...cccceeccesscnsncncnnnscorsencccnnccnensenssconerscensscesescsesssecsecesssosseusesncssessscuaseccnsconssscases 6 TABLES.........ccsscscvcsccencnnsccnnsccsnnscsccasscescesssccecceasanscnscnauscensaccneecussonscassessonssceccnessessnssssssceses 6 1.INTRODUCTION ..........cccssssnsscccnersccccnensrsssssescenesscccscsessonsseennecscnanenscnansonseesccesesssesonases 6 1.1 Cook Inlet Basin -HistOry............cccssseceseecsceeecncoescccencceseensenscenesccenecnanecasnneceesseser 6 1.2 Supply Options................ccccscscsscscessecenssnsscscccussnessconseecnseasesssesssscscscnssscsansceseneses 6 1.3 Scope and Approach ..............cccsceeecceeeeeersesccecesseenensneacncceccesseasseussnensensencanacscaaaneanes 6 1.3.4 LiMitAtioNS .......i cceeesescesccsscsessseeeeeesestenseensnsceeaeeeeeaaaaeneeaseeeeeeeeeeeseeeeeeeeesnAGdnedAGHEEGEOSEEOGESEAGOESHEOOEESOHOOESOS 6 1.4 Acknowledgeme nts...............cccssscceeeeceeeecserseceeeeecosesssonscccccccscssseesseusensersccccncnsesessseess 6 1.5 Steering Committee 2.00...teceesessssccesscnesccssssssenssnsceennscrsssecsnssecccccercrsessessneees 6 1.6 Technical Contributors....................::::sccecsessenesssocssneesecenereeercscccccceccnccesceeeesenssenseeoes 6 2.GEOLOGICAL ASPECTS OF COOK INLET HYDROCARBON PROVINCE............6 2.1 INtrOCUCtION ..........ccccseccsessscescesseccenecerersssssncescessesencenececcoeccsccescescnssessnssscessescscssosecaces 6 2.2 Geological Framework............ccsccsssssssecsssssenssssscsceecessssnnnccnccessersnsansceeseennssneeecoseess 6 2.2.1 Tectonics ANd Structure .........:cccssscccssssscssseecenseeceesseeerpneseeessaceesseeasessdeeseessssceusossueessesnsnecessaesssueosens 6 2.2.2 StratigrAPhy .......scccercsecccsccevssessessessssesenesesssssesssceeeceeenseeesseeeeeessesaeeeesenseeeeeeeeeenseeseeneeeeseseateneaesanees 6 2.2.2.1 MeSOZOIC StratigraPhy..........cccccscsceceseeeccessssseeseeseesesesceseessasserseeersseneassasesssenssessecesesoeeseeees 6 2.2.2.2 Tertiary Stratigra pny...cccccccccsccsssssecsssecsesssrscsseereeseeessesesasesseneesenaeneaaessaaaesseeeanaseeeeeneaaeens 6 2.3 Petroleum Geology ..........cessseccecscecccesssnsncsecneeesnsssenessesonssccnsccncccsscccsseceereeteneesenenenens 6 2.3.1 Hydrocarbon SOUIrCES oc cccsscesssensescssseeensseseessessssesscegeeeesnnessaneneesneasnssecseesseesseenseeeneanssaneenseenaees 62.3.1.1 Oil and Associated Gas ............cccccssceessececsueeeessercecsaeeeseeneeesoeeaesuscseauecsssesecssseusensseeaeoeaseseeseaee 6 2.3.1.2 Non-Associated Gas..........cccscsccccccssnscccessssseneecessssceesesesseqineeeecsseseseseaeaesecussessessarseesesssceasaeceeess 6 2.3.2 RESEIVOIES .....cccccsssccccssnssnssseeeeceeesseuaeeseeseeeeseeessseeeeeeesseeaeaeeeeseeeeseeOOOSLEADDEAGGSSEASOBEDEAAESSESESEDDAEAECHEGHEGSS 6 2.3.3 TADS v.cccccccccssccesccsceseccecescescscenseeereseaeeneeseceedseaseeeeeseassseeeesessuenseassuOeGeeSeASSEAASREEADIESSUESSACSREEEECERESEEAGEGHEEEE 62.3.4 Cook Inlet Basin Field Example ............ccc seeesssscercssscnseeeeesscnssseessersstensenecsuseccusnsansseaaserpeasscosaesoeses 6 SAIC -Anchorage,AK 23 §/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE 2.4 ROSOrve Base...........scccccsssesssscssecncssccccnsnsnsssnsssnsncensccancccsccscccncccccacceccccessessesessucssancnees 6 ZAQ GAS.cccccccsscseesseseecsneecsseecesseceesesneeesseeesecsenseeessencespeaseeesnaaaassensacesseseaeasessseueasstsseeesessensesesssesensensa 6 2.5 Distribution of Natural Gas.........2......:ccccscccscesssessssecssnessscnecnsnsccnncesensccscesesecees woeeeee 6 2.5.1 Conventional Gas...........csscssesseecsssseecessceceseacescsensssssssasesesssseesessascesessaeeeecssnesesesseuasenssesssaeecesseseats 6 2.5.1.1 Areal Distribution of Existing Fields and ReServes...............ccccssccccsccescetsesacecssacecssncececeecceseerees 6 2.5.1.2 Stratigraphic Distribution Of RES@VES.......cesses cscsssseesecceeetonsonnesenersnaeseesseeeeessasecesnaeessees 6 2.5.1.3 Depth of Gas Fields............ccccesssssccsccsssnecsenecescnnenseeccecesssessseeeaeeeeesesseeeuacaeeecescesessssusessneneananes 6 2.5.2 Unconventional Gas...ccsssscsesseccecccceessnseesesseaeecnsaeeenenaneeessaeesessseasanesesusseususueeeeserecsseeenessegeess 6 2.6 Opportunities for Future Reserve Additions -Cook Inlet ....................cccccccssssnes 6 2.6.1 Reserves Growth 0...ccc ecessseecescnecensacecsssessecssenevenperseresnneenspaanaesssneeeeseesaeaaesseaecessaecessuseensesaoeses 6 2.6.2 Exploration for Conventional Gas .00........ccccccccsscccecessnccessssserssssescecesausccesseseeseccessssesseseesecesantesseesenes 6 2.6.2.1 Upper Cook Inlet SUDbDaSIN,0...ec ccceccceescesennseeeceseesensneessseneceessssenssnansaseeesessessensaesesesessqoags 6 2.6.2.2 Lower Cook Inlet SUDDASIN,.....c eects cceceeeeensneeeecsoeeeteseeeeereanaceneeeeaeaescnsasaeessesauesesseeeersentes 6 2.6.2.3 Susitha Basin.......cccsessceecsssnnteeesssssecceeeseseseanseseeescsseaeaaeeeseesseessesaaaaeeneeserepessaaeeesesesssaeeaaeess 6 2.6.3 Coalbed Natural Gas...cecccceecsnceccsccecessneeesersaeecsanseeeeseaeececensacereensneeesesnsaeenesssaesesnsseeseseaneeons 6 2.6.3.1 Coal Quality and Quantity..............cccccccccssssecesesseecssnseeeseeeesessceseensesseeseescsseesecesuaeeeesegeesessssaees 6 2.6.3.2 Exploration And LEASING..........::cssccesssccccctsessscccesesesceeseneaseeceseseesssesonaaecesseesesaenssacasacesesnaaeeeaaens 6 2.6.3.3 Potential RESCVES........ccceceesssssseecccensceeeeccesaeeneeeeesenseaaaeeeeeeeseseseaenaaeseeeeescesnaaaauaeseeeensaanenaneeeees 6 2.7 Magnitude of Gas Endowment in Cook Inlet Basin..................csccceeceseseeneeeereeseeaee 6 2.8 Potential of Adjacent Regions in Southern Alaska .........2........:scsscsceesecesseessseeee 6 2.8.1 Copper River Basin...cee cceescecsseecsesessessenesseecseressnessesescereeeessecssssacssserseausecsarsssaressaescaneceseeeonaes 6 2.8.1.1 Exploration History.....0......eeceesececeseneecneenecesseneeeseeeecneseeseceeseeeseeeeneeeeeseneeeeseesaaeenenusetereaeeanegeaea 6 2.8.1.2 Geophysical Investigation..........sce cscsecesseseeeeneeseeecneeeerseeceseesecssesseseesesseseeaaeessceesseassseesaseaeoes 6 2.8.1.3 Exploration Drilling.0.0.0...eccsccecseessseeessssccntseeeeesesrsseeesseesseseesaeeeeseeseeeesseeeasueneeseeeseeseaeeeeseneeeeees 6 2.8.1.4 Leasing and Land Ownership............:::csccccesssceecesseeceeneeeeesesdaneeceeuaauensesudeesseceneetensaceeenstnatenecees 6 2.8.1.5 Gas Potential...cccccccssssscceeesssseeeeeesssseeecesessnseaseseceepeecenanaceeceseseeseespanaaeesesconneeseeteeeennonees 6 2.8.2 Bristol Bay Basin .........cect scceessescetssssecessecesseecccsseesesoneeeseenessussessureessessueneeueasossesseeassaneesaseasensaeegens 6 2.8.2.1 Exploration History..............ccccccseesssseececcsscersseecsssssssseeeesseresssceeeseuaessssesesseseasessonsoosesseneesseessseeees 6 2.8.2.2 Leasing and Land Ownership.............:cscssscesesseeeseesensecsneecscneneseeeecnseeseseesesesecsseeseseaeeseessaeoenes 6 2.8.2.3 Gas Potential.............ccccccsescssseceessececseeceeseeecesseeeeeneneeeeneeeeeeesdseesessseseesnssuedsesssbeeessneteseseeseceagonses 6 2.8.3 SUMMATION .......ccccccceeccesssssenesennneeeeeecsseeeeeenseseeeeeeeeseseeeeeeseeeeeenedeaeseessessseeaeaaenaseeesearaneeeseseneceeeuannees 6 2.9 Constraints on Reserve Additions............ccccccsesnsececnscceneceaceeeeeseeeseceansonseaesssssesses 6 2.9.1 TOCHNOlOGY........ccccceeccesesetecneeeceeeeeenesennesaseeeeeessesseaeessscaneessessensttessusessuseeseasesesesineesneaeteassspeesensaaess 6 2.9.1.1 3D Seis md AcKUiSition.......cise cceee cette eceesesneeeeenteserereseeeeeceseesseeseeseeteseesesessesusansenseeenses 6 2.9.1.2.Horizontal Drilling.0.00.0...cc ccccccscsceesstereseecseeeneeesseeeeeesseeeeseeeeeesneeesesesneeeneeseeeseoesseeaeosssesesssenenenns 6 2.9.2 LAM ACCESS........ccccesscccscesseneeceeeceeeseseeeseaseeeseseseesenseasesseesesanseseeseseaesereeceeeesenasessssereassersesedessaaesees 6 2.10 Summary and CoOncluSiOns .............cccscssccssceccsssssnssccereuersneneeeccesnerseseuseesenseasees 6 3.RESERVES AND RATE FORECASTS -KNOWN FIELDG.................sesecceesseeeseeeeees 6 3.1 INtrOCUCTION ...........::ssscsseccsccsncsssnnescnssscessccceccacsssssessessecccecsecenceesecccencecesceseesosseseseosee 6 3.1.1 Previous Reserves and Rate Forecast ..........cceccscessseecsseseesssesenenesesseeeseeeeseseeceseesceeescessesenenenas 6 3.1.2 Forecasting Methods...ee ccscsssesereessssessensessssesessesssesessnseeeeeseeesseeeseneeseeseseeeneesesnecenesepeeonesgaece 6 3.2 Large Fields ................-:cssscscssssereesescsssscosssscessecssensussnsnancsccsececcescceccssceeseeseeceseesersenes 6 3.2.1 Beaver Creek Uniti...cccccsccccssscccsssecesseesessasoessscesenseeceerenaeeeseeeeesseeesensseeaeeususeescesuessenesseseseaseoanes 6 3.2.1.1.Beluga Formation.0...sccsccesccscssessenserssecesscnsssserssscsseeeeecneeseeeesaeseseesseessssneaseeesseeeueaeaeeneesenee 6 SAIC -Anchorage,AK 24 5/3/2004 iS DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE 3.2.1.2 Sterling FOrMation..........cccccssseccesseeeessceceeesansesessesecsesseesescoaeeeenesssaseeesseeecesssaesesssesessenseesseees 6 3.2.1.3 Tyonek Formation,...cccccscscsssseessccsesecssecssessecsssssseeaseescsarenessaeecresseseessessaesenevseeesnesessseseeeesenes 6 3.2.2.Beluga River Unit .........ccc cscesesssssccsscscsesssssserseesseeecseeessesepsseseessaeseasesonsesssasessscseaaetensesesaeesgasenenees 6 3.2.2.1 Sterling and Beluga FormatlionS............:cccccccssssssececccseccsssnsneeeeecceesseseseuseteesecccsusscnnseuscensvaccanees 6 3.2.3 Kenai River Unit ..0........ee secsscccsssscnetesssstesscceeerssaceersenscerssnsaeecessaesecesseasasersssaesensenseucesseecesaaeecessenseses 6 3.2.3.1 Sterling 3 Formation,......ccccccccceesseeesscceetecsceteecsaesecssnedsecssceeeesesasasensesssseesssssesesueessesareseseneeess 6 3.2.3.2 Sterling 4 fOrMALION.........cece ceeeeeseesseeesssceesseasesneescssesosneceseneesseeseseeseaceeseaseeseeesateneaeaesegs 6 3.2.3.3 Sterling 5.1 fOrMALION.0.0...eeseecsseteceesseeesesessnsssessaasesssessneseoseaverenssssenedeeessessnesessaanesesaneeees 6 3.2.3.4 Sterling 5.2 fOrMALION,.0.ccs secteeceteceeseceesssesseesscsonsesssseavsseaseeeeesenssecenanseeesesereensssoesseeosaeens 6 3.2.3.5 Sterling 6 FOrMation............ccccsssscesseecsssssccessseecessseeessssesenessssecasssssesecscseseeseesaesenanseeseneneceseneas 6 3.2.3.6 Beluga Formation,..0........cccccccccssesssessenecsessssseessesscseseesensseeseeeseenasesnesecseesesseseeseeeseaseseneesaseeease 6 3.2.3.7 Tyonek Formation .........cccccsssscsscseecssecesevessescsecsssesceenssesesssssecesansosasessasossaeeseaeeseeesenesecsseoesnes 6 3.2.3.6 Kenai Field Reserves and Production Rates.........c.ccccccccssesseessessecesesessseeserstessrsacecsesasensseennes 6 3.2.4 McArthur River (Trading Bay Unit)...ceessceceece esses teseeeeccanepssaeeseepssaceesnseesenesessecsesesnecees 6 3.2.5 North Cook Inlet Unit...cc sccsecsserseeeecesessesecssessesesssceseseeessseneosseecensaseeessasseecesnsedecneteaeesone 6 3.2.5 Swanson River Unit...cece cssseecnsescessescanessseneessecseesdsaeesesesssenccssreassnsrdeeseerensessnecesesaaseeseeness 6 3.2.6 Newly Discovered Fields -Ninilchik Unit/Falls Creek PA and Happy Valley/Deep Creek PA.......6 3.3 All Other Fields...ectttnceeencnnsenscccssnsccnssecenssncsecessencensansansccessscesssesssvceensccsecs -6 3.4 Proven Undeveloped Reserves............ccsssccesssssessseasesnnssnnssnncsccsnnsencceseseseeseesseeesenes 6 3.5 Cook Inlet Coalbed Natural Gas ReSOurcess ..............cccescescesccccsssccsensscseseeeersnenees 6 3.6 Cook Inlet Basin Estimated Remaining Reserves and Production Forecasts..6 4.ECONOMIC ANALYSIS OF COOK INLET GAS SUPPLY ............::.ssssccsssccssesscceceee 6 4.1 Goals and Approach ............ssscccccescceseessccenssseeccccccussesecsncceeesesccucccesseesccceneceeesseseneces 6 4.2 ECONOMIC REVICW..........c00:cccscccecsscccesccsesccscenncnansansnnascnsscescascnscenecenscnssencnsnscnssonsnensos 6 4.2.1 Historical Cook Inlet Gas Market -DeMmannd..............::ssssssssssssssseessssssseesssssevessescsssevessevessseseesesecseenss 6 4.2.2 Historical GaS PLIC€S ..........cccccsesssscsenesceeseeeeeceeeesseeseesseueeeaasaAdAGAGRAGGAGEGgTAREGODESEIGssaAgosssaESAEE;GREAGOD REEDED 6 4.3 Forecasts of Cook Inlet Economic Performance ..............csccsscsssccesscccsvenscccesssccase 6 4.3.1 Proved Reserves from Existing Fields .........0..cc escssessssetsessssesesseeescveeeaeecessseeessneeaessssseesessaeasenesee 6 4.3.2 Natural GaS Pric@S ..............ccesessssessssccesecccccescerersesesessesnseessseesauanensaseasssssasssssssspansisnsnsnesstsnenseseeserenss 6 4.3.3 Operating Costs 00...ccceccccssscseeccseeseecesaeecresesssecessesseecssseseeescsasecsneessssasecseeseeseeeesessseaeseseesasens 6 4.3.4 Capital Costs 0.0...cc cccsscsscsseesseenececesscestecersseecsessessseeeeseseeeseeseneecesseeesseessaeecasseaseessceseeesseseceneneeoaes 6 4.3.5 Book Property Values ...........ccecccccesesccesecseecesesecseveseeeseseecsaressrsessssceessenseeesseesasnrsseeesssutonscensneeanees 6 4.3.6 Inflation Rates 0...cccccccccssccsseveccccssevessenseesenecenesseeeeeeeeceeeeeeceesneeseeeeneseneeeseseeeneeeasaenecsseueesesssansaseonneees 6 4.3.7 Discount Rate.......cccccccccccssssccsesccscccsecessensrsesscsscurcccccesseaescsssecoceeaaneessesecccsssuonssseessecaassausnenseseersenaesass 6 4.3.8 Future Demand Forecast u............:::ccsccccsccscccccesssscesssessuctscssssuseesssseeeseesseseecseesseaeeentseeeeeseeenssasseenenanes 6 4.4 ECOnOMic Model ..............cccccsccscevccnccsccssccecsecesrcsssesecccseccconassccnssconsesssccansessnssnasocasssens 6 4.4.1 Resource Parameters .........ccccccecccecccscecccccsssssenssessssnnsssaanausanenasaaeaaaeaeaeeaaacasanaaaeagasaagasaageaseaaeseaenanqones 6 4.4.2 Capital Investment .......ccc cecccssssscscsssssseesessssneceseessasessaseneneseeeseseescaaeeeenesesaneeraneseseuanaessseasonsees 6 AAD Urflationicc...cccccccscccccessccecsssesseeseeccensseceseeeeeceuneeeessesseeeeeesecaeeauassseeceeseeeedauseseeedeoeienescsesseseesseseueneressegens 6 AAA ROYAILY oo.ec cceceecseceeeetceenerseseeseaneeeessesceenereeesesueeseeseseaeesaseeeeaeeseeeDenesesseesaeesnageeeeesaseseasesssenenegss 64.4.5 State of Alaska Taxes ......ccccccssessscessscsssenscecseeceesecsssentsecestsnesceseseecescessussessceccsnenseescssasseseeseaanageseetee 6 4.4.5.1 Depreciation........cccccccccecsetecseeeressensnsesscssesseeseaeseecseecssensesnsessaeesseeeseaesaeensessesessansssaesnsesesesuegs 64.4.5.2 Property Tax...ccccccccesccccectecsscenesseeseeenessseneesseesseceeesersssasseessesseeeesseeesaeeseecessnesseaesesseaeeeaseasons 644.5.3 SOVErPANCE TAX.....ccccccccccsscccessessscceeueeecseeeetecevesevupsesuupsussestiepeereesebeneeessaessaueessssasssessssasssaeapensenes 6 SAIC -Anchorage,AK 25 $/3/2004 DRAFT FINAL REPORT -SUBJECT TO REVIEW AND CHANGE 4ABA.INCOME TAX...ccccccccsssscssssssessesccsessssesssessssssncecsssesssecnsssesaeeeesssaessuaecnessssessacsussesaccaesesesasasssenecers 6 4.4.6 Federal Taxes ...........cccccccccsscesssessessnceeeeeeesnssnaeeneeescsssseaaaeeeeeesnessseeeeeeeseessesneeenaaaaeesesenanseecanessseseenanne 6 4.4.6.1 Depreciation,Depletion and AMOrtization.2.0...cecscccsesssessnneneceseeceeecessasceeseeeesssseaaesensaeas 6 4.4.6.2 Federal Income Taxes..........cssscccssscscsssccesonseecessecaeesseeenseeeseeaeeeesseeeaessenssaeesenaseesensanepenesoasenaeees 6 4.4.7 Cash FIOW AnalySis.........ccscccccssssscsssscccsssvseceessneecesessecseneccesseaneesesnseasasussuseaserssasenecsanseseonssesborseenenses 6 4.5 Economic Modeling Scenarios .............cccccssccsscccsssnsncsnssenseccessecccnsccenccsssccsseceseeseess 6 4.5.1 Scenarios Analyzed ou...cece cenessneecneecseeecesserseceessseessseseosesessessesseeesssussesssesesesessesesssuseesssessasessesess 6 4.5.1.1 Base CaSC.....cc cccccsensssecnceeseeecnesssseceeeseeeessnacensneeorensaceneecensnsersseesenseasesseseeeceuneeeesatesesesseeesseesooees 6 4.5.1.2 Reserves Growth..........cccccssscccceecssnsseeceecessssscenseeceesssecgeneoesteccsseaeseeaeeesecesseceesseeeesuneessenesessenseeees 6 4.5.1.3 Exploration,.0.......cccscseecsscssessessesessneecseeessssesssessscaserseessseesssusecsseesesseesssaravsstessaecossecensessseesennanes 6 4.5.1.4 Minimum Economic Field Size.............cccccccccccssssssneccneeeecssssnnsaeacaeneeesessseesaaasaseseseseannessoesesenee 6 4.5.1.5 North Slope natural gas pipeline and spur to south-central Alaska...........cc eeeceeeceseseeeeseneees 64.5.2 Gas Cost -Supply Relationship ...........cceseccesssssesssssesesssseecnssseenceseseeeeecesueeesseerecusneneecssgeeeeescenee 6 4.5.3 Economic Rents from Cook Inlet Gas Production .........cecssseccseeeceeeecesecssessseeeseesesseeerenaasesesovees 6 4.6 Summary and Conclusions ..0......cccssssccsestseseecsnecssesssssssesessscesessaeassesesssenseseescasscnsesceeeessonseneeeeneees 6 APPENDIX A.-ECONOMETRIC MODEL OF COOK INLET NATURAL GAS RESERVEG...........ccsscecceessnscesscecccssssssnssnsnsnssaccenscasecsnecesseseesnensceseessensansccessesnssnseeseeesseenaes 6 APPENDIX B -BIBLIOGRAPHYV..............sscssssssscccssennensccceessnsnnneccccesessssnsnnncenessnsnsnsaeaeaes 6 FIGURES -SAIC -Anchorage,AK 26 5/3/2004 Untitled Document Page 1 of 1 UNIVERSITY OF ALASKA FAIRBANKS The Arctic Energy Technology Development Laboratory Team Dr.Dennis E.Witmer,Director Arctic Energy Technology Development Lab University of Alaska Fairbanks (907)474-7082 ffdew@uaf.edu Juli Philibert Arctic Energy Technology Development Lab University of Alaska Fairbanks (907)474-1929 fnjap1@uaf.edu AETDL e-mail:fyaetdl@uaf.edu http://www.uaf.edu/aetdl/AETDLteam.html Updated 10/22/2003 by J.Philibert Copyright 2002 Brent J.Sheets,Manager National Energy Technology Lab Arctic Energy Office (907)452-2559 brent.sheets@netl.doe.zov Dr.Charles P.Thomas Arctic Energy Office (SAIC) (907)271-1550 charles.thomas@saic.com Dr.Robert E.Chaney Arctic Energy Office (SAIC) (907)271-3633 robert.e.chaney@saic.com 5/6/2004 Alaska Business Monthly |Producers,TransCanada Make Progress on Alaska LNG Expo...Page 1 of 2 Send to printer Close window Producers,TransCanada Make Progress on Alaska LNG Export Project October 3,2012,Juneau,Alaska -Executives for ExxonMobil,ConocoPhillips,BP,and TransCanada submitted a letter to the Parnell administration describing their companies'progress in advancing an Alaska liquefied natural gas (LNG) export project. "I'm encouraged that the companies have made significant progress in advancing a project and an associated schedule for commercializing North Slope gas,”Governor Parnell said."Clearly,they have fully shifted their efforts to an Alaska LNG project.” The companies'letter addresses a critical benchmark that Governor Parnell laid out in his January State of the State address,calling on the companies to harden the numbers on an LNG project and identify a project timeline by the end of the third quarter. The letter also addresses an additional third-quarter benchmark that Governor Parnell laid out in his address,calling on the companies to complete their discussions with the Alaska Gasline Development Corporation (AGDC)on the potential to consolidate their work.In the letter,the companies said they have established a cooperative framework with AGDC to share information. "|am also encouraged to see the significant work between AGDC,which is advancing an in-state gas project,and the Alaska Pipeline Project (APP),which is advancing an LNG export project.Deeper cooperation between these two state- backed efforts is strongly in the state's interest,”Governor Parnell said. Prior to today's announcement,ExxonMobil,ConocoPhillips and BP had met two earlier benchmarks laid out in Governor Parnell's State of the State address.On March 29,the state and the companies resolved the Point Thomson litigation.The following day,the companies announced their alignment "on a structured,stewardable and transparent approach with the aim to commercialize North Slope natural gas within the Alaska Gasline Inducement Act (AGIA) framework.” Today's letter and attachments from the producers and TransCanada provide details on the team they have assembled and the team's activities in developing a project,building on their previous work to commercialize North Slope gas.The documents include a project timeline and a cost range covering various stages in the project development schedule and work plan.The documents also provide new details regarding the components of an Alaska LNG project,including a liquefaction facility,gas production and storage,a large-diameter pipeline,and a gas treatment plant. Over the past six months,more than 200 employees from the four companies have been working on managerial, technical,and commercial aspects during this phase of the project schedule,according to the letter. Given the massive size of the North Slope conventional gas resource (35 trillion cubic feet of reserves and more than 200 trillion cubic feet of undiscovered,technically recoverable resources)and the scope of the project as described by the companies,an Alaska LNG project will be one of the largest in the world. While the companies have been developing their LNG project design,the Parnell administration has undertaken significant outreach to Pacific Rim markets to highlight the comparative advantages of Alaska LNG exports,and to other key stakeholders,including U.S.government officials in charge of export licensing. http://www.akbizmag.com/core/pagetools.php?pageid=32634&url=%2F Alaska-Business-....10/4/2012 Alaska Business Monthly |Producers,TransCanada Make Progress on Alaska LNG Expo...Page 2 of 2 The most recent of these efforts was Governor Parnell's trade mission in September to South Korea and Japan,where he discussed Alaska LNG exports with leading government and industry officials, A copy of the letter and attachments is available at: http://gov.alaska.gov/parnell_media/resources_files/etter_100312.pdf http:/www.akbizmag.com/core/pagetools.php?pageid=32634&url=”2FAlaska-Business-...10/4/2012 Alaska Business Monthly |Speaker Chenault,Rep.Hawker File In-State Gas Pipeline Bill .Page 1 of 1 Send to printer Close window Speaker Chenault,Rep.Hawker File In- State Gas Pipeline Bill House Bill 4 calls on AGDC to implement instate natural gas pipeline plan Monday,January 14,2013,Juneau,Alaska -Rep.Mike Hawker and House Speaker Mike Chenault prefiled critical legislation calling on the Alaska Gasline Development Corporation (AGDC)to implement its plan for an in-state natural gas pipeline.AGDC is a public corporation created by legislation passed in 2010 to develop a project plan for an in-state natural gas pipeline from the North Slope to tidewater. House Bill 4 is the next step towards an instate natural gas pipeline serving Alaskans,including Fairbanks and Southcentral.The AGDC pipeline will provide a competitively priced,secure source of clean energy for decades;will encourage a robust private sector and economic development;and will benefit the entire state by commercializing Alaska's rich North Slope natural gas resource. By defining AGDC as an independent,stand-alone public corporation of the state,House Bill 4 empowers the entity to implement its instate gas pipeline project plan,while retaining the flexibility to participate in other gas projects that further Alaskans'interests. "We need to connect Alaskans with Alaskan gas on our timetable,not on industry's timetable,”Hawker,R-Anchorage, said."House Bill 4 equips AGDC to represent Alaskans in any natural gas pipeline scenario,now and in the future. Alaskans deserve a corporation working on their behalf to realize our dream of natural gas.” "|was proud to have almost all the legislature support a bill in 2010 issuing a mission to AGDC,”Chenault,R-Nikiski, said."AGDC's top-notch team has developed a project plan that delivers on our key goals:gas to Alaskans at competitive rates and new economic opportunity.We've talked about a gas pipeline for years,and we can no longer afford to wait.It's time to pass House Bill 4 authorizing AGDC to implement this solid plan for an Alaska natural gas pipeline.” "Our hope is Alaskans will come together supporting this legislation establishing Alaska's natural gas pipeline company, and advancing an instate project,”Hawker said. http:/Awww.akbizmag.com/core/pagetools.php?pageid=3408 1 &url=/2FAlaska-Business-...1/16/2013 1982-2001:The Yukon Pacific era )Page 1 of 9 * ALASKA NATURAL GAS TRANSPORTATION PROJECTS OFFICE OF THE FEDERAL COORDINATOR Published on Arcticgas.gov (http:/Avww.arcticgas.gov) Home >1982-2001:The Yukon Pacific era 1982-2001:The Yukon Pacific era By:Bill White bwhite@arcticqas.qov 11 Release Date:March 14,2012 Part 2 of3 A new project pushed by a new company,Yukon Pacific Corp.,revived interest in an Alaska gas pipeline in 1983. Yukon Pacific was born amid doubts among some Alaskans that the Alaskan Northwest project through Canada would ever break ground -and over their dismay that the El Paso LNG project to California got jettisoned in favor of Alaskan Northwest in 1977. The first seeds of Yukon Pacific were planted in 1982 as Alaskan Northwest Natural Gas Transportation Co.announced the latest postponement of its pipeline project.Lame-duck Gov.Jay Hammond appointed an eight-person task force to figure out now how best to turn Prudhoe Bay gas reserves into money.North Slope oil had been flowing for five years,and Alaskans wanted to see the natural gas move,too.The co-chairmen were two ex-governors who had been fans of the El Paso LNG project:Republican Wally Hickel and Democrat Bill Egan. zn January 1983,they delivered their new road map for bringing Po asAlaskagastomarket.Not surprisingly,it called for an LNG project Op -a pipeline to the Gulf of Alaska coast,with exports this time to Japan,South Korea and Taiwan,and possibly the U.S.West Coast,but not exclusively the West Coast as El Paso proposed. "It is unlikely that Alaska gas will be economically competitive in a free,uncontrolled U.S.market over the long term,"the report predicted. http://www.arcticgas.gov/print/The-Yukon-Pacific-era-1982-2001?utm_source=Arcticgas....3/14/2012 1982-2001:The Yukon Pacific era Page 2 of 9 This export-to-Asia concept dominated Alaska gas pipeline plans over the next 15 to 20 years. With the task force's work done,Hickel quickly formed Yukon Pacific to push the project ahead."The window is open now to the Japanese market,but it may not be open for long,"Hickel said at the time,a refrain repeated over the ensuing years by LNG champions. (Hickel held Yukon Pacific stock until 1991,shortly after he became governor again.He faced an accusation -the first ever against a governor under the state's 1987 Executive Branch Ethics Act -saying he improperly promoted the LNG project as governor while he owned Yukon Pacific stock.He divested the stock and the accusation was dropped.Hickel remained a brash LNG-project cheerleader until his death in 2010,even offering spirited endorsements of Alaska gubernatorial candidates in 2006 and 2010 who embraced his LNG project while denouncing all other gas pipeline ideas.) The hope of those who launched Yukon Pacific in the early 1980s reflected the passion some Alaskans have with the LNG idea,a love affair that began with El Paso and continues today. During the Yukon Pacific era,their optimism pushed aside the idea's Himalayan-sized market challenges and clung to a hope that a successful LNG project could offer Alaska a powerful and lasting economic kick. WORLD'S LARGEST LNG PLANT As conceived,the new Yukon Pacific LNG project was similar in size to El Paso's. The pipeline would span roughly 800 miles,cost $14.3 billion (1982 dollars)not counting tankers,and it would carry up to 2.83 billion cubic feet a day of natural gas.It would be constructed in phases and,when fully built out,export 1.9 bcf a day (14.5 million tons a year)after consuming some gas during the liquefaction.It would be the world's largest LNG plant. But besides targeting Asia,the original Yukon Pacific project diverged from the earlier El Paso plan in important ways: *The pipeline would go from Prudhoe Bay to Nikiski on the Kenai Peninsula southwest of Anchorage,not to Gravina Point near Cordova.Nikiski already was home to a 14-year-old LNG export plant,the only one in the United States,but the new plant would be about 10 times larger.Within a few years,the proposal's terminus shifted eastward to Valdez,so the gas pipeline would run parallel to the trans-Alaska oil pipeline from Prudhoe Bay to tidewater. *The pipeline could carry the full stream of Prudhoe Bay gas,not just methane but also such gas liquids as propane and butane as well as some unusual ingredients - carbon dioxide and other contaminants usually removed from pipeline gas. é,Yukon Pacific at-a-glance, http://www.arcticgas.gov/print/The-Yukon-Pacific-era-1982-2001?utm_source=Arcticgas....3/14/2012 1982-2001:The Yukon Pacific era Page 3 of 9 Project:Pipeline from Prudhoe Bay south to liquefied natural gas plant at Valdez, Alaska.LNG shipped by tanker to Asia. Sponsors:CSX Corp.became majority owner.Other investors included Wally Hickel and Supra Corp.; Capacity:2.3 billion cubic feet a day Length:797-mile Alaska pipeline Cost estimate (1996):$18 billion Source:U.S.Department of Energy;Yukon Pacific The gas liquids would give the pipeline something extra to sell,making it more financially viable.Although extracting gas liquids from the methane at tidewater would be expensive, the liquids could be exported,proponents said,fetching higher market prices than methane gets. Piping contaminants from Prudhoe Bay is dicier.They're seldom found beyond trace amounts in pipeline gas.Carbon dioxide and hydrogen sulfide,both of which are present in Prudhoe gas,are called acid gases because they form acids or acidic solutions and can corrode a steel pipeline when water is present.Prudhoe gas is quite acidic -12 to 13 percent of the gas is carbon dioxide. The Alaskan Northwest pipeline project would have removed the contaminants at Prudhoe Bay,before gas enters the pipeline.So would the TransCanada/ExxonMobil gas pipeline proposal currently being worked;once removed at Prudhoe,the carbon dioxide would be injected back into the Prudhoe reservoir to help produce more oil. But Yukon Pacific proposed to pipe the contaminants and extract them at Nikiski,where the plant would be cheaper to build.Of course,that would leave unresolved the chore of carbon dioxide disposal.Yukon Pacific had some ideas about that:Sell it to petrochemical plants as feedstock,spike it with other hydrocarbons to produce low-grade fuel,shoot it into nearby Cook Inlet oil fields to scrub out more crude,or vent the gas into the atmosphere "in tall stacks." PAPERWORK IN ORDER The Yukon Pacific project percolated along through the 1980s and early 1990s. The project design was refined somewhat.Besides moving the pipeline terminus to Valdez,Yukon Pacific decided to remove Be carbon dioxide and other contaminants at Prudhoe Bay after all.The gs company also scaled back the pipeline volume to 2.3 bef a day -- allowing export of 1.8 bcf a day on average after using some of the gas in compressors to liquefy it. In 1986 a deep pocket became part owner with Hickel:Texas Gas_- Transmission Inc.3)a subsidiary of Lower 48 railroad and shipping giant CSX Corp.11 Texas Gas was quite familiar with Alaska gas pipeline efforts;it once was part of the Alaskan Northwest consortium that pushed the 1970s-era pipeline project.The a ee 4 oe Farmer Gav Wally Hietval http://www.arcticgas.gov/print/The-Yukon-Pacific-era-1982-2001?utm_source=Arcticgas....3/14/2012 1982-2001:The Yukon Pacific era Page 4 of 9 a hycompanydroppedoutofAlaskanNorthwestin1981andCSXSource:Associated Press bought it in 1983. Besides Hickel and CSX,another Yukon Pacific partner was Supra Corp.,a venture of Robert O.Anderson,who headed Arco during the Prudhoe Bay discovery. But Yukon Pacific really became CSX's show.The same year that CSX bought into Yukon Pacific,it also acquired Sealand,a major ocean-going cargo carrier serving Alaska that presumably would haul materials for the LNG project.By 1988,CSX was majority owner of Yukon Pacific.(CSX divested of Texas Gas in 1989 and of Sealand in 1999.) In 1988,Yukon Pacific obtained a right of way across federal land for most of its pipeline route.That same year,President Ronald Reagan issued a needed finding that exporting North Slope gas would not hurt Lower 48 consumers.The U.S.natural gas shortages of the 1970s were gone -price and pipeline deregulation triggered drilling that found trillions of cubic feet of new gas reserves. Alaska gas pipeline 1982-2001 1982 -Proposed Alaskan Northwest project along Alaska Highway into Canada postponed.Two former Alaska governors,Wally Hickel and Bill Egan,head state task force to find a pipeline solution. 1983 -Task force recommends 800-mile pipeline to Alaska's Pacific Coast,with LNG exports to West Coast or Asia.Hickel forms Yukon Pacific Corp.to develop this project. 1986 -Lower 48 transportation giant CSX invests in Yukon Pacific. 1988 -CSX becomes majority owner of Yukon Pacific. 1988-1989 -Yukon Pacific obtains right of way across federal land and federal export authorization.Target market is Asia. Early 1990s -Yukon Pacific says it has tentative deals with LNG buyers in South Korea and Taiwan but never achieves final contracts. 1990s -LNG prices remain low,averaging $3.52 per million Btu during decade in Japan, too low to make project profitable. 2001 -As three major North Slope producers look into their own pipeline project to Lower 48,Yukon Pacific slashes staff. Between 2008 and 2011,Yukon Pacific loses bid to extend conditional right of way across state land,fails to get federal authorization extended for its Valdez LNG plant, and gives up federal-land right of way. In 1989,the U.S,Department of Energy authorized [s}Yukon Pacific to export of up to 14 million metric tons of LNG per year (about 1.8 bef a day)to Japan,South Korea and Taiwan. Both this export authorization and the presidential finding contained language that cautioned the government wasn't favoring the Yukon Pacific project over a pipeline through Canada.Officials in Canada and executives with Alaskan Northwest had expressed worry that the Yukon Pacific project might kill the Canada line."The DOE is not http://www.arcticgas.gov/print/The-Yukon-Pacific-era-1982-2001?utm_source=Arcticgas....3/14/2012 1982-2001:The Yukon Pacific era Page 5 of 9 dictating that a specific project should be undertaken for developing North Slope natural gas.The approval neither commits any natural gas supplies to Yukon Pacific nor creates any regulatory impediments to other North Slope natural gas projects,including ANGTS (Alaska Natural Gas Transportation System,the Alaskan Northwest-sponsored pipeline through Canada authorized in 1977).Rather,the approval is intended to spur competition to develop North Slope natural gas efficiently,with the marketplace determining the course of development,"the DOE order said. Year-by-year Yukon Pacific obtained the paperwork needed for its LNG project. But paperwork got the company only so far.It never had gas for its pipeline to carry. ELEPHANT IN A DOG HOUSE Yukon Pacific executives often railed at how North Slope producers were stymieing the LNG project by not selling their gas. The whole story is more faceted.Natural gas does rise up wells with crude oil.But the producers injected the gas back underground to scour more oil from Prudhoe and nearby fields.This not only was prudent because the gas could be saved for later while coaxing much more valuable oil to the surface.But the practice was mandated by state regulators charged with making sure Alaskans got the highest value for their resources. Beyond that,Yukon Pacific's project was handicapped by two fatal flaws:It would produce too much LNG and the gas would be too expensive. Yukon Pacific's project would have exported 14 million metric tons a year of LNG.That was too much for the small but growing LNG market to absorb easily.In 1990,demand from the nine countries worldwide that imported LNG totaled about 50 million metric tons, according to the International Gas Union.Yukon Pacific would have boosted global LNG supplies by 28 percent.Demand wasn't growing that fast,and other LNG makers were keeping pace by expanding their less-expensive production.Yukon Pacific was trying to stuff an elephant into a doghouse. jaiPrice was another barrier.The Yukon Pacific Japan LNG price 1984-2010projectcalledforpipinggas800miles,Mp wv ens i superchilling it into a liquid and shipping it to Asia.The Japan price for LNG topped $5 per thousand cubic feet the year Hickel conceived Yukon Pacific.Hickel's group figured it could hold its costs to $5.67 to $7.16 per thousand cubic feet of gas.It forecasted LNG would be priced at $7.89 in 1988 in Asia,with 3 percent = annual price inflation after that.If Yukon Pacific 2 Boe eee could ward off big cost overruns on its project,Rincon : everyone would make money.tons ves 1998 2008 Sources:BP Statistical Review of World Energy 2011;World BankmeweneweaDollarspermillionBtubeaadoa 2011 But the Asian LNG price was linked to oil,not inflation.And oil prices were falling.In 1988,the average price in Japan was $3.34, according to the 2011 BP Statistical Review of World Energy.The price didn't get much http://www.arcticgas.gov/print/The-Yukon-Pacific-era-1982-2001?utm_source=Arcticgas....3/14/2012 1982-2001:The Yukon Pacific era Page 6 of 9 higher for a long time.From 1987 through 1999,the LNG price in Japan averaged $3.47. Other LNG projects in Asia could hit that price and make money.With LNG sold under decades-long contracts,the price risk for buyers was too great and Yukon Pacific's project couldn't complete. YUKON PACIFIC DREAM FADES Still,determined optimism defined the public fagade of Yukon Pacific executives. "We agree with the view that the world is awash in natural gas,”one said in 1986."But we disagree with the view that waiting (for gas prices to strengthen)is the way to go.That won't make anything happen." In 1987,a Yukon Pacific executive hopefully cited new forecasts that annual LNG demand in Japan,South Korea and Taiwan together would swell by 7.5 million to 8.5 million metric tons by the mid-1990s.But even if Yukon Pacific captured 100 percent of that growth,it would have fallen far short of the 14 million tons it needed to sell. iiln 1989,an executive said his company was "dealing very seriously"with a South Korea buyer that could buy 3 million tons a year.In 1990 he said he had a letter of intent--a document that precedes a contract -froma Korean buyer for 2 million tons a year with an indication the company might want an additional 2 million.oeysicpmw In 1992,a Yukon Pacific executive said a Map of project Yukon Pacific put on ..promotional materialsTaiwanpurchaserhadsigneda"memorandum source:rukon Pacific of intent"for an confidential amount of gas, adding to a tentative commitment from a South Korea buyer for 2 million to 5 million metric tons a year.But the company never could put together a solid deal. Asian gas buyers and government officials encouraged Yukon Pacific to build the project. A more diverse set of LNG sellers could help give them the reliability of supply they desired while bringing price competition to the market.But encouraging Yukon Pacific was not the same as becoming a customer. A 1991 article in the Anchorage Daily News outlined the problem:Yukon Pacific would need to sell 8 million tons a year to Japan -about one-seventh of that nation's expected need."The standard contract is on a 'take or pay'basis,which means once they contract for the gas,they pay for it whether or not they need it.Business leaders here (in Japan) believe their gas market will grow rapidly over the next several years,but they're not willing to bet billions of yen on it just in case they're wrong."The reporter interviewed Tokyo Electric Power Co.'s fuel department chief,who said Japanese companies can buy more gas when they need it from Indonesia,Malaysia or elsewhere,places that can boost their LNG production quickly and cheaply.The Yukon Pacific project was burdened by the cost of building an 800-mile pipeline. http://www.arcticgas.gov/print/The-Yukon-Pacific-era-1982-2001?utm_source=Arcticgas....3/14/2012 ' 1982-2001:The Yukon Pacific era Page 7 of 9 Still Yukon executives persevered.In 1996,they released a study that concluded their LNG export project,now estimated to cost $18.4 billion,could turn a profit,pour billions in taxes and royalties into the state treasury and result in hundreds of new long-term jobs. Not so fast,came the chilly response from North Slope producers.Look at the assumptions,they said:The project works only if it can lock in buyers for 30 years willing to pay 12 percent more than 1996 market prices,with the price escalating 3 percent a year after that.A senior Atlantic Richfield executive termed the assumptions "aggressively optimistic." "It doesn't help the project progress if we're painting an unrealistic picture,"he said. By then,Atlantic Richfield and BP,the two companies that then operated the Prudhoe Bay field,were starting to blow life into their own long-dormant hopes for a North Slope gas pipeline. Those companies were gazing into a future where Prudhoe Bay crude production will have fallen so much that it made sense to start piping some natural gas off the North Slope instead of reinjecting it to produce more oil. Maybe the market will be ready for a gas pipeline by 2005 or 2010,they said.Possibly it would be an LNG project,they said. Big oil was sucking the wind out of Yukon Pacific's sails.With its momentum fading the company slashed its staff in 2001 and slowly started packing up. In 2008,Yukon lost its conditional right-of-way that would let the pipeline cross state land. In 2010,the Federal Energy Regulatory Commission denied Yukon Pacific's request for more time to build an LNG plant.In October 2011,the company gave up its federal right-of -way grant. Despite Yukon Pacific's demise,LNG fever held strong through the years among certain Alaska leaders. In 1998,state legislators in Juneau passed the Stranded Gas Act designed to provide state incentives to boost prospects of an LNG project.But only an LNG export project;no one else need apply. The law didn't help;no one asked to negotiate fiscal terms with the state.The LNG dream went on life-support. But the Alaska gas pipeline project was entering a new phase.The new burst of life came courtesy of the North Slope producers and their resurrected ideas for a pipeline,and a new concern that the nation was running short of natural gas. -By Bill White,Researcher/Writer for the OFC.js,bwhite@arcticgas.gov 11) Next:2000 to today -interest in Alaska's gas revives http://www.arcticgas.gov/print/The-Yukon-Pacific-era-1982-2001?utm_source=Arcticgas....3/14/2012 The Alaska Journal of Commerce -Donlin Creek eyes LNG,Cook Inlet for power 07/09/10 Page 1 of 2 ALASKAJournal,,Commerce Alaska's Paper of Record ©Established 1977 Bee ee es TURES wtalE¢ SUNTAST Web posted Friday,July 9,2010 om:fra Donlin Creek eyes LNG,Cook Inlet for power By Tim Bradner Alaska Journal of Commerce The Donlin Creek joint venture is redoing a feasibility study for its $4.4 billion gold mine near the Kuskokwim River about 250 miles west of Anchorage. A key challenge facing the project is energy -how to power a 130-megawatt power plant and a fleet of heavy trucks and shovels delivering ore to a mili that would grind it into a concentrate. Barging large quantities of diesel fuel up the Kuskokwim River and generating power with wind is the current plan,but A drill crew tests soil at the proposed the costs,and risks,of moving that muchDontinCreekgoldminewestofAnchorage.fuel up the river during the summer areTheproposedminewillprovide600to900sobering.production jobs,but the operation needs a cost effective source of power.Photo Courtesy of NovaGokt Resources The joint venture partners,NovaGold Resources and Barrick Gold,now think natural gas from Cook Inlet might be a better answer,according to NovaGold's president,Rick Van Nieuwenhuyse.It has the potential of reducing overall operating costs by 25 percent,plus eliminating the risks of diesel spills,Van Nieuwenhuyse said. A key question is where the natural gas will come from,given that gas fields in Southcentral Alaska are being depleted.That will be investigated once the basic feasibility of a pipeline is determined,Van Nieuwenhuyse said. NovaGold and Barrick Gold each own 50 percent of Donlin Creek,which has about 33 million ounces of confirmed gold resources and another approximate 6 million ounces of estimated resources.It would be one of the world's largest gold mines if developed.The deposit is on land owned by two Alaska Native corporations,Calista Corp.and The Kuskokwim Corp.,which is owned by local villages. Geologists working for Calista Corp.discovered the deposit in the 1980s. This summer,the joint venture Donlin Creek LLC is studying a possible 325-mile,12 -inch gas pipeline.The route being studied,Van Nieuwenhuyse said,runs from the Beluga area west of Anchorage,where there is an existing gas field and pipeline network,on a route through Skwentna,over Rainy Pass or possibly another pass and then on to Donlin Creek,which is near Crooked Creek village on the Kuskokwim River. Cost estimates for the pipeline will be incorporated into a new feasibility study which will include revised capital costs for the mine.The existing estimate of $4.4 billion,completed in May 2009,was done at a time when construction,fuel and materials costs were soaring.Some materials and construction prices are lower now and the companies hope those will result in lower costs,Van Nieuwenhuyse said. Overall,the joint venture is spending $47 million this year with $18 million of that focused the pipeline estimate and environmental survey and much of the remainder on redoing the overall estimates for the mine. "Our goal is to have the updated feasibility study by next May or June so that we can make a decision between the two alternatives,gas or diesel,in June and begin permitting the project in the fall,"Van Nieuwenhuyse said. The joint venture has not released an estimate of how much gas the mine might require but an independent estimate,based on comparing the energy content of the http://www.alaskajournal.com/stories/070910/oil_dce.shtm|7/12/2010 The Alaska Journal of Commerce -Donlin Creek eyes LNG,Cook Inlet for power 07/09/10 Page 2 of 2 on” required volume of diesel fuel to its equivalent in natural gas,puts the volume at about 10 billion cubic feet per year. That is about one third of the amount Enstar Natural Gas Co.,the regional gas utility,requires for its residential and commercial customers in Southcentral Alaska. While gas from the North Slope is a possibility for Donlin Creek,if it is competitive, the companies believe imported liquefied natural gas is a more practical alternative,at least in the short term,Van Nieuwenhuyse said.It will be six years before the mine can be operating,allowing three years for permitting and three years for construction. If permitting begins in late 2011,as is now planned,gas wouldn't be needed at Donlin Creek until 2018. That timing may fit in well with the schedule for a 24-inch "bullet"gas pipeline from the North Slope,and if the big pipeline is built a spur line could have gas to Southcentral Alaska in 2020 or 2022.But Doniin Creek can't count on either of these happening,or on future gas discoveries in Cook Inlet,Van Nieuwenhuyse said. "Right now all we know we can get is LNG.The international LNG market has developed quite a bit in recent years and we believe we can make it work,”he said.A small LNG "regasification"plant on Cook Inlet wouldn't be that expensive,he said. Existing facilities at the ConocoPhillips-Marathon Oil LNG plant near Kenai that now exports liquefied gas might also be used. Once the joint venture partners settle on a gas pipeline as the preferred option the LNG supply option will be pursued,Van Nieuwenhuyse said. Another potential Alaska mine,Pebble,is also looking at imported LNG as its source of energy. If developed,Donlin Creek would be a surface mining operation similar to the Fort Knox gold mine northeast of Fairbanks.It would produce about 1.6 million ounces of gold per year and create 600 to 900 production jobs,providing a huge economic boost to the Yukon-Kuskokwim region,now one of the state's most economically depressed areas. Construction would require about 1,500 to 3,000 workers. Tim Bradner can be reached at tim.bradner@alaskajournal.com. AlaskaJourmal.com |AlaskaStar.com |AlaskanEquipmentTrader.com El ey Yaxoot ||Contact Us |Jobs |Subscribe |Privacy and Leqal Information Copyright ©2007-2008 Alaska Journal of Commerce &Morris Communications Inc Explore the Kenai |Visit Homer Alaska |Fishing Report http://www.alaskajournal.com/stories/070910/oil_dce.shtml 7/12/2010 The Alaska Journal of Commerce -Alaska,Canadian,Northwest states work together 07/....Page 1 of 3 4 vr ALASKAJournal,Commerce Alaska's Paperof Record ©Established 1977 fide'7 TUES peruse”hduiey coir Web posted Friday,July 2,2010 Alaska,Canadian,Northwest states work together By Tim Bradner Alaska Journal of Commerce It's hardly well-known -in fact,"obscure"comes to mind for most Alaskans -but a tightly-run Seattle-based nonprofit plays a big role in helping political leaders in U.S.,Alaska,and Canada's _western provinces get to know eachotherandmeshtheirpriorities. The group is the Pacific NorthWest Economic Region,or PNWER,and its members are the five Northwest U.S.state governments,the three western Canadian provinces and two territories of Canada. For Alaskans,and many in the Northwest,it's a long way to Washington,D.C.Ditto Ottawa,for Canadians in the western provinces and northern territories.Best to work together.Residents of northwestern North America have a lot in common,and that's what PNWER is about. Alaska plays a prominent role in the group.This year state Sen,Lesj ir R-Anchorage,is its jr.Rep.Anna Fairclough,R-Eagle River,also chairs a PNWER working group on labor and workforce 'issues.In a previous year Sen.Fred Dyson,R-Eagle River,was a chair. PNWER is a_nonprofit association formed to promote discussion of issues common among the regional governments,said Executive Director Matt McGuire Morrison. In total,the region has formidable economic and political clout,with the value of the combined economies of the 10 member states,provinces and territories estimated at $1 trillion,with a combined population at 20 million people,according to PNWER.-------TY McGuire said Alaska's membership gives the state,with its small population,a way of influencing larger,more politically influential neighbors that share interests. Energy,workfor ility and the planned Alaska natural gas pipeline will be amajorfocusfordiscussionatthegroup's upcoming annual meeting in Calgary. Included among the workforce issues is the need for multi-state and bilateral U.S.- Canadian and multi-state recognition of engineering licenses,a topic of particular interest to engineers and other professionals. Although its primary purpose is to give support to elected officials in the Northwest region,business plays a major part in PNWER.Member governments pay annual fees of $37,000 each,which funds about 20 percent of PNWER's $1.7 million annual budget,Morrison said.Grants and contributions by business members pays the rest. Each of the group's 14 working committees has both a business and public sector chair. Hal Kvisle,CEO of TransCanada Corp.,is a big supporter of PNWER.enn| "None of the Alberta companies can afford to have any barriers or blockages to cross-border trade,"Kvisle said in materials published by PNWER."It is important to us and our shareholders that governments don't set up additional trade barriers." Informal dialogues through groups like PNWER help ease differences between the national governments on trade issues,Kvisle said. http://alaskajournal.com/stories/070210/loc_acn.shtml 7/7/2010 The Alaska Journal of Commerce -Alaska,Canadian,Northwest states work together 07/....Page 2 of 3 a Tesoro Corp.,which operates refineries in both Alaska and Washington state,is alsoaPNWERfan.Lynn Westfall,Tesoro senior vice president,said the group presents opportunities for "long-overdue dialogue between business groups and legislators." PNWER has vo Major -mestings 3-year:an annual meeting that rotates amongmemberstates"and provinces,and_aleadershipmeetinginthefall,with additionalooidr.working grou tin Alaska hosted the annual meeting two years ago,McGuire said,and the event brought 1,000 people to the state.It was a unique opportunity to inform political leaders about Alaska issues,she said. McGuire takes pride in having used her PNWER contacts to persuade several legislators from Pacific Northwest states to change their positions on oil and gas exploration in the Arctic National Wildlife Refuge coastal plain. The group was founded in 1991 at the instigation of an Idaho state senator who was @ proponent of the "Cascadia"concept,that the Northwest U.S.and Western Canada share a lot in common. Morrison said PNWER follows the "economic watersheds”of north-south commerce within the region.While there's a lot of east-west trade between Asia and the U.S. Midwest and East that comes through the ports of Tacoma and Vancouver,the regional trade is 3 to 1 north-to-south than west-to-east or vice versa. There's no other regional association of states and Canadian provinces quite like PNWER. "We've found other regional consortiums of states but nothing cross-border like us," Morrison said. One of the PNWER's projects has been to establish a Center for Regional Disaster Resilience to work with U.S.Homeland Security on preservation of critical infrastructure in the event of terrorist attacks or natural disasters. This initiative occurred just after the Sept.11,2001,attacks in New York and Washington,D.C.PNWER pulled together public agencies and major businesses in the Northwest to map points of congestion in the power grid that might be vulnerable to disruption. There are other regiona!associations that deal with infrastructure security,as well as the federal Homeland Security agency,but a distinction is that PNWER's focus is more on preservation in an economic sense rather than just protection. For example,ensuring that Alaska continues as a major source of crude oil for the Pacific Northwest is a major concern for the group,Morrison said. The proposed Alaska gas pipeline is another major infrastructure project that is just the kind of thing PNWER concerns itself with,he said.In this case the group not only works to encourage the project but also sort out issues like workforce mobility,or the ability of firms to move skilled labor back and forth across borders. A new PNWER initiative,done jointly with the National Conference of StateLegislatures,is the Legislative Fnergy Horizon Institute,a set of courses_on energy_ssues-that legislators take over 18 months. "Legislators who develop state energy policy often lack a comprehensive understanding of how the energy infrastructure operates,”Morrison said. The first set of courses concluded recently.Thirty-seven legislators were enrolled, with several from Alaska. The idea for the Energy Institute grew out of a three-week course the University ofIdahohaddevelopedforutilityprofessionals.The focus of that was on electric power but for the legislative program oil and gas was added as well as renewable energy and issues related to climate change state have to wrestle with like low-carbon fuel standards. The program involved nine full days of instruction spread over the year,with monthly webinars.There was a three-day institute session in Idaho last summer followed by three days in December in San Diego and a wrap-up three-day session in Washington,D.C. The U.S.Department of Energy helped fund the courses. Tim Bradner can be reached at im.bradner,@alaskajournal.com. http://alaskajournal.com/stories/070210/loc_acn.shtml 7/7/2010 NaeThe Alaska Journal of Commerce -Parnell signs bill to expedite in-state gas pipeline syst.Page 1 of2 OMe SNES ALASKAJournal,Commerce Alaska's Paper of Record ©Established 1977 ee odPESTURES-wMlE'0 SONTASToyeeeeecoee Web posted Friday,April 30,2010 Parnell signs bill to expedite in-state gas pipeline system By Tim Bradner Alaska Journal of Commerce Alaska Gov.Sean Parnell signed a bill into law April 26 that will expedite the state's planning for a 24-inch pipeline that could bring North Slope gas to Interior and southern Alaska communities as a contingency,in case a large-diameter pipeline built from the Slope is delayed. TransCanada Corp.and Denali,a pipeline consortium of BP and ConocoPhillips,are holding open seasons this summer on their competing projects to build a 48-inch pipeline from Alaska to Alberta,but Alaska leaders are worried that large new shale gas discoveries in the Lower 48 will cause delays in either project. Meanwhile,gas fields that supply southern Alaska communities are being depleted and supply shortages may occur as early as 2013,said House Speaker Mike Chenault, a Republican from Kenai. Chenault and state Sen.Lesil McGuire,an Anchorage Republican,sponsored legislation to speed work on a_separate 24-inch_pipeline as a contingency.TheirseparatebillsweremergedintoHouseBill369,which Parnell signed Ima ceremony atapipelineworkertrainingfacilityinFairbanks. "This is a significant step toward bringing Alaska's gas to Alaskans and markets beyond,”Parnell said."Our existing in-state gas pipeline team has worked aggressively on identifying the costs and the regulatory challenges for the bullet line option that would supply natural gas to the Railbelt for in-state use.Their research provides a solid foundation for the Joint In-State Gasline Development Team to build on." Chenault acknowleged that gas delivered through an in-state system won't be cheap. "I realize that gas delivered through a smaller pipeline will be more expensive than through a large pipeline,but we're running out of gas in Southcentral Alaska and we can't afford to wait,"Chenault said."I'd rather be in a position of explaining to my constituents why their gas from the Slope is expensive than why we let them run out of gas." The bill sets up a state management team to coordinate and accelerate an in- state gas pipeline planning effort already underway,requires a report on economic feasibility of the project by mid-2011 and, if construction is to proceed,completion -- by 2015. The -managementteart ees officials from the state-owned Alaska RailroadCorp.,the Alaska Natural Gas Development Authority,the state Department of Transportation and Public Facilities,and the Alaska Housing Finance Corp. Initial estimates on costs and permitting requirements for a 24-inch in-state line from the North Slope is expected to come in June.That work is being done by a technical team in Parnell's office.The feasibility report due in 2011 will be more comprehensive. http://alaskajournal.com/stories/043010/loc_img7_002.shtml 7/7/2010 The Alaska Journal of Commerce -Parnell signs bill to expedite in-state gas pipeline syst... "a The state's Alaska Natural Gas Development Authority separately has doe work on a 20-inch or 24-inch spur line that would connect in Interior Alaska with the large pipeline if it is built. Depending on the outcome of the Trans-Canada and Denali open seasons this summer,Alaska officials will have the option of continuing work on the pipeline to the North Slope as a contingency or focusing just on the spur line to the Interior. Southern Alaska communities like Anchorage,where the bulk of the state's population resides,need gas long before the large pipeline can be built.Cook Inlet gas producers like Marathon Oil Co.have warned that annual production may fall short of demand by as soon as 2013. Importing liquefied natural gas may have to be done until gas can be brought from the North Siope or more gas is found in the Cook Inlet basin. The Legislature also passed new incentives to spur exploration in Cook Inlet this spring. Tim Bradner can be reached at tim.bradner@alaskajournal.com. Page 2 of 2 AlaskaJournal.com |AlaskaStar.com |AlaskanEquipmentTrader.com Kd wy Yoo!||Contact Us |Jobs |Subscribe |Privacy and Legal Information Copyright ©2007-2008 Alaska Journal of Commerce &Morris Communications Inc Explore the Kenai |Visit Homer Alaska |Fishing Report http://alaskajournal.com/stories/043010/loc_img7_002.shtml 7/7/2010 The Alaska Journal of Commerce -It's open season time for two Alaska gas pipeline proj...Page 1 of 3 . ALASKAJournal,Commerce Alaska's Paper of Record ©Established 1977 It's open season time for two Alaska gas pipeline projects Analysis by Tim Bradner Alaska Journal of Commerce We'll ail be a lot smarter about the gas pipeline this time next year. Even if we don't know the answer to the really big question -whether the $40 billion-plus project will move ahead -we'll certainly know more than we know now about what the major North Slope producing companies really think about the pipeline. We'll have a good sense too on what they think about all those Lower 48 shale gas discoveries,and whether those will kill the Alaska pipeline or if the producing companies see shale gas as just another blip in the long-term,ever-changing energy landscape. Denali Pipeline Group President BudTheopenseasonsplannedthissummerFackrell!eans against a sample of a piece ofbyTransCanadaCorp.and the competing high-strength pipeline the company used in Denali pipeline group wilt give the world testing.Denali filed paperwork with thethefirstrealtestofwhetherthefederalgovernmentApril7foritsopencompaniesthatownrightstothegas-season to find customers for the gasline.(8,Chevron,ConocoPhillips and .PHOTOMichae!Dinneen/For the JournalExxonMobil--believe enough in the pipeline project to sign financial commitments that will exceed $100 billion. An open season is a period where pipeline developers will solicit customers - potential shippers of gas that would most likely be producing companies -to buy contracts for capacity in the pipeline.Because a large pipeline,particularly this one that has two competitors,will be a monopoly -there won't be two pipelines built - the federal government wiil regulate the pipeline to ensure fair and open access. TransCanada and Denali have submitted their open season plans to the Federal Energy Regulatory Commission for approval,and the open season itself is conducted under rules set by the commission. With signed contracts in hand,called precedent agreements in industry jargon,the pipeline company proceeds with plans to secure its needed certificate from FERC. With that and the shipping contracts,the pipeline company then goes to Wall Street to raise money for building the pipeline,and then finally,construction begins. All this will take several years. The fiscal conditions The open season is where the rubber really meets the road with pipelines,because once the shipping contracts are signed,they are legally binding.They must be paid whether gas ships or not. TransCanada's 90-day open season is set to begin May 1 and conclude in late July. Denali filed its open season package with FERC April 7 and expects to begin its open season in mid-summer, Few believe that firm contracts free of conditions will be signed with either project by the end of the open season,or even by year-end.Offers and even signed contracts http://alaskajournal.com/stories/040910/oil_img1_001.shtml 7/7/2010 The Alaska Journal of Commerce -It's open season time for two Alaska gas pipeline proj...Page 2 of 3 ra are likely to be conditioned on unresolved issues that remain between the producing companies and the state. "We believe we will make a very competitive offer to shippers during our open season,but we are concerned that any bids by shippers will be conditioned on issues outside our control,"Denali President Bud Fackrell has said. The issues include producers'fiscal terms with the state and the unresolved litigation between the state and company leaseholders at Point Thomson,a large gas field east of Prudhoe Bay. It is possible that conditional contracts will be signed,and a lot will be learned fromthoseaftertheinformationismadepublic,which would happen quickly under FERC rules. "The FERC requires precedent agreements that are signed to be made available to the public within 10 days of signing,as to the names of the shippers,the volumes to be shipped and the term of the contract,"Denali spokesman Dave MacDowell said. Ten days after that,the entire agreement must be submitted to FERC,although the federal agency makes public only parts of the agreements,he said. The public can learn a lot from this,because it will make known which producing companies,other possibile shippers and potential gas buyers are serious. If the pipeline companies don't get signed agreements,then that too says a lot.It would mean there were no offers to buy capacity that reached the stage of an agreement being signed,even conditionally. TransCanada Vice President Tony Palmer said there are three possibilities in the open season.One is that there will be no serious offers;a second is that there will be final offers with no conditions.Either one of those is unrealistic,Palmer said. The third,most likely,scenario is for offers with conditions,which will then take an extended period to work out. To the extent information is available from the pipeline companies and potential gas shippers,the public can gain a clearer idea of what the obstacles are and what needs to be done to move the project forward. Another valuable piece of information is whether any company will bid on the alternative pipeline to Valdez that TransCanada is obligated to offer this year in its initial open season.The state made the Valdez alternative a requirement for TransCanada when the pipeline company signed a contract with the state under the Alaska Gasline Inducement Act that entitles TransCanada to a $500 million state grant. TransCanada also agreed to a set of state requirements on tariffs,expansion and financing terms as part of the deal. TransCanada's competitor,Denali,is receiving no state funds and is offering no Valdez alternative.However,Denali will follow its customers'preferences,MacDowell said,and make gas available at any "off-take"point along its line,which could include a spur line to Southcentral Alaska or even Valdez,that someone else could build. Details,details Denali has listed six points designated for gas offtake in its open-season application to FERC,but there could be other points in lieu of those if customers desire,MacDowell said. One important distinction between the Denali and TransCanada plans is that Denali will offer "distance-sensitive"tariffs to takeoff points within Alaska,meaning that there will be different tariffs for gas taken off in Fairbanks compared to Delta,for example. The details of these are in the pre-open season information that Denali made available,MacDowell said. TransCanada,in contrast,is offering one Alaska tariff for intra-state shipment,so that the transportation costs to Fairbanks and Delta,using those as examples,would be the same. The open season will allow potential shippers to see the details,under confidentiality agreements,of the pipeline companies'cost estimates.TransCanada and ExxonMobil,its partner in design and engineering for the open season,say theywillspend$150 million in preparing the estimates.Denali will spend a little less,but will be in the same ballpark. Fackrell said Denali's estimate will be a "high Class 4,almost a Class 3"estimate. Classes of estimates are engineering designations that relate to the degree of detail in the work, TransCanada's estimate will be of similar quality,Palmer said. Fackrell said potential customers may review the estimates with some of the people who formed them in data "reading rooms"Denali will host in several locations.Only prequalified potential shippers will be able to view the data. http://alaskajournal.com/stories/040910/oil_img1_001.shtml 7/7/2010 The Alaska Journal of Commerce -It's open season time for two Alaska gas pipeline proj...Page 3 of 3 Pa Fackrell said Denali won't give a designation of a percentage of variation,higher or lower,for the estimate. "Our customers will decide how much variation there might be from the actual themselves because each will view the estimates differently.They will all recognize the Potential volatility of certain prices,"like steel,he said. Denali's engineers went to great lengths to get the estimates as detailed as possible. "We were able to obtain quotes from manufacturers for most of the equipment and materials,"Fackrell said."We didn't rely on 'factors'or estimates based on past experience of costs.We visited manufacturing sites to get an idea of yard space and labor rates.Our goal is to give our shippers as much confidence as we can in the estimates." Harold Heinze,chief executive officer of the Alaska Natural Gas Development Authority,was given a preliminary look at some of TransCanada's data along with a small group of other Alaskans,and said he was impressed by the quality of the work. "It's quality work.I fully believe it will be up to the standards of ExxonMobil Corp.," in terms of their production company making a bid for capacity,Heinze said. The state gas authority,ANGDA,is working with a group of Alaska utilities to reserve space for gas the utilities might purchase from producers. Both groups also have designed multi-billion-dollar gas treatment plants for the North Slope.A treatment plant would be a mega-project in itself.TransCanada's piant would require sealifts of large modules over three years. There are a fot of other things about both pipeline companies'plans that are of vital concern to Alaska's community leaders.One issue is where the money will come from to help municipalities or unincorporated communities to pay for inevitable infrastructure and social impact costs of construction. MacDowell said Denali is well aware of these issues,but is focused for now on the open season. "Once we get through the open season,we'll be paying attention to these issues,” as construction plans move forward,he said. When the gas pipeline plan was being negotiated in 2005 and 2006 with former Gov.Frank Murkowski,community and state officials worked closely on a detailed list of potential impacts and costs.That information is available to both Denali and TransCanada. Another issue that is high on the radar screen for both pipeline companies is the need to upgrade certain highways and bridges to handle the heavy loads of transporting pipe and other materials. The pipeline companies view these as investments in basic infrastructure that will serve the public for years after the pipeline is constructed,and that the state and federal governments should make the investments. The Alaska Department of Transportation and Public Facilities has a list of highway and bridge upgrades it wants to tackle but has been able to get approval for only a few projects from the Legislature,mostly on the Dalton Highway from Interior Alaska to the North Slope. -Wino ace youre FAVORITE GAMES AlaskaJoumal.com |AlaskaStar.com |AlaskanEquipmentTrader.com Ed Hy Yaroo!||Contact Us |Jobs |Subscribe |Privacy and Legal Information Copyright ©2007-2008 Alaska Journal of Commerce &Morris Communications inc Explore the Kenai |Visit Homer Alaska |Fishing Report http://alaskajournal.com/stories/040910/oil_img1_001.shtml 7/7/2010 The Alaska Journal of Commerce -Gas pipeline plans on schedule but bumps lie ahead 0...Page 1 of 2 ALASKAJournal,Commerce Alaska's PaperofRecord @ Established 1977 sete he eve tee CeresHOME.HENS PESTUBRES -wduEy cuaracr *, Web posted Friday,September 18,2009 tt peat aree Gas pipeline plans on schedule but bumps lie ahead By Tim Bradner Alaska Journal of Commerce Competing projects to build a $30 billion-plus North Slope natural gas pipeline are on schedule to complete cost estimates and hold open seasons to solicit customers next year,managers of both consortiums told an energy conference in Anchorage. Both groups expressed concerns over progress of talks with First Nation groups in Canada. Kris Fuhr,mainline project general manager of the BP-ConocoPhillips Denali gas pipeline project,and Tony Palmer,senior manager of the competing pipeline group led by TransCanada Corp.,gave progress reports Sept.14 at a conference sponsored by the American Conference Institute. Fuhr said the Denali group is 90 percent complete on cost estimates for a 2,000- mile pipeline to Alberta and a North Slope gas treatment plant that will be a mega- project on its own,and the world's largest gas treatment plant. Fuhr said gas plant construction will involve off-site construction of modules weighing up to 8,000 tons,much larger than previous modules built for industrial plants,and movement of the modules by sealift to the North Slope.Sealifts for the project will span two to three years,he said. Denali would also build a 1,600-man construction camp for workers on the gas plant project.The plant would be near the existing gas processing plants in the Prudhoe Bay field. Denali plans an open season to solicit gas-shipping customers for its project in 2010,Fuhr said. TransCanada's Palmer told the conference that his company is on schedule with its cost estimates to be completed by March 2010,and filing of a pre-open season application with the U.S.Federal Energy Regulatory Commission. ExxonMobil Corp.is working with TransCanada in preparation of cost estimates and the conceptual engineering,Palmer said. If FERC approves the package,TransCanda will start its open season in June and conclude it at the end of August.The company is now in discussions with potential shippers.Palmer said TransCanada expects at least some bids for capacity that will be conditioned,and the company may take up to 90 days to talk with conditional bidders before results of the open season are announced. "We are aware that some potential shippers may condition their bids based on successful outcome of a fiscal agreement with the state of Alaska.Since we are obligated to continue past an initial open season toward FERC certification,under terms of our agreement with the state,we will be able to keep the project on schedule even as the fiscal issues with the state are resolved,"Palmer said. TransCanada has agreed to a set of conditions with the state,including continuing work if the initial open season fails,in return for a $500 million state subsidy. The potential shippers Palmer was referring to include North Slope gas owners, including ExxonMobil Corp.,TransCanada's partner in planning and engineering of theproject,who has said they need a fiscal deal with the state before signing firm,long-term agreements to ship gas. TransCanada's schedule involves having the project completed by 2018,which would mean ordering materials like steel in 2014,assuming final approvals by regulatory agencies and TransCanada's board. http://alaskajournal.com/stories/091809/oil_img10_002.shtml 7/7/2010 The Alaska Journal of Commerce -Gas pipeline plans on schedule but bumps lie ahead 0....Page 2 of 2 oo Both TransCanada and Denali expressed concerns over negotiations with First Nations groups in Canada.Palmer said TransCanada has secured agreements with some groups along its pipeline route but not others,so far. Fuhr said Denali has engaged groups in discussions."We've made more progress with some groups than others,however.We need to bring more resources to bear to understand the First Nations'concerns,"Fuhr said. Palmer and Fuhr also expressed concerns about First Nation groups playing one pipeline group against the other in a kind of competition."That would greatly complicate things for a project that is complex enough already,"Fuhr said. Tim Bradner can be reached at tim.bradner@alaskajournal.com. -FAVORITE GAMES AlaskaJournal.com |AlaskaStar.com |AlaskanEquipmentTrader.com . Ed my vanoot ||Contact Us |Jobs |Subscribe |Privacy and Legal Information Copyright ©2007-2008 Alaska Journal of Commerce &Morris Communications Inc Explore the Kenai |Visit Homer Alaska |Fishing Report http://alaskajournal.com/stories/091809/oil_img10_002.shtml 7/7/2010 The Alaska Journal of Commerce -Opinion:Port authority adrift:Gas line group is losing...Page 1 of 1 ALASKAJournal,Commerce Alaska's PaperofRecord @ Established 1977 *UME EUS vege 2 om ey eee USMCT IgET TUaReOFESTUMESWUESUNTAST Web posted Friday,May 28,2010 Opinion:Port authority adrift:Gas line group is losing credibility By the Fairbanks Daily News-Miner The surest way for an organization to telegraph disarray to the public is when one of MA?its leaders takes an independent action.That's what has happened with the Alaska?Ps "pubicGaslinePortAuthority,which has just seen its treasurer go solo to make a public appear for more money for the voter-created organization. The treasurer,Merrick Peirce,is also a board member of the port authority,which was created by Fairbanks,Valdez and North Slope voters in 1999.Only the Fairbanks borough and the city of Valdez remain. The port authority has struggled mightily over the years,always seeming to be shouting "Hey,what about us?"in the talk about a natural gas pipeline from the North Slope.Clearly on the sidelines in that effort,the port authority has turned its attention to a shorter-term project -buying Fairbanks Natural Gas and taking on a coupie hundred million in debt so a much smaller quantity of North Slope gas can be trucked down the Dalton Highway to serve Fairbanks. Significant questions abound in the port authority's latest plan.Top among them is the questionable purchase price of Fairbanks Natural Gas.There's also the important matter of whether the port authority should even be involved in such a venture at all since it's not the project that voters created the authority to pursue. And now we have a port authority board member acting alone to ask the FairbanksNorthStarBoroughAssemblyandtheValdezCityCouncilfor$40,000 to $50,000 each.The money would pay off some of the port authority's debt,part of which is owed to port authority attorney Bill Walker,a Republican candidate for governor.The rest of the additional funds would be used,Mr.Peirce said,to hire a consultant to further analyze the proposal to haul gas by truck. And he says he'll bring this all up with the port authority board later -after he's already gone public with his request for more money. The motive for Mr.Peirce's approach isn't known.In fact,he might have done Fairbanks a favor by bringing the subject to light.The port authority,although a public entity,operates in a manner less transparent than other government entities. Something seems askew with the Alaska Gasline Port Authority.Its authorized purpose hasn't materialized,it's pursuing another project,it's broke and now it has a board member going out on his own. Fairbanks and Vaidez residents would be wise to view the port authority's actions with skepticism until they have sufficient reason to do otherwise. -nah,a a sea e Ace AlaskaJournal.com |AlaskaStar.com |AlaskanEquipmentTrader.com Ed nv Yxx0ot]|Contact Us |Jobs |Subscribe |Privacy and Legal Information Copyright ©2007-2008 Alaska Journal of Commerce &Morris Communications Inc Explore the Kenai |Visit Homer Alaska |Fishing Report http://alaskajournal.com/stories/052810/opi_6_001.shtml 7/7/2010 The Alaska Journal of Commerce -Study shows bullet line likely will add to customer co...Page 1 of 3 + ALASKA-Journal,Commerce Alaska's Paper of Record ©Established 1977 "FEATURES 5 WONES <-SOTAST Web posted Friday,April 9,2010 -_----_ Study shows bullet line likely will add to customer costs By Tim Bradner Alaska Journal of Commerce Preliminary estimates of what it might cost to build a 24-inch bullet line from the North Slope to Southcentral Alaska indicate that natural gas delivered through the system could be pretty expensive for gas and electric consumers -exceeding $10 per thousand cubic feet,or mcf,just in transportation costs. When conditioning costs for the gas and payment to the producing company to buy the gas are added,the total cost could be greater,perhaps 50 percent or even more, than the $7.12 per mcf Southcentral consumers are now paying for natural gas. Herel Heinze,director of the Alaska Natural Gas Development Authority,or)&; ANGDS,presented estimates his group put together to a state legislative committee in JF; Juneau. More definitive estimates for the project are being put together by a separate group,the state's in-state gas pipeline tea Those will be available in July,BobSwenson,the State's Manager for the project,told the Senate Resources Committee April 1. Several scenarios are being considered by the in-state gas team and ANGDA's work, which are separate projects.But the one being discussed most -a gas pipeline from the North Slope to Southcentral Alaska parallel to the trans-Alaska oil pipeline and the Parks Highway -could cost about $5.6 billion to build,information presented by Heinze to the Senate Resources Committee indicated. If the system ships only enough gas for gas and electric utilities in the region,about 250 million cubic feet per day,the pipeline transportation cost could reach $9.24 per thousand cubic feet. On top of that will be costs to condition the gas and remove carbon dioxide,if the gas comes from the Prudhoe Bay field.A conditioning plant could cost another $1 billion and add another $1.50 per mcf to the cost,according to ANGDA's estimates. Also,the gas must be purchased from the producing company,which will add to the price. "This is no bargain,compared to what we're paying now,”said Sen.Bill Wielechowski,D-Anchorage,co-chair of the committee. But with natural gas shortages looming in Southcentral,the state is moving to develop contingency plans to keep the heat and power on.One contingency is a bullet pipeline that could be built by 2016,which is five or six years before the earliest date a large 48-inch gas pipeline could be built from the North Slope through Interior Alaska to Canada. The state's initial plan when plans for a large pipeline were announced was to build a 24-inch spur line to Southcentral off the large pipe.This is a task on which ANGDA has focused. But last year,as a contingency in case the large pipeline is delayed,former Gov. Sarah Palin initiated a separate study of a smaller pipeline all the way from the Slope. Now the matter has gained urgency.Gas production from wells in the Southcentral region are declining and the latest estimates are that annual supply of gas could fall short of utility demand as soon as 2014,which means gas must be brought to Southcentral from somewhere else. http://alaskajournal.com/stories/040910/oil_20_001.shtml 7/7/2010 ocThe Alaska Journal of Commerce -Study shows bullet line likely will add to customer co...Page 2 of 3 baa! The state Department of Natural Resources also has said there are possibilities that additional gas reserves in the region could be developed,although this would also be at an increased cost. The Legislature also is considering additional incentives to encourage gas exploration in the region,mainly in a bill sponsored by House Speaker Mike Chenault. As for the ultimate backup of a bullet line from the Slope,Swenson said the plan so far is for the state to do initial cost estimates and permitting work,and then get a private company interested in actually building and owning the pipeline,Swenson said. But others,including Chenault and former Alaska U.S.Sen.Ted Stevens,believe the matter is so urgent the state should step in to ensure the pipeline is built even if state money must pay for a large percentage of it.Everyone agrees the construction should be privately managed,however. Meanwhile,ANGDA is working on the Glenn/Richardson highway route to Delta, with an option of extending the pipeline on to Fairbanks.The gas authority has work under way on engineering,permits and an environmental impact statement. The in-state gas team,which started its work more recently and is being managed by the governor's office,has completed a comparison of the two routes,the Parks Highway and the Richardson/Gienn highways,looking into costs and environmental concerns for either route. The team has applied for permits along the Parks Highway route,with the state Department of Transportation and Public Facilities making the applications,leaving the responsibility for permits for the Glenn/Richardson route with ANGDA. Heinze said one of the gas authority's major considerations in its work on the Glenn/Richardson Highway route is that it would preserve the option of moving gas to Valdez someday. On the bullet line,Swensan's group is working with four basic scenarios with fourvariationsofeach,for a total of 16 cases. One of the four basic scenarios involves building a gas treatment plant in Prudhoe Bay to remove carbon dioxide;a second involves moving the carbon dioxide with other components of the gas down the pipeline and extracting it in either Fairbanks or near Anchorage;a third scenario is to extract natural gas liquids on the North Slope and leave those with the producing companies;and a fourth would have the liquids move with the gas at high pressure to southern Alaska. Natural gas liquids like propane and ethane are valuable,and many people want to have them available in Interior and Southcentral Alaska as fuel or as feedstock for new gas-based industry. For each of the basic scenarios there are four different cases of volumes of gas that would be moved per day:cases of 250 million cubic feet per day,500 million cubic feet,750 million and 975 million cubic feet per day. If Jarge volumes of gas can be moved down the pipeline,the cost per thousand cubic feet of moving the gas would come down,but this would require major industrial customers for the gas as well as the utilities. Swenson said the big effort under way now is to complete the conceptual engineering and cost estimates,which will be ready for presentation to the Legislature July 1. While larger volumes of gas moving would lower transportation costs,the utilities cannot absorb more than about 250 million cubic feet per day on a year-round average.No major industrial customer for gas is apparent. The Agrium fertilizer plant near Kenai is closed and the future of a nearby natural gas liquefaction,or LNG,plant is uncertain because a key federal permit is due to expire next March. In theory,the Kenai LNG plant could see an extended operating life or even an expansion,but the plant is 40 years old and would need a major upgrading,whichwouldrequiresubstantialinvestment. If a bullet line could deliver gas to Southcentral at reasonable prices,however, other industries could take root,such as a gas-to-liquids plant making high-value fuels and other products,or a petrochemical plant based on gas liquids that could also be moved. Another way there could be larger volumes of gas moving to Southcentral is if a large LNG project were built in Valdez,which could require up to 3 billion cubic feet a day of gas moving through a 48-inch pipeline built to that plant.As a part of its open season planned this summer,TransCanada Corp.will offer the alternative of a pipeline to Valdez for any customers interested in building a large LNG plant. If that were constructed,a 24-inch spur line could then be built to the Anchorage area from a junction with the large pipeline at Glennallen. http://alaskajournal.com/stories/040910/oil_20_001.shtml 7/7/2010 The Alaska Journal of Commerce -Study shows bullet line likely will add to customer co...Page 3 of 3 m Because the gas for Southcentral Alaska would ride along in the large pipeline as far as Glennallen before entering the smaller spur line,the cost for delivering gas to the Anchorage area would be lower than it would be for gas delivered through a smaller 24 -inch pipe all the way from the North Slope. dohandd 3 E AlaskaJournal.com |AlaskaStar.com |AlaskanEquipmentTrader.com Ea sy Yarnoot ||Contact Us |Jobs |Subscribe |Privacy and Legal Information Copyright ©2007-2008 Alaska Journal of Commerce &Morris Communications Inc Explore the Kenai |Visit Homer Alaska |Fishing Report http://alaskajournal.com/stories/040910/oil_20_001.shtml 7/7/2010 The Alaska Journal of Commerce -Opinion:Reality bites pipeline hyperbole;let's get do...Page 1 of 2 ALASKAJournal,Commerce Alaska's Paper of Record @ Established 1977 "AATMunici Ye OrsipalityRatio!5 Lg aR EATURSS"HOsAE SE!3 Web posted Friday,September 25,2009 Opinion:Reality bites pipeline hyperbole;let's get down to business Prudence is a fascinating word. One way to define prudence is the act of using wisdom when looking ahead.A more practical description could be to simply assess reality and then to act accordingly. It is fascinating that of the four entities that must come into alignment if Alaska is to have any hope of moving forward on a gasline project -the federal government, state government,a pipeline builder and gas owners it is the state of Alaska that claims to know the most about producing natural resources in the context of what could be described as a mega-project.It is contemptuously arrogant. Philosopher Adam Smith referred to the invisible hand of the market in determining outcomes,but in this predicament,it is the state of Alaska or more precisely the Alaska Gasline Inducement Act that bears this enormous burden. Only 18 months ago,Natural Resources Commissioner Tom Irwin announced that the producers ExxonMobil,ConocoPhillips and BP would be "fools"to not commit their gas holdings on Alaska's North Slope at an open season,now only seven months away. Irwin's prediction was that the state,the federal government and the boards of the oil and gas producers would bring pressure on company executives to move forward with the Alaska gasline project because it was,as deemed by the administration and - its chief prognosticator,Commissioner Irwin,to be "wildly economic." Irony abounds.At a Sept.15 conference in Anchorage,TransCanada's Tony Palmer, in addressing the likelihood of a successful open season,said,"I would love to be an optimist that we will have enough commitments to advance the project with no conditions,but I expect that this is highly unlikely." While the commissioner may hesitate to respond to current realities,one of his subordinates isn't.At the same conference,Mark Myers,who works for Irwin in the Department of Natural Resources,said that it is unlikely that enough gas will be committed during the open season for the project to succeed.Myers went on to say, "We expect that there will be conditional bids,and we shouldn't be afraid of this.” Astonishing.We have gone from an administration boisterously proclaiming that the producers would be fools to not commit gas.Now they are not only accepting this,but telling us not to fear? A sea change in their position.Why? It's called reality.Initially,the Palin administration posited an AGIA that was long on exuberance and short on detail.Now we have the detail:a failed open season. But will we continue down the AGIA road that inevitably leads to delay?Or will we garner a modicum of prudence and face the hard facts that need to be deait with? Marty Massey,ExxonMobil's manager for its U.S.joint-interest holdings,has said his company is prepared to work with the state in a period measured by years to gain the changes to AGIA necessary to get stable fiscal terms. Undoubtedly,many recognize AGIA as a tool designed by the Palin administration to ensure the producers would not control the gas pipeline.One of the cardinal principles of capitalism has been upended.The state wants to determine the winning hand rather than let the market dictate. Do we wait for years?Are we not desperately in need of another substantial economic endeavor?Massive infrastructure development in the oil and gas industry is http://alaskajournal.com/stories/092509/opi_6_001.shtml 7/7/2010 The Alaska Journal of Commerce -Opinion:Reality bites pipeline hyperbole;let's get do... taking place all over the world in places like Canada,Australia,Russia and other regions. will we join this list?Possibly,but that would necessitate prudence usurping hyperbole in our willingness to face the difficult realities of negotiating with producers to establish a fiscal framework and changes to the cherished AGIA. It isn't magic,it's business,and it's something we need to get down to.Now would be a good time to do it. A world-class project is within our grasp and is necessary to keep our state economically strong.Let us inquire of prudence and follow her path forward.The other paths will only lead to delay and economic decay. an ae ae re Page 2 of2 PAND ALI DRITE 6 AlaskaJournal.com |AlaskaStar.com |AlaskanEquipmentTrader.com £9 my varioot ||Contact Us |Jobs |Subscribe |Privacy and Legal Information Copyright ©2007-2008 Alaska Journal of Commerce &Morris Communications Inc Explore the Kenai |Visit Homer Alaska |Fishing Report http://alaskajournal.com/stories/092509/opi_6_001.shtml 7/7/2010 Alaska Journal of Commerce |Utilities make first draw from gas storage Page 1 of 3 |Send to printer Close windowL Utilities make first draw from gas storage TIM BRADNER,ALASKA JOURNAL OF COMMERCE Just in time for recent cold weather,Southcentral Alaska utilities are now making their first withdrawals from a new natural gas storage facility near Kenai. "We'll be depending on gas storage for 20 percent of our estimated peak needs this winter,”Chugach Electric Association spokesman Phil Steyer told the Anchorage Chamber of Commerce Nov.26. The storage project,completed this year,"is just in time”for the winter,Steyer said.Other utilities are withdrawing gas from storage also.Enstar Natural Gas Co.said colder weather has resulted in more gas demand from its customers.| The new Cook Inlet Natural Gas Storage Alaska,or CINGSA,facility is critically important this winter because the ConocoPhillips natural gas liquefaction plant near Kenai is no longer able to divert gas to the utilities as it has been in past winters. "We are now selling all the gas we produce to the utilities.We are not making LNG at the plant,which is in a "warm shutdown,”ConocoPhillips spokeswoman Amy Burnett said. Chugach Electric,Anchorage's city-owned Municipal Light and Power and Matanuska Electric Association made presentations to the chamber on new electrical generation and power distribution projects they have under way,but uppermost of the minds of utility managers are looming long-term shortages of gas,the need to meet peak-demand periods this winter,and rate increases needed to pay for new projects and for rising prices of gas. Steyer recommended to chamber members that they plan for electric rate increases of 5 percent to 10 percent in 2013, although final numbers won't be known for some time. Enstar Natural Gas Co.rates will rise,too.Although Enstar was not at the chamber Nov.26,its spokesman John Sims said the utility has advised the Regulatory Commission of Alaska that its cost for natural gas will increase by 14 percent in the first quarter of 2013,an amount that will have to be passed on to consumers. Enstar's gas costs are expected to average $7.24 per thousand cubic feet,or mcf,in the first quarter of the year,up from $6.16 per mcf in the last quarter of 2012 and $6.71 per mcf in the first quarter of 2012. The major challenge for Enstar is simply getting enough gas for its needs in 2013,however.Sims said the utility still faces a gap of about 4.2 billion cubic feet of its expected 2013 requirement of about 33 billion cubic feet,although negotiations are continuing with producers in the region. "The fact that we are going into the new year with a gap this large puts us into an uncomfortable position,”Sims said. If Enstar is unable to secure its supplies the utility will have to ask the electric utilities to share gas they have under an agreement between the Southcentral utilities.This would be expensive,but the electric utilities have capabilities to shift to alternatives for some of their needs,such as using diesel to some extent,halting sales of power outside the region or even importing power from Golden Valley Electric Assoc.in Fairbanks. http://www.alaskajournal.com/core/pagetools.php?pageid=32708&url="2FAlaska-Journ...11/29/2012 Alaska Journal of Commerce |Utilities make first draw from gas storage Page 2 of 3 « "The electric utilities will bear the brunt of any fuel shortage because you can shut us off,”from gas,Joe Griffith, Matanuska Electric Association's general manager,told the Anchorage chamber.Enstar has no alternatives,however, and its system must be protected,he said. Steyer reviewed the gas supply situation for chamber members.Although Enstar's gap is immediate,Chugach faces its own gas supply gap in 2014 and 2015,and ML&P faces future gaps as well. Steyer cited findings from a consulting firm hired by the utilities that has forecast an annual supply gap,between total gas demand and estimated total supply,of 6.2 billion cubic feet in 2015,11.4 billion cubic feet in 2016 and 16.6 billion cubic feet in 2017. The utilities are working together now to meet those gaps with either imported liquefied natural gas or compressed gas. Suppliers of LNG and compressed gas have now responded to Requests for Proposals from the utilities,and an economic consulting firm will be hired soon to compare the proposals and make recommemndations. "Some are saying 'no,no'to gas imports,but we will have to have some kind of new gas in the pipeline by the winter of 2014 and 2015,”ML&P's general manager Jim Posey said. It's too early to know the additional cost of importing gas but at the chamber meeting Posey said it might cost 30 percent to 40 percent more than what is now being paid to gas producers in the region. LNG prices in Pacific markets are now trending downward. "There's a lot of gas on the water,”he said. ML&P improvements ongoing Posey reviewed ML&P's plans with chamber members.The city utility,which is celebrating its 80th anniversary this year, serves a 20-square-mile core area of Anchorage's downtown and midtown,including the bulk of the city's large commercial and institutional including the midtown office,university and health care buildings. To modernize and keep up with growth,ML&P has a $459 million five-year capital improvements program under way, Posey said.The bulk of this,$274 million,is for new power generation facilities including ML&P's 30 percent share of the new Southcentral Power Project now being built in south Anchorage. The new generation plants are more efficient than what they are replacing,and are expected to use 28 percent to 34 percent less natural gas to generate the same amount of power. "This is the busiest construction year we've seen in the last 40 to 50 years.The work is being driven by improvements we're making at our power plants but also to repair damage from the wind storm that hit us this fall,”Posey said. One large project underway is construction of expanded generation facilities at ML&P's power plant near Muldoon on the Glenn Highway.About 200,000 cubic yards of dirt were excavated this year at a site for a new power plant building adjacent to the existing plant.Three new gas turbines are on order,which will arrive in 2014 and be installed in 2015, Posey said. ML&P is also continuing work to replace above-ground power lines with underground lines.About $2.5 million is budgeted this year for this work,Posey said. Anew,$22 million substation is also being installed so ML&P's share of power from the new South Anchorage power plant can be moved efficiently to midtown Anchorage,the largest growth area for the utility. "The construction of new office towers has shifting our whole load to midtown,”Posey said,and the power transmission infrastructure must meet this demand.Another major customer will be Verizon Wireless,he said. http://www.alaskajournal.com/core/pagetools.php?pageid=32708&url=%2FAlaska-Journ...11/29/2012 Alaska Journal of Commerce |Utilities make first draw from gas storage Page 3 of 3 ¥ ML&P gets most of its natural gas from the Beluga gas field,where it is the one-third owner.The field is declining at rates of about 17 percent per year but continued investments in compressors and new producing wells have offset some of that. In 2011,the owners of the field,which include ConocoPhillips,which operates the field,Chevron (now Hilcorp Energy) and ML&P,invested $60 million and achieved an 18 percent to 20 percent production increase,Posey said,but the long- term underlying decline has continued. New production wells drilled in the Beluga field don't produce as much as gas,either.In the field's early years there were wells that produced as much as 40 million cubic feet of gas per day,Posey said.Now the average daily rate per well is 15 million cubic feet,he said. New Chugach plant to fire up in 2013 Chugach Electric Association's largest construction project is the new $369 million,183-megawatt Southcentral Power Project,of which it is 70 percent owner with ML&P owning the remainder.The plant is nearing completion and will be generating electricity to grid in the first quarter of 2013,Chugach's Steyer said. Chugach has a number of other projects also under way including replacements of transmission lines along the Seward Highway that serve Hope and Seward,and development of a stream diversion at Chugach's Cooper Lake hydro facility, at Stetson Creek.Stream diversions have the effect of putting more water through a hydro plant,increasing the amount of power produced,Steyer said. Things are busy in the Matanuska Electric Association service area which includes the Matanuska-Susitna Borough along with parts of north Anchorage.MEA's biggest project is construction of its new Eklutna Generating Station at Ekutna,its manager,Joe Griffith,said.Design work is essentially done on the plant as well as site preparations and a connection to a natural gas pipeline. Ten large engines that will produce the power are on order.They are large machines,19 feet tall and 60 feet long,each weighing 300 tons. The engines use natural gas as fuel but Griffith is investigating where a propane-air mixture can also be used.They can also be switched to diesel quickly,but if that were to happen the fuel cost to MEA would triple. MEA has other projects underway also including planning for a 37-mile new distribution line to move power more efficiently from the new generation plant at Eklutna to MEA's main center of demand in the Wasilla area. Tim Bradner can be reached at tim.bradner@alaskajournal.com. http://www.alaskajournal.com/core/pagetools.php?pageid=32708&url=”%2FAlaska-Journ...11/29/2012 oo am LA eetl wi mdi s we we ste OE Tg Le Board Presentation North Slope LNG to Fairbanks Project Gene Therriault,AEA Deputy Director for Energy Policy Development Mark Davis,AIDEA Deputy Director of Infrastructure Development January 10,2013 -Fairbanks,AK ¢Project Goal Project Team Approach to Project Finance ¢Schedule and Milestones amr ENERGY AUTHORITY Sea MEE Pa eet A ¢Provide lowest cost energy to most Interior Alaska consumers as soon as possible ¢Get gas first to Interior Alaska while assuring long-term access to gas from liquefaction plant for all Alaskans ¢Utilize private sector mechanisms as much as possible ence earn shear eam * mmr”ENERGY AUTHORITY . Key Assumptions °9 Bcf LNG Plant *LNG plant bifurcated into two sections (industry and utility) °$50 million capital cost reduction applied to the 4.5 Bef utility section *Regas,storage,&distribution costs are presented as a range Expected Utility Price per Mcf «Wholesale LNG:$10.33 «Natural Gas to Home:$13.63- $18.59 an.At mmr ENERGY AUTHORITY . rf A te dren inde it CDP a iF eno $18.00 '$16.00 - $14.00 | wy a,apy 212.00 $10.00 + $8.00 ; $6.00 $4.00 +7 $2.00 $0.00 Regas,Storage, and a Distribution Trucking Wholesale Natural Gas LNG to the Home Fuel Oil SetRS PasRteasPseres Natural gas will be liquefied on the North Slope and trucked to Interior Alaska Primary LNG demand anticipated to be Fairbanks and North Pole LNG will be temporarily stored and re- gasified in Interior Alaska Natural gas distribution system with storage to supply natural gas for heating ee AIDEA and oe Space Heating ->Pr==a? North Slope oT Gas Liquefaction Seasonal Distribution Supply Plant Storage|/eee |-e,ugg | Electric Trucking Regasification Industrial /; @qw ENERGY AUTHORITY AEE PLE ETN, -Gene Therriault:Deputy Director,State Energy Policy Development -Kirk Warren:Technical Engineer -Nick Szymoniak:Project Economist ¢AIDEA -Mark Davis:Deputy Director,Infrastructure Development -Jim Strandberg:Energy Development Finance Officer rere:et mame acces car actreesy ener meas ¢hee NaS al ter ote ae TO a?tyeBAASASStenDygt Pe Sols oF Clte in 4seeeaate at he rere Rar seaterarama " eR Le 2 i "Ee 2 @) * » ration!S .nae¥a t :f,wt tot onegTAeteOeteeee" ¢AEA is leading the policy development of the project -Ensure that project goals are defined and consistent with the public interest -Engage the public,industry and elected officials ¢AIDEA is developing the financing of the project -Examine finance options and commercial structure in collaboration with private party participants -Utilize available finance tools to meet project ¢Engineering consultant -Expect hiring by January 31 -Provide technical project support Project management consultant -Anticipate hiring in February ¢Financial consultant -Mark Gardiner of Western Financial Group -Retained in November omJC9).¥ mm”ENERGY AUTHORITY ¢$325 million for project in Governor's finance plan ¢AIDEA financing can be applied to different parts of the LNG supply chain ¢AIDEA will use this finance package to leverage private investment ¢$50 million General Fund appropriation -Directly reduces the cost of LNG ¢$150 million AIDEA bonds -3%interest rate (projected rate based on current market rates) ¢$125 million SETS capitalization -3%interest rate -Flexibility to provide optimal commercial structure ¢$325 million total package ¢$30 million natural gas storage credit $15 million tax credit per qualifying storage tank -Created through previous legislative action AOA St SR RE Je emtme =/=lm ENERGY AUTHORITY 2012 2013 DecembelfJanuary February [March April May June July 1 =Advertise for Letters of Interest |antral De | 2 Evaluate responses from private sector |meaaly be --- >this analysis willassess theneed for AIDEA|equity capital investmentinthe projectOu3Issuepreliminaryanalysisofsolicitations 4 Develop Contracts for AIDEA support i 4 5 Sign Contracts with engineering support 6 Sign Contracts with project management group O 7 Sign Contracts with legal/financial advisors 8 Form Financial Package offering 9 Participate and lead in P3 finance negotiations North Slope LNG project Trucking Contracts Gas Storage project Fairbanks Distribution build out 10 Engineering Analysis,technology review,underwriting 11 Legislative funds and financing accessible by AIDEA =.|sn -@mmmr”ENERGY AUTHORITY Bren ere EB AUReta ae Alaska Industrial Development and Export Authority Alaska Energy Authority 813 West Northern Lights Blvd. Anchorage,Alaska 99503 (907)771-3000 (888)300-8534 (Toll Free in Alaska) www.aidea.org www.akenergyauthority.org -_J =- uur”ENERGY AUTHORITY Alaska Gasline Development Corp.|Deliver a comprehensive in-state natural gas pipeline Mission Page 1 of 2 Contact UsAboutUsLegislativeMandate OVERVIEW PROCUREMENT REPORTS |PROJECT DOCUMENTS |NEWS |PUBLIC OUTREACH The Mission of the Alaska Gasline Development Corporation is to develop and sanction a natural gas pipeline which is designed to deliver natural gas from the North Slope of Alaska to South Central Alaska,serving as many communities as practicable,with an affordable,long-term energy solution. Click here to learn about the team > NEWS *Finat Environmental Impact Statement on Alaska Stand Alone Gas Pipeline (ASAP) Released The Alaska Gasline Development Corporation is pleased to announce the... Notice for AGDC Board of Directors Meeting Notice for AGDC Board of Directors Meeting The next Board... Alaska Stand Alone Gas Pipeline Project April 2012 The Alaska Gasline Development Corporation held a public Board of... U.S.Corps of Engineers extension of the public comment period on _the Alaska Stand Alone Gas Pipeline (ASAP)March 15, 2012 The Alaska Gasline Development Corporation announces the... Draft Environmental impact Statement (DEIS)on the 737 mile pipeline from Prudhoe Bay to Point MacKenzie The Alaska Gasline http://www.agdc.us/ GAS FOR ALASKANSPURPOSEOFTHEASAPPROJECT The Alaska Stand Aione Gas Pipeline/ASAP Project is being planned as an in-state gas pipeline designed to provide long-term,stable supplies of natural gas from the North Slope to Fairbanks and Cook Inlet areas,as well as other communities where practicable.in March of 2010,the Alaska Legislature mandated that a group of industry professionals convene under the corporate banner of Alaska Housing Finance Corporation for the specific purpose of developing,refining and producing an in-state natura!gas pipeline Project Plan by July 1,2011.The focus of the pipeline project is to supply gas to Southcentral Alaska by 2016 to offset the projected supply decline.¢finns doen akcoenalicka.comae The design of the Alaska Stand Alone Gas Pipeline/ASAP Project addresses current market demand with the capacity to expand for future growth.The project design accommodates initial capacity of 500 million standard cubic feet per day (MMscfd)of clean-burning natural gas.The initial flow rate will be 250 to 500 MMscfd,and the line will be expandable to 1,000 MMscfd.The Project Plan includes opportunity and options to export liquefied natural gas (LNG)and market natural gas liquids (NGL)to the West Coast of the United States and/or Pacific Rim markets. RELATIONSHIP TO OTHER ALASKA NATURAL GAS PROJECTS The Alaska Stand Alone Gas Pipeline/ASAP Project is an independent project and it is not contingent on any of the other projects under consideration and currently moving forward in Alaska.The Alaska Stand Alone Gas Pipeline/ASAP Project was conceived as a smaller-diameter "bullet line”that could be built on a shorter timeline to specifically address the urgent energy needs in Alaska,particularly in the heavily populated areas in Fairbanks and the Cook Inlet region.In the event the large-diameter gas pipeline projects do not move forward,the Project Plan for the Alaska Stand Alone Gas Pipeline Project positions the State of Alaska for timely response to the energy issues presently facing the interior and southcentral areas of Alaska.Relative to larger projects the ASAP Project is designed to advance quickly to construction on a shorter timeline. Another project looking at delivering North Slope natural gas via a large-diameter pipeline is the Alaska Pipeline Project sponsored by the Alaska Gasline Inducement Act (AGIA).This project has a longer development timeline and the focus of the APP Project is transporting the gas outside of Alaska,resulting in an extended schedule for delivering natural gas for in-state customers. ' 1/14/2013 USS."ANCHORAGE (LPD 23)” ATTN:PUBLIC AFFAIRSFPOAP96660-1705 www.public.navy.mil/surfor/Ipd23 -"'www.facebook.com/anchoragelpd23 -.” °| j N.In N G H CJ R pAN G E:LE E:A D)E:R S nu u Pyi The Mk 2 Ship Self-Defense System (SSDS)provides LPD 23 with an 'eps integrated self-defense capability to defend against anti-ship missilemnienngeal.COMMAND AND and aircraft attackin the cluttered littoral conflict environment.SSDSCONTROLCAPABILITYintegratesshipradarsystemswithanti-air weapons for both hardF[s .kill (RAM)and soft kill (countermeasures).SSDS synthesizesapt.Brian 1 Quin received his |demonstration;Philippine es aunched ané sf Operation EnduringFr opening sensor inputs to enhance target tracking and to form a composite track providing engagement qualitycommissionin1991throughtheNROTCprogram.nt sain de pnd Oe -tracking data.ANCHORAGE also possesses highly capable radar systems for air and horizon search and naviga-podosot NS Uni twit oe *veel;Cop la eee a at s onelsaad fefense offices the operations Giectorate tion,the revolutionary Cooperative Engagement Capability (CEC),the Mk 53 Nulka decoy system,and other mn 2007 be itt vines ix )Tooter deputy executivesistant andlag aide to the commander,U.S.THIRD weapons'countermeasure systems. jonal.Se and.;and Ja fleet,and as combat systems officer (N65)on the staff of the commander,Naval Surface Forces.He. duated withdistinctionfromtheNavalWar Mim also participated in the Office of the Secretary of Defense/Joint Staff intern program and served in:ge.From 2009 to 2011 he commandedthe a the Joint Staff's systems integration division )-6V};The design of ANCHORAGE's Command and Control architecture represents a revolutionary advance in LPD capabilities.Navy and Marine decision makers plan and execute their missions through advanced satelliteadmissiledestroyerUSSGridley(006 10Tfs Kaptain Quin's awards indude the Defense Meritorious Service Medal,theMeritorious Service communications with other ships,aircraft and'troops ashore and high speed inter-ship digital links to .CAPT.BRIAN J.QUIN phomnepe rt Gun ead oea a eete re im exchange tactical information...They employ video teleconference capability,Global Command and Controlafox,in variety of,avrards;,leverient Marine Corps Achievement eda System-Maritime (GCCS-M)for integrated tactical decision making,planning,coordination and execution of [(--_-_-_--|COMMANDING ¢OFFI GER hs ucmponand conba sions aeyon :er sl lobe pd it er ee tts Lis operations throughout the chain of command,and multiple radio non-satellite communications paths forcordbiaSodectodarkUSSDKamdeEscode.Haydet's personaldecorations indude:Meritorious Service re line-of-sight and long range communications with other commands and troops ashore.tw the western Pcl,he bin Gol andthe Meiernea Hae Cs ommend Ue aNay Maine np Khe edticipatinthe1996MountainTopadvancedconcepttechnology'Pvarionsscampaign and unit awank 23 =mdr.Joel Stewart,a native of Great Falls,Mont.,began his Navy career by enlisting in 1985 as a Fire Controlman,trained to Maintain and operate the Tomahawk Weapons Control System.He advanced to the rate of FC1 before he received his commission through the Enlisted Commissioning Program.He graduated from the University of New Mexico in 1996 with a ;Bachelors Degree in University Studies.He ©Commander Standing NATO Maritime Group ONE;in USS Mahan (DDG 72)USS Normandy (CG 60}andCMDR.JOEL G.STEWART_attended the Naval War College's Command and «USS Bainbridge (DDG 96);and commissioning navigator in USS Makin Island (LHD 8)beforeEXECUTIVEOFFICERStaffCollegeasaHalseyScholarandgraduated-_reporting as executive officer in USS Anchorage. QUALITY OF LIFE Shipboard Facilities Berthing in LPD 23,a single,consolidated galley -"Sit-up”berths bring the most visible change in berthing.Theseprovidesfourmealsadaytoover1200_three-tiered bunks allow an occupant up to 6 feet 6 inches tall to officers,chief petty officers,senior sleep horizontally or to sit up vertically to read or use a portable non-commissioned officers and writing surface.Each berth has approximately 40 percent moreenlistedcrewandtroops.Other ship -storage space than other type berths to include helmet and boot services include fitness centers,a stowage,individual ventilation,a small shelf,a magazine rack,learning resource center,and aconve-__electrical outlets,and a night-light for reading.The berthing spacesnientlylocated"central mall”complex -_are identical for any gender mix of Sailors and Marines and include that offers a barbershop,ship's store,|adjacent sanitary facilities and lounges.Senior Non-commissioned post-office,vending machines,and Officers and Chief Petty Officers do not use the sit-up berths,but other amenities..instead have six person modular "bunkrooms.” with distinction in 2007,earning a Masters of Ashore Cmdr.Stewart served on the staffs of Transient Personnel Unit San Diego,(LPO &CMAA) Arts degree in National Security and Strategic Studies.and Navy Warfare Development Command,as the ballistic missile defense concept development His operational tours include duty as a Tomahawk technician in USS Hewitt (DD lead. 966);damage control assistant and operations officer in USS Fife (DD 991);operations Cmdr.Stewart's personal awards include the Joint Commendation Medal,the Navy Commenda- officer in USS Chancellorsville (CG 62);as current operations action officer on tion Medal (7),the Navy/Marine Corps Achievement Medal (3),the Navy Good Conduct Medal (2), Commander Multi-National Forces-Iraq's staff;future plans and public affairs officerfor the NATO Medal,various unit citations and campaign awards. Length,overall:684 ft (208.5 m)ELECTRONICS: -Beam,extreme:105 ft (31.9 m)Command and Control and CommunicationseweDisplacement:25K Long Tons Ship Self-Defense System (SSDS)MK 2Sustainedspeed:22+knots AN/USG-2 (V)Cooperative Engagement Capability Global Command Control System -Maritime (GCCS-M) .Crew:360 Sailors and 3 Marines AN/KSQ-1 Amphibious Assault Direction System' ;.Troop Accommodations:699 troops (800 surge)Navigation Sensor System Integration (NAVSSI)os Main Propulsion:4 sequentially turbo-charged diesels Exterior:HFRG,UHF,VHF,EHF,SHF,DWTS,and Challengepace2ShaftsAthena and Link 11,Link 16,JTIDS,SI Comms,ADNS,TADIX AMK31Mod0RollingAirframeMissilelaunch-interior:Integrated Voice System MK 46 Mod 1 30mm guns MK 26 Mod 18 .50 cal machine guns Cargo/Ammo Magazine 34K+cubic feet Vehicle - 24K square feet Bulk JP-5 Fuel - 315K gallonsMOGAS(Gallons)= 3K gallons cMDCcM(sSWw)'PETE SANTOS }=winks?COMMAND MASTER CHIEF a Radar Systems AN/SPS-48E 3D Air Search Radar AN/SPQ-9B Surface Surveillance and Tracking Radar AN/SPS-73 (two)Surface Search Radar Electronic Warfare and Decoy Systems AN/SLQ-25A NIXIE Torpedo Decoy AN/SLQ-32A (V)2 ESM -Electronic Support Measure MK 53 NULKA Decoy Launching System 24 Beds (Ward and ICU) and 2 Operating Rooms Dental -2 Operating Rooms Medical Capabitity: EXPED IT]ONARY'!It's more than just a word.It is a mindset...a way of operating that has its roots in the birth of the U.S.Navy and U.S.Marine Corps more than 235 years ago.The expeditionary character and versatility of maritime forces including the San Antonio Class,forms the foundation for the 21st century Maritime Strategy.Implementing forward presence,deterrence,sea control,power projection, maritime security,responses to crises worldwide,and humanitarian assistance/disaster response wherever and whenever néeded.Expeditionary is the essence of naval operations from the sea -anytime...anywhere. America's expeditionary warships with their Marine Expeditionary Units (Special Operations Capable)(MEU [SOC])execute multi-mission require- ments,exploiting strategic maneuver in a sea based environment.These expeditionary forces mix highly mobile air and ground firepower with self-sustainable forces that can quickly project compelling power,withdraw rapidly,and then reconstitute to re-deploy for follow-on missions.Or the ships may be called upon to render humanitarian aid much as USS Mesa Verde LPD 19 performed along with other forces after the devastating Haiti earthquake in 2010.: Designed from the keel up for such missions the LPDs (Amphibious Transport Dock)ships,will support sustained and continuous expeditionary operations in this challenging environment.Usually referred to as amphibious transport docks,the 15 LPDs in older ship classes and the new San Antonio (LPD 17)class each have a well deck in the after part of the ship.The ship will ballast her stern to either completely flood the well deck for launching or recovering conventional landing craft or only partially for a Landing Craft Air Cushion (LCAC).These landing craft and vehicles then exit or enter the well deck when the stern gate is opened.Upon completion of these operations,the ship then deballasts and operates with a dry Well.Well deck operations may be conducted pierside,at anchor,or at sea while LPDs are moving through the water. =the commissioning ceremony for 0)AGE {LPO 73Y will take place'inher namesakeke-cityofoeMay4.2013,i shel theSecond shipCLhamedaftef,this'great tye wyewhich ba'had }'humblebeeginningsigsWh1914a59CentcityforworkersontheAAlaskaRailroad,d,It emerged at themouth01off Ship ¢Creek'andhassincegrownowntobeAlaska'tosmostpopulousity wilywithnearlya00000Fesidentsfovercoming|the devastating ¢effectsoftheGoododFridayEarthquake'in 1964emaityityindudes®lech many yeosmopolitany)attractionsiyduieMofHiststoryandFiFineArttheAas ve.Heri &Centerand 3 myriad"of 'parkskSrandFildes”thatyespects.-a a ithe diverultureofAlaska'sat indigenous people]FULS-S'ANCHORAGEhasthedistinctiongtdiitavyshiptobecaeomiisinel)sthestate 2 f iy ad foioagiead ee anesaealiedlaysSigitory =NUE MUSmLARHERye |=|a" \. i MMITTEE-INFORMATION N\\\\t ea |Chair P Social Events Public Affairs &OutreachUSNAVYLEAGUE-Buddy Whitt Lindsey WhittShannonJonesbwhitt@fsspeople.com whittla@muni.org ,ramos an (907)350-6258 oe _BONS:7103ABioaic&Siac it!iGsa =iii M lity of A ho Trans ortation ch GiftsuniciofAnchoragevesThompson .ristopher Shutte i : rgeVakalis - ; 7 ;;see =e -|Portot Anchorage .Jose Finance Invitations USS.ANCHORAGE Commissioning Committee.=_-7 aT 'i =i ===,-j-=--_t rman vs LOXaiadRichWilsonooKeimallcomSecretaryec 4 ie Box ony99509 2234oe78-2034 :retary/Recorder ===="Anchorage,- &"Crew Activities -Tim Benet end :-Julie Saupe .Fundraising oo es te (907)343-7103onBillPo i =|"aoPOPP com :_,__ussanchorage@gmail.com 5 |907 334-1206 oe ;www.ussanchoragenavy.com a i So a wiv facebook.com/ussanchoragecommissoningcommitteeyeoa.-oa .,oo ar oe en _oe |apteveaENCLOSED MAST/SENSOR SYSTEM Two large eight-sided structures enclose the ship's radar and communications antennas with an advanced hybrid frequency selective surface.The AEM/S system significantly reduces the ship's radar cross-section signature.Additionally,it protects electronic equipment from exposure to the weather -reducing maintenance workload -and improves sensor performance.The masts are the largest composite structures ever installed on U.S.Navy steel ships and represent a revolutionary advancement in topside engineering. Ley _- ey jolene de ece,(30 d Q De D e D O e ale PROPULSION AND AUXILIARY SYSTEMS Four,16 cylinder,sequentially turbocharged main propulsion diesel engines (MPDEs),each generating 10,400 HP,drive two shafts and their controllable pitch propellers,enabling the ship to attain greater than 22 knots through the water.Five 2500 KW Ship Service Diesel Generators (SSDG)provide electrical power and seven 200-ton York air conditioning units keep ship's equipment and the crew comfortable.The ship features an all-electric auxiliary's design,which includes electric heating,electric water heaters,and a 72,000-gpd reverse osmosis water gener- ating plant. 7 Sk Pn,OO ee woe ee EePTREE RS EO "on dare: MeeeteammeterteeewotWenteeeeeReeeee TACTICAL LIFT.CAPABILITY -MOBILITY TRIAD LPD 23's aviation facilities include a hangar to accommodate a flexible mix of helicopters and the Marine Corps 'tilt-rotor MV-22 Osprey aircraft,and an enlarged flight deck capable of supporting all Marine Corps rotary-wing operations.The Osprey is an assault transport for troops,equipment,and supplies,and will be capable of operating from ships or from expeditionary airfields ashore.The wings rotate for compact storage aboard ship. The ship's well deck is sized for the launch and recovery of one conventional landing craft,the Landing Craft Utility (LCU)or two 40-knot LCACs -each capable of high speed transportation of 60 tons of cargo and vehicles,or one M1A1 tank.With two fully loaded LCACs in the well deck,the ship can also carry 14 or more of the Marine Corps Amphibious Assault Vehicles (AAVs)in -4itsvehiclestowagespaces.AAVs are truly amphibian,- launching over LPD 23's stern gate and moving together | toward the beach.The ability of LPD 23 to carry both LCACs and AAVs simultaneously enhances operational flexibility as commanders prepare for a variety of missions, teeiiwen ta OUD 2 *(NETLTNAESNy - i e ship sop ed the separation of redund emsa :ee Riargets fThe:System,lisesa 'forwardpeeinfrared 2ipboard to : ”a7 television:mcamerafandlaser fangé,"firider;witha cel tr and iy Nd:enadyinlott 1 OuUS Sp g or thé be g Sp d well de d Aqueo O g Foam for Sp q ified system toooptimizeaccuracy against small,,high-speed :surfacetarget The,:0 :'includ :::paces aaa sour an Berpparstedsg Reales 6'gun'sWeaport |tionaeorePOp¥E protec °[=we Dé presen (De 2 .fireded remotely by 3j re is) RIM 116 ROLLING AIRFRAME.tiMISSILE(RAM)ace aie BLACK&VEATCHPETROIFUM NEWS ©WEEK OF DECEMBER 4,2011 @ NATURAL GAS Black &Veatch study recommends stubs Natural gas off-take stubs would be built as line from Alaska North Slope is built;activated when commercial agreements reached eta sere essw By KRISTEN NELSON eresAMP 2 NLASKA i PRELIMINARY ORAFT FERC APPLICATION NOT FOR CONSTRUCTION| AMP 350°. LESCOL RST H suet Bareoeadl ¥ aS Or te! 50,3: " AMP 300 4 YUKON AMP 400 3 AMP 4! eyFarbanksaN st *Boundaryer8Ghar%, :;AMP 600 \so eset SE Rp Petroleum News A study by Black &Veatch for theAlaskaGasPipelineProjectOffice, GPPO,is recommending that the best way to provide local off-take from a large-diameter natural gas pipeline would be to install stubs during construction. Kurt Gibson,GPPO director,said in a Nov.28 press release that installing stubs as the line is built would provide gas off- takes that "are both reasonable and adapt- able to community needs.” The focus of the Alaska Pipeline Project continues to be a line to commer- cialize Alaska North Slope natural gas, GPPO said. Gibson said the Black &Veatch "study identified the possibility of installing stubs at strategic locations along the route that could be activated -- 'hot tapped'-at some point in time after completion of a big gas line.”He said that "approach provides flexi- bility for communities,utilities and other parties interested in accessing natural gas to enter into commercial agreements for obtaining gas on their own schedule.” Capital costs for a community gas off- take system -not including the local distribution system -were in the $150,000 to $200,000 range,per loca- tion,with an estimate of $50,000 to $75,000 per year in operation and main- tenance costs per location.oeemwiecawTwo options considered The Black &Veatch report said GPPO identified two potential options to facili- tate delivery of natural gas to small com- munities and industry:compressor sta- tion side stream and stub gas delivery. There will be eight compressor sta- tions along the line to maintain gas pres- sure and they require natural gas atRS reduced pressures to fuel compressor tur- we wrtra LEGEND Propeted Aouie Mner-75t AMP inchs Maining Meson PMP Port Tnomoon Gas Pipeline Miapoat @ Foca £ @ Poovuws Pace SS Propomed Aisshe Moinine Figure 1.1-1 US00-039-000 Alaska Pipeline Project Project Overview thee bines and other utilities,typically 600 psi compared to the 2,500 psi mainline oper- ating pressure. Drawing off gas at compressor sta- tions would take advantage of the reduced pressure,but Black &Veatch INDUSTRIAL SERVICES,LLC Subsidvecy af Bristol Bay Native Corporation Eo *Biodegradable cleaning solutions.©Asbestos and lead surveys and abatement ®Special ings and ©Corrosion under insulation refurbishment 9 9 ®Tank and vessel cleaning he ©Hazardous waste removal *Oil spill response *Operations,maintenance and construction: Customer focused.Safety driven.Process oriented, VISIT OUR WEBSITE:Ww w.CClindustrial.com PHONE:907.258.5755 EMAIL:info@cciindustrial.com said it found that "business and regulato- ry concerns”were likely to make such delivery points unfeasible.Also,such gas would be available only to communities "within a feasible distance to a particular compressor station.” The other option studied,the use of stubs,would include installation of stubs at points on the line identified for off- take during mainline construction. A small diameter stub piece of pipe "would be welded on and tested during construction of the pipeline.The stub would not have live gas in it and its end Jocation would be marked with a standard pipeline marker for future reference once a commercial agreement has been reached for the community the stub would serve,”the report said. Hot tapping Once a Jocal community or industry reached a commercial agreement to buy <4 gas,the pipeline would need to be tapped. "The hot tapping procedure would invalve removing the stub cap and secur- ing an isolation valve to the end of the stub.liot tapping equipment would then be connected to the isolation valve,the see PIPELINE STUDY page 10 In-state gas line 'feasible,'report says Page 1 of 2 od print In-state gas line 'feasible,'report says by Chris Eshleman/ceshleman@newsminer.com 07.05.11 -02:02 pm ANCHORAGE -An in-state natural gas pipeline looks far better than previous expectations,according to a comprehensive report today. The line could deliver gas to Fairbanks at less than one-half the current price here,according to the state-owned Alaska Gasline Development Corp.'s analysis. The lower price is achievable without a major cash payment from state government,the report said.The finding counters claims that the intrastate pipeline would need subsidies. But such a pipeline could only be operating in seven or eight years,later than some had hoped,the report said. A pipeline could also deliver competitive prices to Anchorage,the authors concluded. The estimated Anchorage prices are "'far better than I ever envisioned,”project chairman Dan Fauske said. The Legislature ordered the report last year.Policymakers and Gov.Sean Parnell are comparing options as they push for development at the North Slope's vast natural gas fields. The report estimated the line could deliver gas to Fairbanks at a price of $10.45 per thousand cubic feet.That would significantly "lessen”energy costs in Interior Alaska,Fauske said.The price would be around 8 percent cheaper in Anchorage. The intrastate line would cost around $7.5 billion with trimmings.Fauske's estimated prices would apply assuming a builder borrowed 70 percent of the cost of construction. Fauske said using a route that lies west of Fairbanks would minimize costs. Fairbanks could be fed through a feeder line. That conclusion will frustrate some here:Public and business leaders have lobbied for the main line to pass through Fairbanks to provide direct access to larger volumes of gas. The Fairbanks North Star Borough Assembly voted 6-1 last summer to fight any construction scenarios that bypass town.Proponents said a feeder pipeline would limit the sort of long-term industrial development opportunities that access to greater volumes would provide. Work by the gasline corporation,a subsidiary of the Alaska Housing Finance Corp.,identifies the bypass route as the best alternative.Fauske suggested sticking with it and moving ahead.He said state government could complete an http://www.newsminer.com/printer_friendly/14576182 7/6/2011 In-state gas line 'feasible,'report says Page 2 of 2 + environmental review by early 2012.The corporation's review project focused largely on early permitting and engineering work. Many worry a multibillion-dollar intrastate gas pipeline would pull the rug from beneath a bigger option -a pipeline built largely to ship gas for export.Such a line could lower delivered prices and would benefit the state through royalties and taxes and by encouraging North Slope oil exploration. Advocates of the bullet line say they won't compete,a notion Fauske echoed today. Parnell said the report "leaves some flexibility”as policy makers consider options and represents "a positive foward in solving Alaska's energy challenges.” Contact staff writer Christopher Eshleman at 459-7582. ©newsminer.com 2011 http://www.newsminer.com/printer_friendly/14576182 7/6/2011 Governor Parnell Issues Statement on EPA Air Permits Page |of 1 * O sHaRe Et CI Governor Parnell Issues Statement on EPA Air Permits Government News July 1,2011,Juneau,Alaska -Governor Sean Parnell issued the following statement on the federal Environmental Protection Agency's (EPA)issuance of draft air quality permits for Shell Oil's Beaufort Sea exploratory drilling operation. "My administration welcomes the reissuing of air quality permits by the EPA.We're cautiously optimistic that after years of effort,the EPA has finally issued air permits that will hold up to the legal challenges of the national environmental organizations.With billions of barrels of oil available in the Alaska OCS for domestic production,thousands of family wage supporting jobs,and economic development for communities,Alaska is ready to help lead the nation toward economic stability.Our goal remains to gain greater energy independence,and to restore the flow through the Trans Alaska Pipeline to one million barrels per day.We believe bringing Beaufort Sea oil to market is in the best interest of our state and nation." . The permits now enter a 30-day public comment period,and there are other regulatory hurdles for Shell,such as obtaining approval from the Bureau of Ocean Energy, Management,Regulation and Enforcement.Shell purchased the leases in the Beaufort Sea in 2005. http://www.akbizmag.com/more/12850-governor-parnell-issues-statement-on-epa-air-permi...7/6/2011 More meetings of the Interior Alaska Natural Gas Utility.|Webcenter1 1.com Page 1 of 1 Username Password JO }LLean ) Create User Account NEWS #@ CENTER: Home News Weather Sports Entertainment Community Features Contests Marketplace Mobile AboutUs More meetings of the interior Alaska Natural Gas Utility. Stay Connected More meetings of the Interior Alaska Natural Gas Utility. ff](tj Submitted by jrlewis on Wed,2013-01-16 07:23 More public meetings yesterday with the newly formed Board of Directors for the Interior Alaska Natural Gas Utility. Giving a presentation before the Board,Fairbanks Natural Gas CEO Dan Britton. FNG is being asked to be one of the major players in the Borough's quest to truck cheap gas to Fairbanks. Recently the entity announced that Pentex Alaska Natural Gas company and its subsidiaries have submitted a comprehensive response packet to the Alaska Industrial Development and Export Authority in regard to interest of a North Slope Liquefied Natural Gas Plant. Pentex Alaska Natural Gas Company controls both Fairbanks Natural Gas and Polar LNG. Reached for comment,Board Chairman Bob Shefchik says all offers are getting their collective "ear,”and the time to put a definitive plan into action is long overdue. He told us "At the end of the day,it's the cost to the homeowner.You're looking at from $4,000 to $6,000 a year for home heating costs right now at $4 a galion diesel and it is killing the community.And so to look to get to $15 equivalent or less of gas is $2 diesel.And that is our goal and it's to reach as many people in the borough as quickly as possible.” Officials with Pentex say their proposal provides opportunity for a public-private partnership between Pentex and the State,which ultimately will result in abundant,lower cost natural gas and propane to the Interior. They say their proposal is turn-key and addresses acquisition,liquefaction,transportation,storage and disbursement of natural gas and could jead to gas rates,ultimately,priced down to 13 dollars per thousand cubic feet. Log in to post comments http://www.webcenter1 1.com/?q=content/more-meetings-interior-alaska-natural-gas-utility 1/16/2013 Smart Grid Triple Play |Articles |Distributed Energy Page 1 of 9 Search HOME |SUBSCRIPTION SERVICES |EVENTS INTERACT Browse All Blogs Issues By Topic Newsletters January-February 2013 Smart Grid Triple Play Distributed energy,thermal storage,and demand response score highest on the smart grid. Share Share Tweet {o|0 Article Tools RSS Save Print Email Create a Link to this Article Photo:New Belgium Brewing Additional Article Content «Smart Grid Triple Play +Cyber Security You may also be interested in... *Energy Watch http:/Avww.distributedenergy.com/DE/Articles/Smart_Grid_Triple_Play_19986.aspx 1/16/2013 Smart Grid Triple Play |Articles |Distributed Energy Page 2 of 9 adopted as a stepping stone towards the ultimate goal of +Energy Watch creating FortZED,a net-zero energy district wtthin Fort Collins.*Soaring Energy Bills Put One Customer on a Power Trip to Make Its Own *LA Utility Targets Molten Carbonate and Biogas for Fuel Cell Efficiency *Cheaper Energy by Going to Waste New Belgium played a special role because it has distributed energy assets,*Distributed Energy:Capturing the Benefits thermal storage,and the ability to reduce some of its manufacturing process of Regional Demand Responseload.But the pilot included a load reduction target of 85 kW,and aligning the various assets revealed some challenges and some opportunities.AccordingtoSkinner,"It was challenging for us in a way that we didn't anticipate. Finding dispatchable load opportunities forced us to take a hard look at our processes and equipment.” Some of those reductions involved air handling unitsinNewBelgium's packaging area,but just communicating with the HVAC control system proved difficult.Additionally,the plant's packaging materials and equipment have specific humidity and- temperature requirements that had to be maintained. But other load reduction efforts went smoothly,such as reducing the power consumption of cooling compressors with a 50,000-gallon coldwater tank. Ultimately,New Belgium met the reduction targets q and had equal success with their distributed energy Photo:New Belgium Brewing assets. New Belgium Brewing facilities a Easy Digestion for Cogenerator For the task of sending energy onto the grid New Belgium used three resources,a 500-kW cogeneration system,a 262-kW generator,and a 200- kW photovoltaic (PV)array.Producing beer provides plenty of organic material for aerobic digestion,and the 500-kW Guascor generator uses the digester's biogas. "The facility consumes around 1,300 to 1,600 kilowatts,”explains Skinner."But that's dependent upon the time of year.With the generators and the PV7-hae =eke SE ee .producing almost one megawatt,there have beenPhoto:Spirae Inc. ;times when the plant runs totally off of our ownElectricvehiclechargingstationsatFortCollinsCityHallresources.” All told,technical partners within the RDSI orchestrated the dispatch of over 4,000 kW of distributed generation as well as 760 kW of dispatchable load reduction,and New Belgium's contribution made it possible to exceed theprogram's goals,says Bill Becker,director of business development at Spirae Inc.,Fort Collins.As one of three lead technical partners (along with the Brendle Group and Woodward Inc.)of the Fort Collins'RDS!project,Spirae was responsible for management and coordination of the distributed energy assets at the project's five site partners;Spirae deployed its BlueFin active distribution management software platform. Becker notes that the Fort Collins project was among the highest performing of all RDSI projects in complexity and outcomes."The target was 15%,and we were shooting for a 20%reduction with distributed energy and energy efficiency,”says Becker."It's a substantial reduction and an ambitious goal,considering the fact that the last twosummerswereveryhot.If a utility was at the point where growth required new feeders or substations,a 20% reduction could delay that expense for many years.And this means both infrastructure and substations,or having to build peaking plants to handle these loads or buying megawatts during peak times on the open market.” Of course,not everything went perfectly.Becker notes that reliability is a key issue with energy assets,and in some cases there were hiccups with older generation units."We did have an occasion where the demand drifted up and we had no more assets to call on,”he recalls."So,if you're shooting for 20%,it's important to have more than that amount in generation or reducible load,because the assets may not always be available.”As for New Belgium's http://www.distributedenergy.com/DE/Articles/Smart_Grid_Triple_Play_19986.aspx 1/16/2013 Smart Grid Triple Play |Articles |Distributed Energy Page 3 of 9 issues with accessing the controls of the HVAC system,there's a worldwide movement to solve that problem,and it will play a major role in another worldwide movement,the smart grid. Standards Provide Invisible Transparency Standardizing the connection of commercial buildings to the smart grid is the main focus of a new strategic relationship between LonMark International and OpenADR.LonMark is a nonprofit association for the certification, education,and promotion of interoperability standards for control networking,and the Open ADR (Open Automated - Demand Response)Alliance is a nonprofit created to foster the development,adoption,and compliance of an open smart grid standard. New Belgium could have benefitted from LonMark's base of nearly 400 member companies that manufacture, distribute,develop,install,or use systems based on the ISO/IEC 14908 body of standards.The technology selection has exceeded 550 interoperable products,all certified and listed on the organization's website,along with nearly 600 people trained and certified as LonMark Certified Professionals. According to Barry Haaser,the Executive Director for both LonMark International and the OpenADR Alliance,the need is great to provide a standardized mechanism to communicate price changes for DR events in an automated fashion,rather than manual intervention."Typically,demand response involves a phone call or e-mail from the service provider to the customer asking them to participate,”says Haaser."LonMark provides the core technology automation that's invisible and transparent to the building's occupants using a low level methodology to control HVAC or appliances.” Moreover,the automation can also control distributed energy assets."We talk about the customer and integrator,and the open standard will usher in a whole new era of energy efficiency;this also provides an interesting incentive for distributed energy resources because utilities are looking to shift load effectively,”says Haaser."The other area we're watching is storage.What will storage systems look like,and can they make it to a price point that makes sense for the industry?” High prices are often touted as the major roadblock to widespread adoption of energy storage.But is it accurate? That depends on the type of storage,according to Gary Connett,director of environmental stewardship and member services at Great River Energy,Elk River,MN.Great River has achieved widespread adoption of energy storage, though it's electrical to thermal,as in hot water stored in grid connected residential water heaters. The Perfect Storage System "Everybody's looking for the perfect battery for storing energy,and we think we already have that right here and now,” says Connett."It's spread out around 70,000 homes in our service territory as large capacity electric water heatersthatwechargeonlyfrom11p.m.to 7 a.m.So,every night,we can put around 15 kilowatt-hours in each of thesewaterheaters,and we have a battery that is in total bigger than a gigawatt,and the largest battery in the Midwest.” Great River started the thermal storage program 30 years ago,and has another 30,000 peak shaving water heaters that are curtailed during critical peak hours in the afternoon."That kind of peak shaving strategy is typical for most utilities,but we're different,”notes Connett."As members of the wholesale electricity market,we see the hourly wholesale prices 24 hours ahead of time.For example,last night our prices off-peak were $17 a megawatt-hour,or $1.7 cents a kilowatt-hour.If we can buy this energy at a very low cost and charge hot water heaters at night,wehaveanarbitragesituationwherewe're buying low and selling at much higher cost time periods through the use of hot water consumed during the day.” Consumers that use the super-insulated water heaters with 85 or 105-gallon capacities get a price break;so in essence,the co-op has made it profitable for 70,000 customers to host a maintenance-free distributed energy resource,and Connett expects the arbitrage opportunity to grow at other utilities as they continue to buy more electricity from wind power resources.Such is the case at PJM,the world's largest regional transmission organization (RTO).With more than 700 utilities in its membership,PJM is responsible for coordinating the movement ofwholesaleelectricityinallorpartsof13statesandtheDistrictofColumbia. Both PJM and Great River are using thermal storage technology supplied by Steffes Corporation,Dickinson,ND,but PJM has spent the last two years piloting a smart grid-enabled version of the Steffes system,and according to Scott http://www.distributedenergy.com/DE/Articles/Smart_Grid_Triple_Play_19986.aspx 1/16/2013 Smart Grid Triple Play |Articles |Distributed Energy Page 4 of 9 Baker,senior business solutions analyst at PJM,the two-way communication of the smart grid makes it possible to take storage and demand response to a new level. Maintaining the 60-Hz Speed Limit "There are a number of companies that have demand response capability,but Steffes is special,because not only do they look at the price of heating the water,they also heat the water in a fashion that follows a control signal fromPJM,”explains Baker."We use this control signal to balance our system second by second.So it's kind of like fine- tuning to make sure we're constantly in balance.The electric system has to operate at 60-hertz frequency.In the past,if the frequency deviated above or below,we had to make fine-tuning adjustments by either increasing or decreasing our generation,and that's how the system has been operated for hundreds of years.But what's new is the trend to adjust load like water heaters,air conditioners,large pumps,or any kind of adjustable load.” The ability to fine-tune the system during shoulder hours when spinning reserve is too high and can't be ramped down fast enough %is Critical,adds Baker."The way Steffes acts like a generator is thatthaitsendsdatatoPJMthatit's going to heat water at two kilowatts, but if PJM sends an updated signal,it can adjust that two kilowatts around the baseline to meet our balancing requirements.This could also be any building,industrial,commercial,or residential,andcertainlytherearealotofindustrialbuildingsparticipatinginthe energy market today.But there are only so many steel plants ina wholesale market,and once you sign them up for demand response,you have to keep seeking new business.Yet,the residential space is largely untapped.” top oe Although Baker describes the Steffes pilot as being tichtaltenaae é ai surprisingly effective,he notes that there are stillPhoto:Wright Hennepin Cooperative Electric Association challenges,and they are related more to the smart grid,rather than thermal storage.First,there's the issue of cyber security (see the Cyber Security sidebar to the right),and Baker notes that as utilities add more Information Technology (IT)pathways to energy production,they add more exposure to cyber security attacks.Then,there are regulatory issues, and the investor-owned utilities have something of reputation for moving slowly.So slowly in fact,that FERC has been forced to intervene with regulations that remove impediments to progress in the adoption of smart grid and demand response technologies.And finally,there are many cases of a systemic opposition to demand response from utilities and peak shaving plants that see their investments threatened by new technologies that don't require the same level of capital intensive generator hardware. eee ene A roofmounted PV system charges the Silent Power battery system. Yes,there are some challenges,but decentralized thermal storage will continue to grow,according to Paul Steffes,CEO of Steffes Corporation."We've been doing electric thermal storage for 25 years and approaching 100,000 installations in the US and Canada,”says Steffes."Then,five years ago,we started developing smart grid technology and our units have been in the field over two years.”Steffes'technology isn't limited to residential water heaters. More than 100 units are in place in schools throughout Montreal Canada.Moreover,the company also does electrical thermal storage for space heating. Heating Brick by BrickSteffescitesalargeoffice building in downtown Montreal that's heated exclusively with his company's 500-kWhspaceheatingunit.It's roughly about the size of a refrigerator,and operates on the same night recharging principleasthewaterheaters,but stores the heat (up to 1,600°F)in ceramic bricks.At Prince Edward !sland,Canada,the local utility has distributed space and water heaters to create a thermal energy storage system to maximize energyfromfourwindturbines.By connecting them in a grid interactive configuration,the utility can harvest more nighttime hours of the wind's renewable energy,while reducing the consumption of oil for space and water heating during the day. http://www.distributedenergy.com/DE/Articles/Smart_Grid_Triple_Play_19986.aspx 1/16/2013 Smart Grid Triple Play |Articles |Distributed Energy Page 5 of 9 The price of heating oil and diesel fuel can create severe financial hardship upon remote villages.For example,the residents of Tuntutuliak,AK,a village about 450 miles from Anchorage,have relied solely on electricity from diesel generators,with costs at a staggering 60 cents per kilowatt-hour.The winter temperatures average -2°F to 19°F,and the village uses plenty of electricity for heating,so residents welcomed the chance to join three other villages in a project to bring wind turbines to the area.The project is a partnership between Alaska's Emerging EnergyTechnologyGrantFund,the Chaninik Wind Group,and Steffes.Each village received 450 kW of wind turbine power and,so far,about 20-30 homes have Steffes space and water heating units that are storing the turbine's energy when it peaks during evening hours.The ultimate goal is to hit a 40%fossil fuel reduction by 2015. The cold temperatures and expensive oil prices in Alaska make it an ideal market for thermal storage with hot water and space heating,but if we travel down the West Coast to California,the use of ice for thermal storage offers the same advantage-low-priced nighttime electricity stored as thermal energy for use during peak daytime hours.For example,in Redding,CA,the Redding City Council recently approved an expansion of Redding Electric Utility's Thermal Energy Storage Program with Ice Energy,Glendale,CA.The company's Ice Bear system works in conjunction with commercial direct-expansion air conditioning systems,storing thermal energy in the form of ice,and using the ice to displace the operation of commercial air-conditioning condensing units during on-peak periods. Bearing Up Under Hot Weather Currently,40 commercial buildings in Redding have Ice Bears,and those installations have exceeded 1 MW of peak demand reduction.The program to install Ice Bear units within the northern California territory aims to reduce peak electricity load demand by up to 6 MW over five years., "The net impact is that we've taken about 95%of the peak demand of an HVAC unit off the grid during peak hours,” says Mike Hopkins,executive vice president and general counsel!at Ice Energy."I think that there's been a lot of progress in smart grid performance,but when it comes to metering and the ability to read the load at the micro level of the grid,there hasn't been as much.And that's where the Ice Bear is having a major impact.It gives the utility the ability to meaningfully impact load and adjust to meet the actual conditions at that location on the grid.An example would be the ability in real time to use that six-hour storage resource in each Ice Bear and shift it around.So if there is a heat wave condition but it comes on earlier than was forecast or goes later than was forecast,the utility can bring that storage forward or move it back in real time.” ice Energy has a 53-MW program with the Southern California Public Power Authority,and Hopkins notes that such projects are evidence of a major shift in how utilities solve problems of grid congestion."Often,an Ice Bear program is more effective than the traditional solutions that utilities used to deal with a congested feeder or a substation that needs an upgrade,”he explains."The Southern California Public Power Authority deal went across multiple grids just to reduce overall peak demand,but the more common projects that we're doing these days are focused on maybe two or three megawatts to serve particular substations or collections of feeders that are congested.” In the case of companies that required cold temperatures in their manufacturing process,the thermal storage could is often available,yet untapped.In past issues we've covered the demand response savings at Oxnard,CA-based Mission Produce.After a survey from Powerit,Seattle,WA,Mission Produce found six areas for energy management and demand response automation,including:cold room evaporators with variable frequency drives (VFDs), condensers with VFDs,Freon refrigeration compressors (sequencing and staging),hydro-coolers,ripening rooms, battery chargers,and lights. "Mission Produce combined demand response,demand control,and energy efficiency to drive down their average electricity bill by 33%,”says Kevin Kiustner,CEO,Powerit Solutions."That was at one site;they've also rolled out our system to other sites,and are now using it for benchmarking as well.With technologies like Powerit Solutions'Sparasystem,you can monitor energy consumption in real time,load by load.You can also see the cost of consuming thatenergyinrealtime,load by load,and most importantly,do something about it in real time.Now you can curtail loadswhentherearespikesinenergyrates,and earn payments by cutting back when your utility calls a real-time demand response event.” Kiustner notes that the opportunities will grow as the smart grid evolves."Next-generation smart grid programs require more frequent responses--perhaps five to 10 times a week-with shorter durations.Businesses must have automated response capability to http://www.distributedenergy.com/DE/Articles/Smart_Grid_Triple_Play_19986.aspx 1/16/2013 Smart Grid Triple Play |Articles |Distributed Energy Page 6 of 9 participate.And with the rise of altemative,onsite power generation,automated demand management systems will need to be able to take pricing and usage data in real time from the meter and the grid,and then provide intelligent analysis around the tradeoffs of paying peak demand pricing,participating ina DR event,or bringing that onsite energy into play.” Data Points,Millions Today.Billions Tomorrow? The rise of intelligent analysis of data has helped large-scale aggregators of demand response customers.For example,EnerNOC,Boston,MA, works with more than 100 utilities and grid operators worldwide,using energy management for commercial, institutional,and industrial customers that participate in demand response programs.The company recently won a $10 million contract with the Massachusetts Department of Energy Resources to help reduce electricity consumption at 480 state buildings.The project involves metering the buildings and analyzing data from more than 2 million data points as it's streamed to EnerNOC's network operations center. Energy management is key. According to Greg Dixon,senior vice president of marketing at EnerNOC,using energy curtailment and data for demand response programs is growing,but making use of distributed energy assets has yet to match that progress."New York and New England are hotspots,but very few developers and owners of CHP Systems are actually aware of this,”says Dixon."Distributed generation is a form of demand response,and if you have an emergency generator onsite,you can in certain markets use it for demand response purposes because it's relieving the grid of a strain.Even generation that's running continuously has value to the grid.If it's something like a one-megawatt system that could run in prime power mode for 12 hours,we could bid the power into the market for energy purposes of capacity or ancillary services.” Thermal energy storage is getting a boost from both utilities and aggregators such as EnerNOC,but traditional electrical battery technologies are also seeing benefits.If we circle back to Great River,we'll find that it is one of three co-ops currently involved in a $5 million demonstration project under the umbrella of a National Rural Electric Cooperative Association (NRECA)$34 million grant program.The project's goals include the implementation of software systems to manage the large amounts of smart meters;pilot testing of in-home displays to signal homeowners when electricity prices spike;providing customer access of electricity usage data via the Web; enhanced demand response management tools;and the demonstration of energy storage devices,including residential battery storage systems and grid-interactive electric thermal storage water heaters. "A company called Silent Power is contributing to our distributed energy storage system,and we havea fair numberofmembersthatareinstallingphotovoltaicsolarpanelsandsomecustomerswithsmall-scale wind turbines on their homes and farms,”explains Connett."So,within our smart grid demonstration project we're installing upwards of 20SilentPowerbatteriesatresidentialhomes.If the wind blows all night or it's an incredibly sunny day,that creates a lotofenergyforstorageinbatteries,and they could be downloaded between four o'clock and eight o'clock tomorrow afternoon when the demand for energy is at its highest.” A Battery of Technology ChoicesAccordingtoJohnFrederick,CEO of Silent Power,Baker,MN,it's worth noting that the word "downloaded”has important implications for grid control."Our battery systems can add reactive or inductive load to the grid,”saysFrederick."And they are tied to the grid,so let's say there's a home and it's only using a kilowatt of energy for the typical load.Our device is outputting 4.6 kilowatts,so with only one kilowatt consumed by the home,the other 3.6kilowattscouldgoouttothegrid,and the utility would see a total reduction of 4.6 kilowatts even though the home is only using one kilowatt.” Silent Power is also supplying 15 of its systems for a distributed energy storage pilot with the Sacramento MunicipalUtilityDistrict(SMUD)in California.The $5.9 million project aims to determine how battery storage can provide extracapacityduringpeakdemand,such as the hottest hours during the summer.The project is funded by a $4.3 milliongrantfromtheDepartmentofEnergy,with the remainder coming from SMUD,the California Energy Commission,andSunPowerCorp.In this case,the battery technology is lithium-ion,but Frederick notes that less expensive lead acid batteries are often used. http://www.distributedenergy.com/DE/Articles/Smart_Grid_Triple_Play_19986.aspx 1/16/2013 Smart Grid Triple Play |Articles |Distributed Energy Page 7 of 9 "We've used advanced sealed lead acid batteries with absorption glass mat designs that are relatively high cycling, and lithium-ion batteries,”says Frederick."Lithium-ion are still pricey but amazing in their recycling and efficiencyperformance.The absorption glass mat sealed acid batteries are relatively inexpensive and work fine in many applications,such as the cooperatives pilot.So the fact is not one size fits all.” Though one size doesn't fit all,some technologies may fit better in larger power configurations.Zinc bromide flow batteries offer a technology that concentrates power in large manageable sizes.For example,ZBB Energy Corporation,Milwaukee,WI,manufactures modular,redundant,and scalable architecture from 50 kWh to 2 MWh or more from a single point of system connection.The company recently won a contract to provide its EnerSystem integrated power management product for a microgrid installation at the Joint Base Pearl Harbor Hickam US MilitarybaseinHonolulu,HI. The ZBB EnerSystem will intelligently manage inputs of various energy sources on the base that include an existing photovoltaic solar power system and new wind turbine system.The deployment is part of the first phase of a three- phase,$30-million multi-government agency project known as Smart Power Infrastructure Demonstration for Energy Reliability and Security,or SPIDERS.The mission of SPIDERS is to reduce the risks associated with unreliable power by establishing the standards and technology for smarter,more secure and robust microgrids that incorporate renewable energy sources while decreasing vulnerability to cyber attacks. The military's need for security and stability is a key factor in moving technology forward for the smart grid,according to Dan Delurey,executive director of the Association for Demand Response &Smart Grid (ADS)."One of the biggest bright spots for the smart grid and distributed energy is the military,”says Delurey."Their overall thrust towards sustainability and energy comes from the Congress or executive order,and they are very focused on microgrids and looking at distributed energy as part of that.In San Diego,they are very active and bullish on demand response and working on microgrids with the Navy.But they also see the regulatory waters required for demand response.” The Department of Energy and Environmental Protection has a budget of $20 million to test microgrids at a number of municipalities,and the US Department of Energy has committed $55 million for eight microgrid projects.On a state level,Connecticut has launched a microgrid pilot.On a county level,the Santa Rita Jail in Dublin,CA,has a microgrid that has been featured in this magazine's pages,and we've covered a 30-MW microgrid at the University of California,San Diego. The growing interest in microgrids hasn't escaped the attention of GE Digital Energy,Atlanta,GA.In October 2012, the company launched its Multilin Microgrid Control System,a product designed to help permanently islanded or grid- connected microgrid operators integrate renewable energy and fossil fuel-based resources.Benefits include efficient management of storage and dispatch of energy resources so that they are used when it's most economical. "With Multilin,you manage the assets that are generating power,as well as actually making sure that the various places where the power gets consumed are also managed,”says Bala Vinayagam,marketing director for GE DigitalEnergy."So you know for sure that power is available for that particular load without any problems.And if you're grid-connected and you have a smart system,you can respond to a utility's need for demand response with an asset from your microgrid.” Multilin can manage thermal storage and helps optimize the usage of any storage resource."It could be wind,hydro,diesel,and storage,”says Vinayagam."Each would have an associated cost,and the highest would probably be diesel,so the system looks at all the different resources and designates the most efficient use of those resources.For example,it might suggest a 30%power usage from hydro,30%from when and 30%from storage.”Currently,the USDepartmentofDefenseisusingGE's Microgrid Control System at the Twenty-nine Palms Marine Base in California. The Multibillion-dollar Market The opportunities for products that manage microgrids are growing rapidly.According to Pike Research,there is a total of 3.2 GW of total microgrid capacity throughout the world,up from 2.6 GW in the second quarter of 2012.Thetotalnumberofnewprojectentrieswas67,representing an increase of 571 MW.That amounts to an 82%increase in identified capacity within a six-month period,and several additional microgrids are in the planning stages.Pike credits the falling prices of PV for much of the growth,and predicts that the PV-based market could be worth almost$2 billion globally by 2018.But what about wind and fuel cells in the overall microgrid distributed generation mix?Pike reports that this segment of microgrid enabling technologies accounts for the largest target of new investment:3,978MWofnewgenerationcapacityvaluedatmorethan$12.7 billion. http://www.distributedenergy.com/DE/Articles/Smart_Grid_Triple_Play_19986.aspx 1/16/2013 Smart Grid Triple Play |Articles |Distributed Energy Page 8 of 9 As microgrids continue to grow and demonstrate the value of distributed energy,the opportunities for harnessing thatenergyindemandresponseandsmartgridapplicationscouldgrowatanequalpace.Consider that the RDSI project at Fort Collins achieved a 20%load reduction from a group of businesses and government buildings that used existing assets.That's a significant amount of load curtailment,and leads us to the question:How much more is possible with the use of new generation and storage technology?The next step is to look at combining those high- scoring load curtailment results with power optimization products and smart grid tools.Clearly,the value of today's triple play will result in a winning season for many of the industry's players. Author's Bio:Writer Ed Ritchie specializes in energy,transportation,and communication technologies.menteMagiaseammeeapneee.eepaaeBou Advertisement] Topics: *Demand Response «Energy Efficiency *Smart Grid Are you a print subscriber?Join today for free! onl'?What Do You Think'&i) Be the first to tell us what you think! Post a C O m mM e nt Not a subscriber?Sign Up Note from the Editor:The content that appears in our "Comments"section is supplied to us by outside,third-party readers,and organizations and does not necessarily reflect the view of our staff http://www.distributedenergy.com/DE/Articles/Smart_Grid_Triple_Play_19986.aspx 1/16/2013 Smart Grid Triple Play |Articles |Distributed Energy Page 9 of 9 or Forester Media-in fact,we may not agree with it-and we do not endorse,warrant,or otherwisetakeresponsibilityforanycontentsuppliedbythirdpartiesthatappearonourwebsiteAll comments are subject to approval. CAPTCHA Validation Bees re ueeeAweROSay Sabres igsAPTS Code: Display Name: Email: Home]Subscription Services|Editorial|Events|RSS Articles |The Latest|Blogs|Issues|Most Popular|Newsletters|Discussions|Submis WaterEfficiency.net|StormH2O.com|ErosionControl.com|MSWManagement.com|DistributedEnergy.com | ©Copyright 1996-2013 Forester Media,Inc.|User Agreement &Privacy Policy]Site Map| http:/Awww.distributedenergy.com/DE/Articles/Smart_Grid_Triple_Play_19986.aspx 1/16/2013 Boost intertie use:Cook Inlet gas-fired power should help Fairbanks . )Page 1 of 1 -rint Boost intertie use:Cook Inlet gas-fired power should help Fairbanks 09.28.12 -12:38 am Fairbanks Daily News-Miner editorial The electrical intertie that connects Fairbanks with the utilities in Anchorage isavitalandunder-utilized link in the local energy scene. It should be transmitting as much as 75 megawatts of power to Fairbanks,a goal that needs some more active backing from state government. One step in relieving the energy crisis in Fairbanks is to get more access to Cook Inlet natural gas.We need a clear commitment from the governor that this is a priority. In addition to supplying the utilities of Southcentral Alaska and providing for a small export market,natural gas in Cook Inlet should be a dependable fuel for Fairbanks.That hasn't been the case in recent years. Cory Borgeson,the interim president of the Golden Valley Electric Association, told the Chamber of Commerce on Monday that GVEA is hoping to reach agreement soon with the Chugach Electric Association in Anchorage on a 27- month contract. Chugach has told GVEA it has secured a gas supply from one of the oil companies in Cook Inlet.It can use its excess generating capacity to create electricity and ship it north to GVEA.The all-important negotiations on price are taking place now. This is a positive development for Interior Alaska. ©newsminer.com 2012 http://www.newsminer.com/printer_friendly/20300921 10/1/2012 Transportation/Construction: Congress'talks at critcal stage -Continued from page 1 Just be standing in line with everything else,”said an Alaska state official.Meanwhile,another big ques- tion,aside from the extension of the program,is that the federal highway trust fund is not generating the revenues needed to provide funding.The estimate is that the fund will generate about 80 percent of the requirement but the added wrinkle is that because of commitments to ongoing projects only about 25 percent of funds will be available for new projects. Uncertainty as to what money for highway,airport and other transportation will be available after June 30 is causing angst for a lot of states,many which are impaired in awarding contracts because funding is unclear.Alaska is in a better position in this be- cause the state's financial position allows the Dept. of Transportation and Public Facilities to award contracts and begin work with state funds and then seek reimbursement from the federal program.Many states are not in a position to do this.Alaska should receive about $425 million in federal transportation funds this year but so far only three-fourths of the money has been paid.The rest would come after June 30 -or maybe not. The uncertainty over the federal program has caused the railroad to slash capital spending for its FY 2013,which begins July 1 although passenger operations will not be affected,at least this year. The railroad also has enough federal cash on hand to make scheduled debt service payments on about $136 million in bonds outstanding through next spring but payments after that will be in jeopardy if the federal funding is not restored (the bonds are linked to federal funds).A default by the railroad would not affect the state or even the railroad techni- cally but it wouldn't be good for the state to let this happen.Revenue Commissioner Bryan Butcher said the state would get a lot of questions from rating -Continued top right Would state let rail bonds default?(Cont.) agencies as to why this was allowed to happen to an independent state corporation when Alaska has bil- lions of surplus revenues in the bank.In the end,the state would likely not allow the railroad bonds to go to default.A few years ago the state faced a similar situ- ation with a pending default of bonds sold by the state student loan program,also an independent corpora- tion.The state stepped in to guarantee the bonds. 28K Energy: Fairbanks gas utility to expand Fairbanks Natural Gas,the small gas utility trucking liquefied natural gas from the Mat-Su valley and serv- ing about 1,100 customers in the Interior city,plans to build a new 5 million gallon LNG tank to add to its existing 340,000 gallons of storage.The company will apply for a grant from a newly-authorized $15 million state grant for LNG storage in the Interior,as well as tax credits.Golden Valley Electric Assoc.and Flint Hills Resources,working together on a plan to truck LNG from the North Slope,are also planning LNG storage.FNG says it can have its tank operational by 2014.GVEA and Flint Hills hope to decide on their project by the end of 2012 or early 2013. 28K GVEA asked the U.S.Environmental Protection Agency for permission to move ahead on its planned restart of the mothballed 50 Megawatt Healy Clean Coal Project after talks with environmental groups broke down.The state.has issued a permit for the plant with no objection from EPA,but environmental groups filed appeals.What caused the breakdown was the groups'condition that GVEA phase out all coal- fired power generation in 20 years.The utility said the time limit would have left it with inadequate time to recover investments in the plant,and no replacement for the coal-fired power.GVEA said it can reduce its rates by 20 percent if the plant is restarted. a kK Page 2 Alaska Economic Report No.9/2012 1971-1982:Alaska gas pipeline wars Page 1 of 16 * ALASKA NATURAL GAS TRANSPORTATION PROJECTS OFFICE OF THE FEDERAL COORDINATOR Published on Arcticgas.gov (http:/Awww.arcticgas.gov) Home >1971-1982:Alaska gas pipeline wars 1971-1982:Alaska gas pipeline wars By:Bill White bwhite@arcticqas.qov 11 Release Date:March 13,2012 Part 1 of3 The 40-year-long epic quest to build an Alaska natural gas pipeline started with a battle royal in the mid-1970s. The pipeline project would be one of the largest privately financed ventures ever,if the swirl of forces in motion could settle on a single project,and if that project could deliver gas to the U.S.Lower 48 states at a competitive price. The cast of characters included major oil companies,competing coalitions of pipeline owners,environmentalists testing the limits of their newfound clout and Alaska leaders trying to steer the young state's destiny. Much of the drama played out in Washington,D.C.,before an administrative law judge, who found himself mired in an interminable Kafka-esque hearing on which of three proposed pipelines would be best.But the fight also spilled out of the hearing room into the halls of power in Washington and Ottawa,Canada. At the time,Alaska was a place raw with opportunity,christened as a state only 15 or so years earlier and in the first stages of its metamorphosis into an oil barony -the first gas pipeline fight almost exactly overlapped the three-year construction of the $8 billion trans- Alaska oil pipeline. At the time,aging Lower 48 gas fields,severe winters and government price controls helped cause a natural gas shortage in the United States that prompted gas rationing and http://www.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 3/14/2012 1971-1982:Alaska gas pipeline wars Page 2 of 16 threatened "profound hardship and danger for individuals and substantial economic disruption for the country,"as one contemporary account put it. "The construction of an economically and environmentally sound Alaskan natural gas pipeline can reduce this nation's energy vulnerability and provide greater energy independence,”the Federal Power Commission said in its 1977 recommendation to President Jimmy Carter to choose a pipeline route through Canada over the liquefied natural gas proposal Alaskans favored. Carter made his choice,but nothing got built in Alaska.By 1982,roughly 10 years after the battle began,it was clear the state would not get a gas pipeline this time. Still,the 1970s fight over Alaska's natural gas bounty set the table for what came next as various parties continued to push differing gas pipeline projects forward.The themes that crystallized by the mid-1970s stayed hardened over the ensuing decades:A national preference for piping gas to the Lower 48,an Alaska tilt toward an LNG project,North Slope producers running hot and cold on a pipeline project of any kind and a world appetite for natural gas that just kept growing without Alaska gas. CANADA:THE FIRST MOVER At the beginning,Canadians made the first move [2 on an Arctic gas pipeline project. spud iueTe TAseane(330il companies had been probing along the Beaufort Sea coast on both sides of the U.S.- Canada border for a few years.But the Prudhoe Bay discovery announced in 1968 was a stunner -North America's largest oil field by far and one of its largest natural gas reservoirs,an estimated 9 billion barrels of oil and about 268trillioncubicfeetofgas.ys 13000220)59.0 aSmallerdiscoveriesoccurredintheMackenzie[;ESSoy rive poeeeran . River Delta on the Canadian side {4 -oil in fer 1969 and gas in 1970.Pipeline companies inwesternCanadasoonwerestudyinghowtoget:Taoun all that Arctic gas flowing through their ee2aa networks.A year after the 'Prudhoe BayBay discovery,anAlaskaoilandgasleasesalenetted$900 1g million.(Click to see onginalimage.)Some Alaskans started to worry.The pipeline Source:Anchorage *luseum of History and Art,Library &Canadian pipeline companies were discussing 4<*ves would run from Prudhoe straight east to the Mackenzie Delta.That would mean little of the construction in Alaska -only 195 miles of roughly 4,500 miles of line ultimately proposed. Further,the gas would bypass Alaskans,and the industry it could ignite would happen somewhere other than Alaska.In 1971,the state Legislature passed a resolution endorsing a law that would require a pipeline to head south from Prudhoe at least as far as the Yukon River in Interior Alaska.gaseshttp://www.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 ; 3/14/2012 1971-1982:Alaska gas pipeline wars Page 3 of 16 The Anchorage Times editorialized in 1973 that a Prudhoe-Mackenzie line would leave "Fairbanks cold and crippled by ice fog in winter,still dependent on costly heating oil shipped in from refineries thousands of miles away." Despite Alaskans'objections,momentum stayed through the early 1970s with a pipeline that would link the colossal Prudhoe gas reserves with the more modest Mackenzie discoveries -by mid-1975 eight Mackenzie fields were identified with proved reserves of 3.8 trillion cubic feet,about one-seventh the reserves at Prudhoe. @)Arctic Gas at-a-glance Arctic Gas Project:Pipeline from Prudhoe Bay east to Mackenzie Delta in Canada,then south through Canada to U.S.Midwest and West Sponsors:Consortium of U.S.and Canada pipeline companies and Arctic oi!and gas companies Capacity:4.5 billion cubic feet a day,half from Alaska,half from Canada Length (1976):4,512 miles Cost estimate (1975):$6.7 billion Source:Federal Power Commission In 1973,a consortium of 26 U.S.and Canadian firms called Arctic Gas Study Group, proposed a Prudhoe-Mackenzie pipeline,with start-up projected for 1979.They conceived a $5.7 billion project that would carry more than 4 billion cubic feet a day -half from Prudhoe and half from the Mackenzie Delta. After picking up Mackenzie gas,the pipeline would veer south toward Alberta.Some gas would get routed to the Pacific Northwest and West Coast.Some would head to the Midwest and East Coast.Some existing pipeline systems from Canada to the United States would need expansion.Some new pipelines to the West and Midwest would be needed. Most of the Toronto-based consortium members were pipeline companies,including TransCanada Pipelines Ltd.,co-sponsor of the proposed pipeline today that would run from Prudhoe Bay to Alberta,Canada,through Interior Alaska. But three members stood out:Sohio (BP),Arco and Exxon,the main oil and gas producers at Prudhoe.The big three,on the cusp of constructing the oil pipeline from Prudhoe,also had picked a direction -east to Mackenzie -for a gas pipeline. This project stirred genuine excitement in the United States and Canada,that Arctic natural gas would help rescue North America during its energy crisis,counter-punching the Arab oil embargo. In March 1974,sponsors of the Prudhoe-to-Mackenzie-to-the-Lower 48 pipeline project filed with the U.S.Federal Power Commission and Canada's National Energy Board for authorization to build.They announced their project to much fanfare at the National Press Club in Washington. http://www.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 3/14/2012 1971-1982:Alaska gas pipeline wars Page 4 of 16 The companion pipelines needed to move the Alaska gas through Canada and deep into the Lower 48 soon filed for their own authorizations. The project seemed to have unstoppable momentum. But an upstart competitor was loading its cannons and bracing for a battle. A NEW IDEA -LNG TO CALIFORNIA The upstart was a regional Lower 48 pipeline company called El Paso Natural Gas Co. w)In 1972,it began mulling how it could profit from the rich Arctic natural gas fields. El Paso was somewhat of an outlier compared with the mainstream U.S.pipeline companies involved in the Arctic Gas proposal.Those companies operated in the Pacific Northwest,Midwest,East and South and their proposal would bring the northern gas into their networks,many of which linked to one another. El Paso's domain was disconnected from that grid.Its pipelines spanned the Southwest, from West Texas to Southern California.Even if it could build a pipeline northward to connect into the other networks,it might get just a dribble of the Arctic gas.Where was the money in that? EI Paso at-a-glance Project:Pipeline from Prudhoe Bay south to liquefied natural gas plant at Gravina PointnearCordova,Alaska.LNG shipped by tanker to California. Sponsors:El Paso Natural Gas Co.for pipeline,LNG plant and tankers.Western LNG Terminal Co.for California regasification plant. Capacity:2.4 or 3.1 billion cubic feet a day Length (1976):810 miles of Alaska pipeline,2,200-mile tanker route,250 miles of California pipelines Cost estimate (1975):$6.6 billion Source:Federal Power Commission El Paso came up with an out-of-the-box idea,and Alaskans soon fell in love with it. After hinting for months about its plans,El Paso unveiled the details of its proposal in a September 1974 filing with the Federal Power Commission. To get gas to its California grid,El]Paso proposed jumping aboard the up-and-coming liquefied natural gas industry.Commercial trans-ocean LNG shipments had started only 10 years earlier,when a British utility contracted for gas from Algeria.The United States was dabbling in the industry --a small LNG plant started shipping Alaska gas to Japan in 1969 (gas from Cook Inlet near Anchorage,not North Slope gas). The El Paso plan would greatly expand the U.S.LNG industry.The company asked theFPCforauthorizationtopipeover3billioncubicfeetadayofPrudhoeBaygasabout810 miles almost straight south from Alaska's Arctic coast to its Pacific coast.There the gas http://www.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 3/14/2012 1971-1982:Alaska gas pipeline wars Page 5S of 16 would be superchilled into a liquid to compress it for transport via high-tech tankers to the California market El Paso already served.Project cost:An estimated $6.6 billion. The El Paso pipeline would roughly follow the same route through Alaska as the trans- Alaska oil pipeline,which had started construction five months earlier.But instead of terminating at Valdez like the oil pipeline,El Paso's gas pipeline would end at Point Gravina,near the fishing town of Cordova. El Paso's plan also involved building more pipelines in California and Texas to complete its grid and help carry the bounty of Alaska natural gas.Another company called Western LNG Terminal Co.would build an LNG receiving port at Point Conception,Calif.,outside Santa Barbara. E|Paso's emergence upset the Arctic Gas consortium.But the consortium's members had another shock coming:Alaska leaders ardently embraced El Paso's project. Gov.Bill Egan backed the El Paso line,as did his successor,Jay Hammond.The state Legislature endorsed it.Former Gov.Wally Hickel made a chest-beating declaration that the state had the legal authority to dictate the LNG route.(Hickel would play an important role in keeping an Alaska LNG project alive in the 1980s and 1990s.) ialn 1975,local business leaders launched a civic group called the Organization for Management of Alaska's Resources to campaign for the El Paso line,which they soon dubbed the "All-American Line.”OMAR later evolved to the Resource Development Council for Alaska,which today advocates for the expansion of Alaska's economic base. AMERICA'S ENERGY NEEDS ARE AT STAKE The United States Must Keep 100%.Control of its StrategicElPasowasagoodfitfortheemergingmindsetNaturalResourcesofAlaskans.Alaska was a poor state with just a : few highways and little internal control of its g Build The Gas Pipelineowneconomy.Outside interests controlled the asmallfishingandtimberindustries.Washington fa Through Alaska,Not Canadacontrolledtheeconomicmainstay-federal I} defense and civilian spending. But with the oil pipeline started,Alaska was about to become fabulously rich.It would become richer still if the gas pipeline could bisect the state instead of skirting the Arctic coast,if Alaskans could siphon off abit ofthe -cover page of an information flier OMARgasfortheirownuseandpossiblyevenbuildacirculated.(Click to see a larger version.)Source:Alaska Cencer for the Environment records,ArchivesnewpetrochemicalindustrythatusednaturalaodSpecialCollections,Consortium Library,Universay ofgasasitsfeedstock.laska,Anchorage With the Arctic Gas proposal on the FPC docket and the El Paso project getting some buzz,one of Alaska's U.S.senators,Ted Stevens,was asked in May 1974 which one he http://www.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 3/14/2012 1971-1982:Alaska gas pipeline wars Page 6 of 16 favored.Neither would get his endorsement right then,he replied.Then he elaborated, and summed up the sentiment that many Alaskans shared: "The time is long gone when Alaskans have to fall over and play dead to a bunch of Texas oilmen." THE BATTLEGROUND E!Paso and Arctic Gas filings with the Federal Power Commission were separated by only six months,and they set the stage for the three-year donnybrook that followed. An administrative law judge for the FPC,Nahum Litt,started taking evidence in May 1975 about which project should get the go-ahead.It was widely understood that only one project would prevail. Each side took its turn extolling its own project and shredding its competitor's.A contemporary news account described the two proposals "tearing each other apart"before the FPC.Nearly 200 attorneys were signed on to represent the menagerie of pipeline companies,gas utilities,power companies,state utility commissions,and oil and gas producers with a stake in the outcome. It was impossible to keep track of who was ahead,or even who was scoring points.Along the way,the North Slope oil and gas producers dropped out of the Arctic Gas consortium. Sohio (BP)exited in late 1974,saying it had fulfilled its original intent to belong only until the pipeline development phase. Litt's hearing dragged through 1975 and then 1976.Ultimately,the hearing spanned 252 days of testimony.The transcript weighed in at almost 45,000 pages,bound in 253 volumes that if stacked on end would stand two stories tall.About 1,000 exhibits got introduced,with some running more than 1,000 pages. Each side tried to out-maneuver the other.Early on,Arctic Gas announced that nearly half of Prudhoe Bay's gas had been committed to U.S.pipeline firms through its project. EI Paso negotiated with Alaska for rights to the state's royalty share of Prudhoe gasproductiontofront-load its LNG project and won a tentative contract,valid if its project prevailed before the FPC. Then,in mid-fight,15 months after Litt started his hearing,a new event exploded on the proceedings like a hand grenade. THE ENTREPRENEUR FROM UTAH i7That event was the arrival of a third pipeline project for Alaska's |="* gas,a grandiose bet-the-company kind of play for its sponsor. http://www.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 3/14/2012 1971-1982:Alaska gas pipeline wars Page 7 of 16 But it had an acutely appealing feature:It was a sort of hybrid between the Arctic Gas and the El Paso lines;it offered a compromise. The new project,filed with the FPC in July 1976,was the brainchild of John McMillian,a Salt Lake City entrepreneur. McMillian was a former petroleum engineer whose career had got its big break a couple of years earlier by acquiring a piece of Seurce:Anchorage Daily News E|Paso's network. McMillian's project was ultimately called Alaskan Northwest,and it would carry 2.4 bcfa day of Prudhoe gas,both bringing it to Alaskans and piping it through Canada. fx Alaskan Northwest at-a-glance © Project:Pipeline from Prudhoe Bay south to Interior Alaska,then into Canada along the Alaska Highway for delivery to U.S.Midwest and West Sponsors:Consortium headed by Northwest Energy Corp.(U.S.)and Foothills Pipe Lines Ltd.(Canada) Capacity:2.4 billion cubic feet a day Length (1976):4,787 miles Cost estimate (1975):$6.8 billion Source:Federal Power Commission The Alaskan Northwest route would parallel the oil pipeline south from Prudhoe Bay to Fairbanks and Delta Junction.From there it would continue along the Alaska Highway into Canada.This is basically the same route proposed today by the TransCanada/ExxonMobil partnership.Alaskan Northwest's partner for the Canadian construction was Foothills Pipe Lines of Calgary,which TransCanada now owns. The Alaskan Northwest proposal added new complexity to Litt's decision.And that complexity promised to add months to the hearing process. Congress and the president were getting restless.They were in an election year.The country was enduring natural gas shortages and voters were grumbling. Something needed to be done to break the stalemate developing in Litt's hearing room. POLITICIANS AND ENVIRONMENTALISTS Congress and the president separately were rubbing at the edges of the Alaska gas pipeline issue. On Capitol Hill,dueling legislation attempted to dictate the pipeline route. http://www.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 3/14/2012 1971-1982:Alaska gas pipeline wars Page 8 of 16 Minnesota Sen.Walter Mondale and 25 co-sponsors introduced a billin early February 1976 that mandated the Arctic Gas route. Environmentalists wildly objected,and they wanted their voice heard this time.In the early 1970s,Congress enacted a package of laws -the Clean Air Act,the Clean Water Act,the National Environmental Policy Act -that became scaffolding for construction of the new conservation movement.Environmentalists felt betrayed that Congress approved the trans -Alaska oil pipeline in 1973 without full consideration of how that project would affect the environment. The Arctic Gas project would trench the pipeline through the coastal plain of the Arctic National Wildlife Range (in 1980 the range was enlarged and renamed the Arctic National Wildlife Refuge).Environmentalists challenged the technical feasibility of using snow roads to avoid damaging tundra and permafrost.They warned that development would interfere with caribou breeding and birdlife.They argued that ANWR was intended to be left chaste,the one place in the country humans will leave alone. They made the same argument to Judge Litt,and they had an ally in the state of Alaska. i}Oday the state favors oil and gas development in ANWR,but it didn't back then,ilnotforagaspipelineroute.Gov.Jay HammondtestifiedbeforeLitt:"Some day,perhaps,we will? need to have the oil and gas resources of the aRange,if any,even more than we need to have }2 aatheresourceofwilderness.But clearly we ages eemetind,should not allow construction of a gas pipeline parenintheArcticNationalWildlifeRangewhenother« .' less damaging alternatives are available,as they are."AeContesting Mondale's bill were proposals from Ne Alaska's senators,Stevens and Mike Gravel,Jay 'Hammond was Alaska overnor duringmandatingtheLNGproject.construction of the trans-AJaska oil pipeline (in background)and the 1970s debate on a gas"If the Canadian pipeline route is foisted on the Pipeline.(Click to see a larger version.)American public by virtue of the power of Source:Alaska Scace Library -Historical Collection international oil companies,it's a decision they will regret very much,”Stevens fumed in response to Mondale's bill. Alaska gas pipeline 1968-1982 1968 -Gigantic oil and gas discovery at Prudhoe Bay announced. 1969-1970 -Smaller oil and gas discoveries announced at Mackenzie River Delta in Canada's Arctic. 1971 -Canada-based consortium studies feasibility of pipeline linking Prudhoe and Mackenzie gas fields to Lower 48. March 1974 -Arctic Gas applies to U.S.Federal Power Commission and Canada's National Energy Board for permission to construct. http://www.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 3/14/2012 1971-1982:Alaska gas pipeline wars Page 9 of 16 September 1974 -El Paso applies to FPC to pipe gas south to Alaska's Pacific Coast, where gas would be liquefied for transport via tankers to California. May 1975 -FPC Administrative Law Judge Nahum Litt begins hearing on which project to authorize.Hearing concludes in late 1976,after Congress intervenes. June 1976 -Alaska Natural Gas Transportation Act introduced in Congress,proposing FPC change its role from deciding route to recommending one to president,who would decide. July 1976 -Alcan Pipeline Co.(later called Alaskan Northwest)files third application with FPC for a gas pipeline.Route would run south ot Interior Alaska then follow Alaska Highway into Canada. October 1976 Congress passes ANGTA,which sets deadlines:May 1977 for FPC to make its recommendation,September 1977 for president to decide,November 1977 for Congress to approve or reject president's decision. February 1977 -Judge Litt recommends FPC select Arctic Gas project. May 1977 -FPC commissioners deadlock in recommendation to President Carter:Two favor Arctic Gas;two favor Alaskan Northwest. July 1977 -Canada's NEB calls Arctic Gas project environmentally unacceptable.U.S. and Canada negotiate terms of moving Alaska gas through Canada. September 1977 -President and Canada agree on Alaskan Northwest route. November 1977 -Congress sanctions Carter's choice of Alaskan Northwest. April 1982 -Unable to find financing,Alaskan Northwest postpones construction of Alaska and northern Canada legs of project. Early 1980s -Lower one-third of pipeline system,from southern Canada to Lower 48, gets built. The fight in Congress reflected lobbying by OMAR,the different pipeline sponsors and others across the United States.In particular,Midwest and East Coast members of Congress were pressed to favor a Canadian route that would benefit their consumers. That's partly why Mondale's bill had so many co-sponsors. But as the fight raged on Capitol Hill and Judge Litt's hearing plodded ahead,the White House made a jaw-dropping suggestion that broke both impasses. A GAME-CHANGING IDEA The political game changer occurred in late February 1976,when President Gerald Ford delivered a national energy message proposing that the president,not the FPC,decide the route. The next month Ford sent to Congress legislation that detailed how it would work:Judge Litt and the FPC should abbreviate their work and,instead of picking a winner,merely recommend to the president by Jan.1,1977,which route looked best.The president then would make his pick,and if Congress sanctioned it the whole matter would be over by Oct.1,1977. http://www.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 3/14/2012 1971-1982:Alaska gas pipeline wars Page 10 of 16 Congress lined up behind the idea,but first they stripped the Republican president's name off of it.Ford was running for president and Democrats controlled Congress. In June 1976,Illinois Sen.Adlai Stevenson offered a bill requiring a presidential decision by mid-1977,with Congress to approve or disapprove it within the following 60 days. Stevens and Mondale both were co-sponsors.Ford gave Stevenson's bill his blessing. Besides setting a mechanism for picking a pipeline project,the bill would fast-track construction. "A natural gas supply shortage exists in the contiguous states,"the bill declared."The expeditious construction of a viable natural gas transportation system for delivery of Alaska natural gas to United States markets is in the national interest."Federal agencies would be ordered to expedite permits and other authorizations for the pipeline project and barred from taking certain actions that would slow the construction timetable.Review by courts would be limited as well. The bill blitzed through Congress.Ford signed the Alaska Natural Gas Transportation Act js into law in October 1976.But he would not get to choose the winning pipeline route. Eleven days after signing ANGTA,Ford lost the election.The choice would fall to the new president,Jimmy Carter. LITT,FPC WEIGH IN Judge Litt closed the record on his hearing on Nov.12,1976,three weeks after Ford signed ANGTA.On Feb.1,1977,he made his recommendation to the FPC board. His choice:The Prudhoe-to-Mackenzie route through ANWR. "There is a consensus on the part of the Commission Staff,the most popular consuming states taking an active interest,and an array of pipelines and distributors serving huge sections of the country that if any pipeline applicant must be chosen now,their best interests would be served by choosing Arctic Gas,"Litt wrote."The evidence in this record clearly supports that conclusion....The Arctic Gas application is superior in almost every significant aspect when compared to El Paso.Certification of its proposal,subject to appropriate conditions,will bring more energy to market cheaper and more reliably than El Paso and will do so in an environmentally acceptable manner.It is found that Arctic Gas' prime route should be certificated." tio|Litt noted that support for El Paso was mostly Proposed Alaska gas pipeline projects in the 1970s confined to a couple of Lower 48 pipelines companies linked to the project and the state of Alaska.Although California would be the LNG destination,California backed the Arctic Gas project,which would deliver Alaska gas to the state via pipeline,he said. uwwum Arctic Gas As for the Alaskan Northwest proposed route :cee iaikan Northwest(Alcan) down the Alaska Highway,which was filed with :we P10 10NG) http://www.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 3/14/2012 1971-1982:Alaska gas pipeline wars Page 11 of 16 the FPC just seven months earlier,that project was half-baked,Litt scoffed.The cost estimates were shaky,the pipeline system poorly designed,the financing plan unreliable,the construction schedule fictitious.It wasn't even certain how the Prudhoe gas would get from Canada to the Lower 48,he wrote. But the Alaskan Northwest project wasn't dead yet.It was a sluggish racehorse,but it had a winning kick for the finish line. The four-person Federal Power Commission issued its combined environmental impact statement and recommendation to President Carter on May 1,1977. The commissioners deadlocked.Two favored the Arctic Gas line.Two favored the Alaskan Northwest route down the Alaska Highway into Canada. They didn't dislike El Paso's LNG project.They said it had its advantages.But in a close call,they concluded that "An overland route can deliver each unit of gas more cheaply than a land and water route using liquefied natural gas technology.If Canadian gas is also developed,the sharing of facilities will lower Arctic's cost of service to Americans slightly below that of Alcan (Alaskan Northwest)." "Arctic has the greatest benefits and lowest costs,followed closely by Alcan,with El Paso offering the least benefits and the highest costs.However,all three systems can deliver the gas at a reasonable cost to the consumer,"they said. The El Paso LNG project can be an option,they said,if Canada erects roadblocks making it difficult to flow Alaska gas to the Lower 48,the commissioners said. As for ANWR,the commissioners echoed Litt in writing:"We believe it is possible to approve a buried pipeline through the Range without setting in motion an inevitable progressive violation of the Range.” U.S.AND CANADA SHAKE HANDS Resolving the Canada conundrum was well under way. The Ford administration had been negotiating since 1974 11)with Canadian officials on how Alaska gas could flow unimpeded to the Lower 48. Canada fervently wanted to host the pipeline,which would help develop that nation's growing gas reserves in Alberta.Clearly big stakes were involved in the diplomacy between Ottawa and Washington,D.C. Ultimately,the cross-border talks resulted in key documents 13 still active as a new Alaska gas pipeline project is pursued today. The Transit Pipeline Treaty with Canada in January 1977 made it easy for the Alaska gas to flow through Canada via pipelines. http://www.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 3/14/2012 1971-1982:Alaska gas pipeline wars ;Page 12 of 16 The Agreement in Principles that the Carter administration negotiated for the Alaska gas pipeline came in September 1977.It set details of the pipeline route,among other features.This bilateral agreement was a side document to Carter's decision released simultaneously on the winning route. i31}Carter picked the Alaskan Northwest project >BedowntheAlaskaHighway.Canada also favored}y>¢%that project.In July 1977,its National Energy}.& Board tentatively endorsed the route and declared the Arctic Gas proposal claimsin Canada also crippled hopes fora Mackenzie Valley pipeline. During that summer,the Arctic Gas consortium realized it had been KO'd.In early August,,2 eel eeconsortiummemberTransCanada,a Calgary-President Jimmy Carter adresses Congress.. , .on Gill and gas matters In en alterbasedpipelinecompany,announced it was Mondale and Rep.Thomas "Tip"O'NeillinjoiningtheAlaskanNorthwestproject.Late that background. :..Source:Associated Pressmonth,Arctic Gas announced it would disband. In his decision,Carter sold the Alaskan Northwest (Alcan)project hard."The Alcan system will deliver Alaskan gas at the lowest cost to U.S.consumers,but will do so directly to both the Midwest and West Coast markets,"he wrote. "Under almost all criteria,the Alcan system is clearly superior to the proposal by the El Paso Alaska Company to liquefy Alaska gas and ship it to the West Coast,"Carter said.El Paso's gas would be more expensive and bring a smaller net economic benefit to the United States,he said.Pipelines also deliver gas more safely and reliably than LNG projects,and they last longer,he said. For the new pipes that would carry Alaska gas south of the Canadian border,Carter selected a partnership of six pipeline companies to deliver gas to Illinois,and two other companies to get the gas to California. Between the two countries,the entire pipeline network would encompass 4,787 miles,with an average daily flow from Prudhoe Bay of 2.4 bef. THE DEMISE STARTS QUICKLY Congress approved Carter's choice on Nov.2,1977. That turned out to be the high-water mark 14 for the Alaskan Northwest project. Within a month,the pipeline sponsors were pleading in Juneau for the state to finance construction cost overruns and possibly guarantee construction loans. McMillian would make similar pleas in Washington.He also was mumbling that Congress or the Federal Energy Regulatory Commission,the newly formed successor to the Federal http://www.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 3/14/2012 1971-1982:Alaska gas pipeline wars Page 13 of 16 Power Commission,might need to mandate a wellhead value of the gas -its value as it leaves the ground at Prudhoe Bay -to ensure the North Slope producers would make money. Earlier there had been hints that any Alaska gas project could be doomed by its high cost. In 1975,a task force advising Alaska Gov.Jay Hammond warned the high transportation costs might result in a wellhead value of zero.No wellhead value would mean the Alaska royalty share of gas production would be worthless,and the producers would have no reason to pay to ship gas from the North Slope. The Litt and FPC decisions in early 1977 are riddled with references to the marginal economics of all three pipeline projects under consideration.Alaska gas might be priced too high for the market to want. Lots of lofty language had been lobbed about a Lower 48 natural gas crisis.The FPC decision in May 1977 noted the "profound hardship"for individuals and "substantial economic disruption"for the country."The nation sorely needs new sources of economically competitive natural gas,"Carter said in his decision. rs The natural gas shortage was real,and the U.S.natural gas productionemotionsweregenuineasoilandgasoline35 prices spiked in the wake of the 1973 Arab oil embargo.Nations across the world were a nner reenter Heavecortin™ ::::sprockaction in 1973 (21)"OALIDAtehscramblingtodiversifyawayfromoil.75 Wfeseetonin 1973 24-78,' Sa, Ironically,1973 turned out to be a record year 3 for U.S.natural gas production,a record that lasted until 2011.But the United States was burning through its natural gas reserves. Proved reserves fell by nearly one-third from its decided on the Alaska gas pipeline.1949 1953 1967 1976 1985 1994 2003 2011 4996 production dawn we from 1973 (16:4 tf TrillioncubicfeetperyearisweSource:U.S.Energy Information Administration More gas was waiting to be found in the Lower 48,but rigorous federal price controls on interstate gas discouraged new exploration.Gas reserves would continue to dwindle for 17 more years before the dismantling of gas-industry regulations helped them to grow again. (In response to shortages,natural gas consumption fell in the mid-1970s.It plunged 24 _ percent from 1973 to 1983.-communaptiontataate30peakingin1973(22.1 teh}.cone Mervecerdiy20.14 (24.37 tefy U.S.natural gas consumption Natural gas prices did rise,but not to high as enough levels until around 2000-2001,when piping Alaska gas to the Lower 48 started getting a new look.”aN ated4Comuraption&bottoms outinSook$986 (16.2 teflBoaitygrateTrillioncubicfeetperyear http://www.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 3/14/2012 1971-1982:Alaska gas pipeline wars Page 14 of 16 Withinayear of Carter authorizing the Alaskan 1949 1958-1967 1976 1985-1994 20032011 Northwest project,it was obvious the gas liN€-Source:u.s.Energy Information Administrationprojecthadlosttraction.. "Almost everyone knows that the Alaska Highway gas pipeline venture is floundering: government officials,businessmen,bankers and the press are expressing more frequent and deeper doubts about whether the project will be completed on schedule -or ever," wrote economists Arlon Tussing and Connie Barlow in an early-1979 report to the Alaska Legislature. 117INo one wanted to take on the potentially huge risks of low prices,cost overruns,wo aregulatorydelaysandonandon."The gasline eM lenenh _devlopmentiae project is so large that its failure would be 300 . . devastating to the pipeline sponsors,the gas producers (if they were to sink capital into conditioning and other facilities in the field),the lending institutions,the economy of Canada,=7. and the political fortunes of the Canadian emgovernment,"Tussing and Barlow wrote.The .:shires time span during which conditions must be oe favorable to blunt the risks involved could o- ; .1949 1958 1967 1976 1985 1994 2003 2011extend30ormoreyears,they said. U.S.natural gas proved reserves TrillioncubicfeetSource:U.S.Energy Information Administration "The Alaska Highway gas pipeline almost certainly offers substantial net economic benefits to both the United States and the State of Alaska,but as a business venture it may be marginal at best without extraordinary kinds of government intervention,”they wrote in another 1979 report. THE BRIGHT SIDE OF NO PIPELINE Ultimately,Alaskan Northwest couldn't get financing 112. In 1981,to try to help,President Ronald Reagan reversed Carter's 1977 decision to bar North Slope producers from owning interest in the gas pipeline.The producers made a tentative commitment for 30 percent of the project's financing.It wasn't enough. In April 1982,Alaskan Northwest announced it was delaying the project for at least two years.It was all over except the writing of a formal obituary. The Lower 48 natural gas shortage was gone.U.S.markets were about to be amply supplied with Western Canada gas via the lower one-third of the Arctic gas project that actually was built -from southern Alberta to the Midwest and West.The Alaska pipeline proposed today would flow gas to these 1980s segments and other pipeline systems. By late 1982,the North Slope producers were backing a new idea for the Prudhoe gas that rose up their oil wells.They had been reinjecting the produced gas to maintain reservoir pressure to help push oil up and out the wells.In November they announced a $100 million pilot project to inject gas enriched with gas liquids such as propane to make it "miscible"with oil -the injected gas would reduce the oil's viscosity as they mixed, http://www.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 3/14/2012 1971-1982:Alaska gas pipeline wars Page 15 of 16 allowing more oil to flow freely to the wells.Today Prudhoe has the world's largest miscible gas project in the world,according to BP t19). One Alaska regulator recently observed that it perhaps was good for Alaska that the 1970s-era gas pipeline didn't get built. North Slope producers have used Prudhoe Bay's gas for the past 35 years to coax billions of barrels of extra oil from the reservoir,said Cathy Foerster of the Alaska Oil and Gas Conservation Commission.Prudhoe has more oil production left,and the gas is still there, waiting for a pipeline,she said. If that gas had left Prudhoe,the North Slope's oil and gas era would be history by now, and the Alaska Legislature's fiercest fights would be over fishing and tourism levies,not oil taxes,she said. -By Bill White,Researcher/Writer for the OFC.j20;bwhite@arcticgasgov (1; Related Articles ¢«Part 2 -1982-2001:The Yukon Pacific Era [21 More Pipeline Topics >(22) Projects Guide &Maps ALASKA GAS PIPELINE PROJECT a sete The Alaska Natural Gas Pipeline View more > Subscribe For more information and news relating to the Alaska natural gas pipeline,please sign up for our distribution list. Get updates by email > http:/Awww.arcticgas.gov/print/A laska-gas-pipeline-wars-1971-1982 3/14/2012 Alaska gas pipeline -Wikipedia,the free encyclopedia Alaska gas pipeline From Wikipedia,the free encyclopedia See also:Natural gas in Alaska The Alaska gas pipeline is a proposal to transport natural gas from the Alaska North Slope natural gas reserves to the U.S.Midwest.There are two competing projects:one by BP and ConocoPhillips called "Denali",and another by TransCanada Corp. and ExxonMobil."!TransCanada has secured state seed money and a license from the state of Alaska to build and operate a pipeline,but does not yet have federal approvals needed to start construction.Denali is spending its own money to move the project forward.Both entities have said they plan to hold their respective "open seasons"in 2010.On June 11, 2009 TransCanada announced it had formed an agreement with ExxonMobil to work together in bringing the gas to market.) . Contents u 1 History mw 1.1 Initial evaluations mw 1.2 All-Alaskan Pipeline mw 1.3 Alaska Gasline Inducement Act m 1.4 ConocoPhillips proposal 2 Route 3 Competing projects 4 Politics 5 See also 6 References 7 External links L History See also:Mackenzie Valley Pipeline Inquiry Initial evaluations Page 1 of6 Alaska gas pipeline Location Country United States,Canada General north-south direction From Alaska North Slope To Calgary,Alberta Runs Alaska Highway alongside General information Type natural gas Partners BP,ConocoPhillips or TransCanada Corp.,ExxonMobil Technical information Length 1,715 miles (2,760 km) Maximum 41 billion cubic meter per year discharge Large natural gas reserves were discovered in Prudhoe Bay in 1967.Talk of a pipeline peaked during the 1973 OPEC oil embargo and several companies came out in favor of large pipeline projects.Canadian Arctic Gas Pipeline,Ltd-a consortium of large oil companies including Shell,Exxon,and http://en.wikipedia.org/w/index.php?title=Alaska_gas_pipeline&printable=yes 7/7/2010 Alaska gas pipeline -Wikipedia,the free encyclopedia Page 2 of 6 TransCanada-proposed a route from Alaska's Prudhoe Bay across northern Yukon to the Mackenzie 'Delta,and then south through the Mackenzie Valley to Alberta.In addition,the Foothills Pipeline onsortium pursued a competing Mackenzie Valley Pipeline,starting at the Mackenzie Delta and also running along the river valley to Alberta.Either proposal required the approval of the Canadian government,which named Thomas Berger to lead an inquiry into the proposals.Berger's inquiry resulted in a recommendation for a ten year moratorium on development of the pipeline to deal with issues such as Aboriginal land claims and setting aside of conservation areas. In the United States,three competing applications were filed with the Federal Power Commission to construct a natural gas pipeline from Prudhoe Bay.A proposal sponsored by El Paso Corporation routed the pipeline to Valdez along the oil pipeline route with LNG tankers then transporting the gas to terminals on the west coast.The other two proposals would cross Canada on a route parallel to the Alaska Highway.The Federal Power Commission conducted lengthy hearings on the relative merits of the three plans,and under the Natural Gas Act"!the Commission had the legal right to select the final route.Following the 1976 elections where John McMillian,CEO of Northwest Pipeline was a major supporter of Jimmy Carter,President Carter proposed special legislation to transfer the task of selecting a project from the Federal Power Commission to the President.Congress adopted the Alaska Natural Gas Transportation Act of 1977,"and Carter selected the project sponsored by Northwest to the exclusion of the other two projects.The Commission then proceeded to conduct further proceedings to issue certificates of public convenience and necessity to authorize construction of pipelines from Prudhoe Bay and extending to San Francisco and Chicago,and the United States and Canada entered into an agreement regarding having the gas pipeline follow the Alaskan Highway route. Ultimately,Northwest's consortium could not finance the project,and instead decided to "prebuild"the segments from Alberta to San Francisco and Chicago.Northwest justified the prebuild on the theory that using Canadian gas to depreciate the pipeline for a period of years would make the transportation of Alaskan gas more economic at a later date.The prebuild system went into service under the names Pacific Gas Transmission and Northern Border Pipeline.Subsequently,an affiliate of TransCanada Pipeline acquired Pacific Gas Transmission and 50%of Northern Border.Northwest was acquired by the Williams Companies .As a result,Northwest was no longer willing to pursue the full project to Prudhoe Bay. All-Alaskan Pipeline Former Secretary of Interior Wally Hickel headed a consortium which sought to revive the El Paso proposal to construct an 800-mile gas pipeline along the oil pipeline route from Prudhoe Bay to Valdez (with a branch to Anchorage),because such a route would also serve Anchorage and Fairbanks and would have a much lower construction cost than the overland pipeline routes.The remaining gas would be exported as LNG.Competitors argued that this proposal was barred by the 1977 statute and President Carter's decision.The consortium argued that because the pipeline would be used for intrastate commerce and foreign commerce,but not for interstate commerce,the project would not require Federal approvals under the Natural Gas Act.Three Alaskan boroughs voted to form the Alaskan Gasline PortAuthority(AGPA)to promote this project under Alaska Code §29.35.600.!9 Following Alaska's decision to contribute $500 million to fund startup costs of an overland route,the AGPA is now advocating a "Y"route which would first go to Valdez and later build a second fork toward Canada.” http://en.wikipedia.org/w/index.php?title=Alaska_gas_pipeline&printable=yes 7/7/2010 Alaska gas pipeline -Wikipedia,the free encyclopedia Page 3 of 6 Alaska Gasline Inducement Act On July 3,2007,the Governor of Alaska Sarah Palin announced that the State of Alaska was ready to receive applications to build a pipeline within the framework of the Alaska Gasline Inducement Act (AGIA)."!On January 4,2008,a proposal by TransCanada was selected.Four other proposals were submitted:By Sinopec,AEnergia,the AGPA,which proposed a liquefied natural gas project,and the Alaska Natural Gas Development Authority. On January 5,2008,Palin announced that the Canadian company TransCanada Corp.,was the sole AGIA-compliant applicant.°!°l On August 27,2008,Palin signed a bill into law giving the state of Alaska authority to award TransCanada Corp.500 million dollars in seed money anda license to build and operate the $26-billion pipeline to transport natural gas from the North Slope to the Lower 48, through Canada,HN2] The license is not a construction contract,and federal energy regulators must approve the project before it can go forward."3! On December 5,2008,the AGIA license,jointly awarded to Foothills Pipe Lines Ltd.and TransCanada Alaska,LLC,was signed in Fairbanks,!"4] ConocoPhillips proposal Outside of the AGIA process,authorities were evaluating a separate proposal issued by ConocoPhillips. (INS)On April 9,2008,BP and ConocoPhillips announced that they would develop a joint pipeline rect [16]project. Route Possible routes include the Alaska route,or southern route,a pipeline along the Alaska Highway.A shorter alternative route,which was considered in the 1970s,links Prudhoe Bay natural gas through Mackenzie River Valley.The pipeline will be built only if Canadian authorities can strike a deal with First Nations whose lands are in the pipeline route,who are accusing Palin and other pipeline proponents of treating them with disrespect by not consulting with them.117] Competing projects The pipeline proposed by TransCanada would run 1,715 miles (2,760 km)from the North Slope to Calgary in Alberta.It is expected to cost US$26 billion and to be operational by 2018.7! The project developed by Denali -The Alaska Gas Pipeline LLC,a joint venture of BP and ConocoPhillips,foresees a pipeline with a capacity of 41 billion cubic meter (bcm)of natural gas per year down the Alaska Highway across Alaska,through the Yukon and British Columbia into Alberta. 1('8]Tt also consists of a gas treatment plant on North Slope.The project is estimated to cost US$32 billion and to be ready by 2018.7!It is possible that in the second stage an additional 1,500 miles (2,400 km)pipeline from Alberta to Chicago in the United States would be built as an alternative to theexistingNorthernBorderPipeline.!©!ExxonMobil is invited to participate in the pipeline project.!'*! Also Enbridge,Royal Dutch Shell and Gazprom have shown an interest to join this proj ect {120121 http://en.wikipedia.org/w/index.php?title=Alaska_gas_pipeline&printable=yes 7/7/2010 Alaska gas pipeline -Wikipedia,the free encyclopedia Page 4 of 6 Politics Opposition to the Alaska natural gas pipeline route mandate and price supports came from both the Bush administration and the Canadian government.In a letter to the Sen.Domenici,Secretary of Energy Spencer Abraham wrote,"[The administration]believes market forces should select the route of the pipeline.”He continued,"The administration strongly opposes the price-floor tax credit provision in the Senate energy bill and any similar provisions."Abraham suggested several non-price support tax provisions that could subsidize the construction of the pipeline.??)Former Canadian Ambassador to the United States Michael Kergin wrote that Canada is of the opinion that the Alaskan pipeline should be built without subsidies and without the route being determined by legislation.) Former Governor Wally Hickel has advocated an "All-Alaskan"route which would go from Prudhoe Bay to Valdez and would bring gas to Fairbanks and Anchorage.He opposes the award of the route to TransCanada which would not result in gas service for Alaska's population centers,!?4! In June 2009 Alaska Governor Sarah Palin was interviewed on The Today Show by Matt Lauer.She expressed her support for the pipeline,which was ostensibly the purpose of her appearance on the program. See also m Trans-Alaska Pipeline System References | 1.*7°"Gazprom reveals Alaska pipe dream"(http://www.upstreamonline.com/live/article156658.ece). Upstream Online (NHST Media Group).2008-06-09. http://www.upstreamonline.com/live/article]56658.ece.Retrieved 2008-06-14. 2.922¢4¢Weley Loy (2008-01-04)."Palin picks Canadian company for gas line"(http://www.adn.com/money/industries/oil/pipeline/story/255462.html).The Anchorage Daily News. http://www.adn.com/money/industries/oil/pipeline/story/255462.html.Retrieved 2008-06-14. 3.*Posted by Alaska_Politics (2009-06-11)."Alaska Politics Blog :It's on:Exxon and TransCanada anounce pipeline partnership (Updated)|adn.com"(http://community.adn.com/adn/node/141725). Community.adn.com.http://community.adn.com/adn/node/141725.Retrieved 2010-05-26. 4.*15 U.S.C.§717 (http://www.law.cornell.edu/uscode/15/717.html) 5.©15 U.S.C.§719 (http://www.law.cornell.edu/uscode/15/719.html) 6.*North Slope Borough:1,837 Yes /471 No,Fairbanks North Star Borough:10,760 Yes /3,629 No,City of Valdez:1037 Yes /256 No.http://www.allalaskagasline.com/pages/project.dev.basis.php 7.*Retrieved 2008-09-15.(http:/Awww.allalaskagasline.com/documents/2008/2008-06- 19 AGPA_Press_Release_re_Mitsubishi_Corp.pdf) 8.*"Alaska seeks bids for North Slope gas pipeline"(http://www.cbce.ca/canada/north/story/2007/07/04/north- slope.html).CBC News.2007-07-04.http://www.cbc.ca/canada/north/story/2007/07/04/north-slope.html. Retrieved 2008-06-14. 9,*"Palin picks Canadian company for gas line:Gas Pipeline"(http://www.adn.com/money/industries/oil/pipeline/story/255462.html).adn.com. http://www.adn.com/money/industries/oil/pipeline/story/255462.html.Retrieved 2008-08-29. 10.*"Canadian company meets AGIA requirements"(http://www.ktuu.com/Global/story.asp?S=7578924). ktuu.com.http://www.ktuu.com/Global/story.asp?S=7578924.Retrieved 2008-08-29. 11.*Rosen,Yereth."Alaska governor signs natgas pipeline licensebill”(http://www.canada.com/calgaryherald/news/story.html?id=2e84b1e8-9a4a-4558-ad05-21b517c50fae), Calgary Herald,(2008-08-27. http://en.wikipedia.org/w/index.php?title=Alaska_gas_pipeline&printable=yes 7/7/2010 Alas 12 13. 14. 15. 16. 17. 18. 19, 20. 21, 22. 23. 24. ka gas pipeline -Wikipedia,the free encyclopedia Page 5 of 6 ."Gismatullin,Edward (2008-08-29)."TransCanada Gets Alaska Governor Palin's Approval for Pipeline"(http://www.bloomberg.com/apps/news?pid=20601082&refer=Canada&sid=acNe2vW46POk). Bloomburg.com.http://www.bloomberg.com/apps/news? pid=20601082&refer=Canada&sid=acNe2vW46POKk.Retrieved 2008-09-16. ""Some of Palin's remarks stretch the truth:Gas pipeline,earmark issues have more subtlety than described"(http://www.adn.com/sarah-palin/story/515517.html),Anchorage Daily News,September 4,2008 ""Palin,commissioners sign gasline license:Signing called 'historic day'as natural gas pipeline construction now ready to begin””(http://www.capitalcityweekly.com/stories/121708/bus_368669270.shtml).Capital City Weekly. 2008-12-17,http://www.capitalcityweekly.com/stories/121708/bus_368669270.shtml.Retrieved 2008-12-19. ""Palin nod boosts TransCanada pipe plan"(http://www.upstreamonline.com/live/article!46681.ece). Upstream Online (NHST Media Group).2008-01-04. http://www.upstreamonline.com/live/article146681.ece.Retrieved 2008-06-14. a4 Steve Quinn (2008-04-09)."Alaska Now Has 2 Gas Pipeline Proposals"(http://www.wtopnews.com/? nid=111&sid=1324271).WTOP.http:/Awww.wtopnews.com/?nid=111 &sid=1324271.Retrieved 2008-06- 14. ""Palin's Pipeline to Nowhere"(http://www.newsweek.com/id/160088). http://www.newsweek.com/id/160088.Retrieved 2009-09-23. ""ConocoPhillips lays Alaska pipe plans"(http://www.upstreamonline.com/live/article145188.ece). Upstream Online (NHST Media Group).2007-11-30. http://www.upstreamonline.com/live/article145188.ece.Retrieved 2008-06-14. 4 Jad Mouawad;Clifford Krauss (2008-04-09)."2 Oil Firms Plan Alaska Gas Pipeline"(http://www.nytimes.com/2008/04/09/business/worldbusiness/O9pipeline.html?_r=1&oref=slogin).New York Times.http://www.nytimes.com/2008/04/09/business/worldbusiness/O9pipeline.html? _r=1&oref=slogin.Retrieved 2008-06-14. ""Enbridge eyes Alaska pipeline"(http://www.upstreamonline.com/live/article154144.ece).Upstream Online (NHST Media Group).2008-05-07.http:/Avww.upstreamonline.com/live/article154144.ece. Retrieved 2008-06-14. *Tom Fowler (2008-04-10)."Enbridge,Shell Express Interest In Denali"(http://www.downstreamtoday.com/News/Articles/200804/Enbridge_Shell_Express_Interest_In_Den Downstream Today. http://www.downstreamtoday.com/News/Articles/200804/Enbridge_Shell_Express_Interest_In_Dena_10033. Retrieved 2008-06-14. ""White House opposes tax credit for gas line;Tax credit considered key in moving project forward"(http://www.juneauempire.com/stories/070102/sta_gasline.shtml).Associated Press.January 2, 2007.http://www.juneauempire.con/stories/070102/sta_gasline.shtml. *Kergin,Michael (2002-05-15)."Trust the Market (and Canada)"(http://online.wsj.com/article/SB102142063147024440.html?mod=googlewsj).The Wall Street Journal.http://online.wsj.com/article/SB102142063147024440.html?mod=googlewsj.Retrieved 2009-12-15. "Hickel,Wally (2008-06-21)."Sensible solution is for Alaska to build the gas pipeline”(http://www.adn.com/opinion/story/443269.html).Anchorage Daily News. http://www.adn.com/opinion/story/443269.html.Retrieved 2008-09-15. External links a State of Alaska -AGIA website (http://gov.state.ak.us/agia/) u BP's and ConocoPhillips'project website (http://www.denali-thealaskagaspipeline.com/) w TransCanada Pipelines'project website (http://www.transcanada.com/company/alaska_pipeline_project.html) ws Alaska Gasline Port Authority website (http://www.allalaskagasline.com/) w Justin Pritchard and Garance Burke (October 25,2008)."Sarah Palin's pipeline terms netted 1 http: viable bid,from firm with inside ties"(http://www.talkingpointsmemo.com/news/2008/10/ap_investigation_palin_pipelin.php). //en.wikipedia.org/w/index.php?title=Alaska_gas_pipeline&printable=yes 7/7/2010 Alaska gas pipeline -Wikipedia,the free encyclopedia Page 6 of 6 Associated Press. http://www.talkingpointsmemo.com/news/2008/10/ap_investigation_palin_pipelin.php. Retrieved from "http://en.wikipedia.org/wiki/Alaska_gas_pipeline" Categories:Natural gas pipelines in Canada |Natural gas pipelines in the United States |BP | ConocoPhillips |Proposed pipelines m This page was last modified on 14 June 2010 at 03:16. =Text is available under the Creative Commons Attribution-ShareAlike License;additional terms may apply.See Terms of Use for details. Wikipedia®is a registered trademark of the Wikimedia Foundation,Inc.,a non-profit organization. w Privacy policy u About Wikipedia mu Disclaimers http://en.wikipedia.org/w/index.php?title=Alaska_gas_pipeline&printable=yes 7/7/2010 fo I lOoh Dn ile IE as CCPrudhoeBay,Ld fm = I sinchorage Tow - Ss eonWhere(Godtnas) haan ewtate ra -,re F Eemeston ;2 Yancower A hy.Wetoria,"Cigay * : Santtie Regina y ! Portland ,Wancouver 'Sectane nnieee {eoSola”2 artetionnHalen7uenceeeei-f og ¥a as :"nian anack 8saattina ives >§¢{Pat ;%Ottews ge 'ue as -=Geneon !Pre Verete ¥f .te 'doom esSanFranciaco*-*Gareen Cy Sant Lake Cy .me teed aewlinali a oa veo,fa -_a :wo,Oat.weteee fe io Spctuongo 1 _paiaton ws Jie York,By ossib 3 -- :-ote,ocenapete *WigghingtonD.C. : .Kenaes Clty”St oes 'Sgtenton : .a Toutes apacert ;pets pees heemmaseateaian -pa, SCOPE OF THE PROJECT Denali -The Alaska Gas Pipeline is planned to have the capacity to transport approximately four billion cubic feet of natural gas daily. The project includes a Gas Treatment Plant on the North Slope of Alaska. The plant will remove carbon dioxide (CO,)and other impurities from the gas.The CO,will then be re-injected,reducing greenhouse gas emissions. The plant will also dehydrate the gas,compress it,and then chill it in order to maintain permatrost that is near the pipeline. The large diameter buried pipeline will extend 2,100 miles from Alaska's North Slope to Alberta following main transportation corridors.Should it be required,the project will also include a further 1,500 miles of buried pipeline from Alberta to the lower 48 states.In its entirety,the pipeline will require up to 5 -6 million tons of steel.The project will provide for at least five Alaska off take points and others in Canada as required by the market. denali-thealaskagaspipeline.com WORK PLAN FOR 2008 FEATURES: *Defining the best route *Assessing the appropriate technology for the project *Gathering environmental data along the preliminary pipeline route *Beginning to prepare cost estimates and schedules *Defining the key milestones of the project schedule *Initial engagement with Aboriginals and other stakeholders in Alaska and Canada SUMMER FIELD WORK ALREADY UNDERWAY IN ALASKA: *Gathering information on wetlands *Investigating archaeological sites *Reviewing previously impacted sites *Investigating physical characteristics of stream crossing locations *Collecting technical data (geotechnical,hydrology,etc.) *Gathering data on the proposed route in Alaska *Photographing the route and surrounding topography from the air *Full field work continues in 2009 -2010 For more information please visit www.denalithealaskagaspipeline.com DENALI the alaska gas pipeline DENALI the alaska gas pipeline 7 pa wore =PA ae et mig he 2 at eetreatSKAOS)CHUSNENN GAS:seconBSS008BPEndCorescPitmRRarT THE PROJECT HAS BEGUN nd ConocoPhillips have joined together to start the Alaska gas pipeline project.The project combines the financial strength,arctic experience and technical resources of two of the most capable and experienced companies in the world.The project is called Denali -The Alaska Gas Pipeline. Denali -The Alaska Gas Pipeline plans to spend $600 million to hold an open season within 36 months.An open season is a process through which a gas pipeline company seeks customers to make long-term transportation commitments.Following a successful open season,Denali intends to obtain Federal Energy Regulatory Commission (FERC}and National Energy Board (NEB}certification and move forward with project construction. Already,the new team is moving forward to make the project a reality. Denali has assigned staff to the joint project team.More than 500 employees and thousands of contractors will be dedicated to the initial permitting phase.ConocoPhillips'previously planned summer field work in Alaska will be rolled into the joint effort. 2 A I DENALI the alaska gas pipeline SHORT-TERM &LONG-TERM POSITIVE IMPACTS A successful project brings many benefits to Alaska,Canada and North America: *Thousands of new jobs *Access to gas supplies *Opportunities for local businesses *Open access for explorers *New revenue for local economies *A new source of long-term revenues for the State and Federal governments *A secure source of natural gas for the long-term energy needs of North America *The capacity to bring four billion cubic feet of natural gas to market daily -meeting as much as 6-8 percent of America's energy needs *The largest private sector construction project ever built in North America NEAR-TERM ALASKA PROGRAMS Denali -The Alaska Gas Pipeline will make available $30 million to fund job training programs,in-state gas feasibility evaluation and infrastructure upgrade studies in Alaska.We are committed to training Alaskans for this project.BP and ConocoPhillips currently support many local training programs. TECHNICAL &FINANCIAL STRENGTH BP and ConocoPhillips own more than 50,000 miles of oil and gas pipelines.We are experienced leaders in pipeline technology development and have established track records in the arctic.We also have the proven ability to deliver challenging world-class projects.In addition to this technical expertise,the companies have strong balance sheets with more than $300 billion of combined market capitalization.This gives Denali -The Alaska Gas Pipeline the financial strength needed to support a project of this magnitude. MOVING.ENERGY. ASK”=ASLINE»*4+CUELUPMENT snp GAS FOR ALASKAHSLatoolT)ED|ALASKA STAND ALONE Gas PIPELINE/ASAP Project Plan July 1,2011 ASKiNWE:DEVELOPMENT cmp AS FOR ALASKAKS ALASKA STAND ALONE GAS PIPELINE PROJECT Project Plan July 1,2011 Alaska Gasline Development Corporation P.O.Box 101020 Anchorage,AK 99510 funska*GASLIKE =.«DEUELOPMERT CORP. GOS FOR ALASERKS DISCLAIMER This document was prepared as an account of work sponsored by an agency of the State of Alas- ka.Neither the State of Alaska nor any agency thereof,nor any of their employees,agents,or contractors,makes any warranty,express or implied,or assumes any legal liability or responsibil- ity for the accuracy,completeness,or usefulness of any information,apparatus,product,or pro- cess disclosed,or represents that its use would not infringe privately owned rights,that any pipeline will be constructed,or that any expenditure will be made.Reference herein to any specif- ic commercial product,process,or service by trade name,trademark,manufacturer,or otherwise does not necessarily constitute or imply its endorsement,recommendation,or favoring by the State of Alaska or any agency thereof.The views and opinions of authors expressed herein do not necessarily state or reflect those of the State of Alaska or any agency thereof.Any action taken or not taken by any person based on the information herein is at his own risk and responsibility,and no liability shall arise against the State of Alaska or any agency thereof or any of their employees, agents,or contractors as a consequence. ©2011 Alaska Gasline Development Corporation.All rights reserved. Alaska Gasline Development Corporation P.O.Box 101020 Anchorage,AK 99510 www.gasline.us.com 907-277-4488 ASAP PROJECT PLAN nasky "teGASLINE*,*Executive Summary DEVELOPHENT CORP. GOS FOM ALASKARS EXECUTIVE SUMMARY This document presents the findings and recommendations of the Alaska Gasline Development Corporation (AGDC)regarding how an in-state natural gas pipeline to deliver North Slope natu- ral gas to Fairbanks,the Southcentral region of the state,and other communities whenever practi- cable can be designed,financed,constructed,and made operational.House Bill 369,passed by the 26"Alaska Legislature in April 2010,tasked the Alaska Housing Finance Corporation (AHFC)with developing a project plan,and AHFC established AGDC as a subsidiary corpora- tion to pursue the project.AGDC built on previous work completed in July 2010 by the Alaska Department of Natural Resources under House Bill 113. The Alaska Stand Alone Pipeline/ASAP is a proposed 737-mile-long,24-inch-diameter pipeline meant to supply natural gas to the Railbelt region of Alaska and meet the requirements of its ena- bling legislation. This document recommends a plan to execute the commercial,financial,engineering,and permit- ting aspects of the ASAP Project and provides analyses to support the findings and recommenda- tions related to the explicit and implicit work required under House Bill 369. AGDC FINDINGS e Using a reasonable set of economic assumptions,the project is likely to be commercially feasible with an un-inflated consumer cost in Anchorage of about $9.63 per million Btu (MMBtu)'.This cost is less than the next most practical alternative,imported liquefied natural gas (LNG),which would cost about $16 to $21/MMBtu (about $14 to $19/MMBtu plus local distribution charges of $2/MMBtu).The current cost of gas to Anchorage consumers is $8.85/MMBtu.” e The un-inflated estimate of the cost of gas to Fairbanks consumers using the same set of reasonable assumptions as for Anchorage is $10.45/MMBtu.The current published natu- ral gas cost for Fairbanks is $23.35/MMBtu.; e No other single project alternative is likely to address the same Cook Inlet energy-supply shortfall in a comparable timeframe;gas storage and hydroelectric projects are comple- mentary to ASAP. e The project,as described in this project plan,will cost $7.52 billion (in 2011 dollars)with an uncertainty range of 30%. 'The Anchorage Bowl consumer cost of $9.63/MMBtu assumes a $2/MMBtu netback and a $2/MMBtu LDC and local pipeline cost. 2 Source:http://enstarnaturalgas.com/ratesregulatory.aspx.See graph entitled "Commodity Cost vs. ENSTAR Charge.” ASAP PROJECT PLAN Page 1 funsxa"*« Executive Summary GASLINE :* DEVELOPMENT CORP. GOS FOR MLASEANS A public ownership model,because of the lower cost of debt and zero equity require- ment,provides the lowest tariff;however,this ownership model requires enabling legisla- tion in the near term. There are builder/owner/operators prepared to assume execution of the project after a successful open season is concluded if the private ownership model is selected and the State of Alaska funds project development.(An open season,which is a solicitation of firm commitments from gas shippers to use the pipeline,is successful if it results in transport agreements that fill the pipeline). An LNG industrial anchor tenant that enables a maximum throughput capacity of 500 million standard cubic feet per day (MMscfd)provides one of the lowest tariffs and ap- pears to be commercially feasible.(An anchor tenant is an industrial user that signs pipe- line transport agreements or pipeline off-take agreements to use large quantities of gas.) The principal business risks of the ASAP Project are a failed open season,increased con- struction costs,and project delay caused by regulatory or environmental permitting. Only the Parks Highway route as described,with a spur line to Fairbanks,meets the re- quirements of House Bill 369 and routing criteria for the environmental impact statement process. Completion of the pipeline by 2015 as required by House Bill 369 is neither necessary because of the forecast Cook Inlet gas supply recently released by AGDC/DNR nor achievable in light of current design/permitting requirements to successfully execute an open season and procure financing. The U.S.Department of Transportation Pipeline and Hazardous Materials Safety Admin- istration (PHMSA)intends to require a special permit for ASAP based on its design and operating environment.This could add significant costs and schedule implications to the ASAP Project. The State Lease Right-of-Way obtained by AGDC is the first non-conditional pipeline right-of-way granted by the State for the purpose of transporting natural gas from the North Slope to market,and will likely be perceived as a significant milestone and in- crease project interest and confidence among potential shippers and developers. AGDC RECOMMENDATIONS The ASAP Project schedule should be adjusted for delivery of first gas in 2018 and first firm transmission in 2019. The State of Alaska should appropriate $210 million'to complete the next phase of pro- ject design development,recognizing that approximately $130 million more will be re- quired either through capital funding or financing to complete the design before project approval (sanction). The Legislature,as soon as possible,should consider the recommended legislation in- cluding whether to enable the public ownership model.Non-action is de facto approval of the private ownership model. AGDC should procure a builder/owner/operator in the case of private ownership or a builder/operator in the case of public ownership as soon as practical. >Assumes approval of $29 million appropriation by 27th Alaska Legislature. Page 2 ASAP PROJECT PLAN * puiseg"*s ™CASLI HE *,*Executive Summary DEVELOPMENT CORP. GAS FOW BLaSKaNS e AGDC should execute the commercial,finance,engineering,and permitting plans as de- tailed in this project plan. e The route selected in this project plan should be adopted as the final route and that no more study or analysis of route selection be undertaken or supported by AGDC or any other state agency as specified in House Bill 215 in the 27"Alaska Legislature. ASAP PROJECT PLAN Page 3 ht cnGASLINE»,*Table of Contents DEVELOPMENT CORP. Gas FOR RLASKENS TABLE OF CONTENTS 1.Introduction 1-1 1.1 Legislative Mandate...ccc csssccsssesscsseescccsscesceesessecnscenscssnscnscecenevsnsecssdsesecsseserssaeensenss 1-1 1.2 History of Project...eesccssscscnsesscetncsssceseseccsscesssesseesaeesaecsneeesessnesssssssceseaessessarensenes 1-2 1.3.Purpose and Need for the Alaska Stand Alone Gas Pipeline Project/ASAP...........:000 1-3 1.4 Relationship to Other Pipeline Projects...eee sesseceseesceteceeeteeseceeseneseeeesseesetensneenes 1-4 1.5 Project Plan Development ............ces eesesenesseesssessenscceserscessaseescersnevsneesssecsaessesnaseasoosenss 1-5 1.5.1 Project Organization ..........csssscesecscecessecsesesaceescesecessecceseesseeeessesesseseereeseesatons 1-5 1.5.2 Contracting Strategy 0...eee esssnesseeeserseececesceeeccesseesscessseeseesesseensessaeessessesarees 1-7 1.5.3 Management of Project Plan Development ...0......eee eeesseeseecenecensersececesecennteaes 1-9 1.5.4 Stakeholder Engagement .............cccescsssccsssessecessreeseseeesssscesseceessnsecstssesseesnecsees 1-9 2.The Project Plan 2-1 2.1 Proposed Project Approach:The Stage-Gated Process ...0......ce eseseseeeesesereseeereneaeeeeenes 2-3 2.1.1 Evaluation of the Pace of the ASAP Project .0......ee eeeseseessneceseceneeneeeeseneeees 2-5 2.1.2 Summary of Issues that Drive the Recommended Schedule......0....ese 2-5 2.2 The Proposed Project 0.0.0...eesesssesssecsscecesssscesesseesecsesaseeeesesceessacenesaeesensesessoesteetsepeeeass 2-7 2.2.1 Selection of the Base Case for the Proposed Project...et eeeseeeeeersssreeeees 2-7 2.2.2 Proposed Project Facilities .......csscsssssossecssssssesssssessessceesseesssnscssvssresnesnssseens 2-8 2.3 Project Delivery .....c cu cccssesssseeceeessececceneseerscersnessaecsersusessssseassarsesneeesersesesasenassnseseones 2-12 2.3.1 Project Team...eee ssesscesssesseeesneeeseeecseeessererseessseesssseeessareesenssnsseseaseseoenees 2-12 2.3.2 FEL 2 Stage Activities and Deliverables...es eeeeeeeseeeseeeeeeceneetsteeaceesonees 2-12 2.3.3.ASAP Project Schedule oo...eee teecescsscersecseeseeseseeeseeeeeseesessesetenecsersesaseaeees 2-15 2.3.4 Contracting and Procurement Strategies 000...es eeeeceeccseeseesereseeeersecseeeeens 2-15 2.3.5 Recommended Legislative Actions ............cs csesseesteessseeserseneceasessarnecoerenees 2-17 2.4 Commercial Plano...eesescscescccnsersceecnersceecccescceerecsccsnecessdersseeesrsasavensessasecessesesacares 2-18 2.4.1 Commercial Strategy,Targets and Milestones for the FEL 2 Phase..............2-18 2.4.2 Commercial Tasks and Actions for AGDC in FEL 2/FEL 3...eeeeseseeeee 2-18 2.4.3.Actions Required for the State of Alaska ........teeessccseseeeseeseeeetereessesseseeees 2-19 2.4.4 Commercial Actions Required for the Prudhoe Bay Unit Owners and Other Potential Suppliers ....0....ee eesssscecsececonereceeceeceesconeceseeecesseeceseeseaaeeeeesess 2-20 2.4.5 Commercial Actions Required by Shippers/Off-takers ..........ee eeeeescceceeeeeee 2-20 2.4.6 Commercial Actions Required by the Fairbanks Community...2-20 2.4.7 Commercial Actions Required by Mining Entities 0.0.0...eeeeeeeceeereeeeeeee 2-20 2.5 Financing Plan ooo...eeeesccsceeceeesecseeseessseccessseeesesscserstesesessesesessseasoresseensseeesssssesees 2-20 2.6 Engineering Plan...ee eeeecesscssessscsscssessscesssssceesssnsscecseesseescoteseecesssssecenssenesseseneees 2-21 2.7 Environmental,Regulatory,and Lands (ERL)Plan oo...ee eeseeeeeeeeseceereeesseereees 2-23 2.8 Stakeholder Engagement Plan ..0.....cc ecsssssssecseseessesscessenssseesssssnsgusseesseaseensereseesseses 2-24 3.Commercial Analysis and Findings 3-1 3.1 Commercial Viability of the Project 0.0...eeecscssecesssseesssssssssessnesesssensssrssersessersseseeees 3-2 3.1.1 Capital Costs of the Project 0c ccccccescsesesecsesessnsenssesssssessnssnereereesersenenes 3-2 3.1.2 Southcentral Alaska Natural Gas Supply and Demand...eee eeeeeeeeeeees 3-5 3.1.3 Tariff Estimates 2.0.0...ccsscssecssscsssesenersaccreneseeecsarsseesesesseessasosssseeseusssaseasensns 3-83.1.4 Lowest-Cost Alternative to ASAP Ga ......cc essssscsscesctseresscensectseetaeeneveaenas 3-11 ASAP PROJECT PLAN Pagei aUnSka**an Table of Contents GASLIKE «DEVELOPMENT ce” GOS FOR ALASERNS 3.1.5 Commercial Feasibility of ASAP in Current Phase of Project Development 3-13 3.1.6 Business Risks that Must be Mitigated for Commercial Feasibility ..............3-16 3.1.7 Risks Identified for the Builder/Owner/Operator ...........:cccscsscsssessesssseneensensens 3-17 3.2 Commercial Requirements of a Builder/Owner/Operator ............:ccsscescesecetsessensenceees 3-19 3.3 Other Commercial Considerations of House Bill 369 ote eseccscensecersecosenasonees 3-21 3.3.1 Letters of Intent from Buyers and Sellers of Natural Gas ..........ccccesscseseeeeens 3-21 3.3.2 In-State Propane Use and Alternatives for Transporting Energy to Other Locations in the State...eee eseeceresecseesessesesessserseeensessesneneeaee 3-22 3.3.3 Development of a Global Trading Center in the State of Alaska...3-23 4.Financial Option Evaluation 4-1 4.1 Background...cecssesscesecssececnsssstscecseesecenssesscsnessseesnessssssdcesneesnersneserseeseasocerensenessoee 4-2 4.2 Owe Ship...se eeeeessecesnersesesacseavsnssssesscesscesessssoeesssosesssesssesssecessecenscseesssesessnsessssnsoneenes 4-24.2.1 Private Ownership ..0........cess sscesscesccecceceessesesceseteeseesccerseessertcaneessesseerseceesenees 4-4 4.2.2 Public-Private Partnership (P3)............ssccssssssessetesceeserereereseeeseeceeeeeeeeeersereeses 4-5 4.2.3 Public Ownership ..0.......cesseccesesseeseceeccseeessersecesesessrearerseeessessasessssesnersesssesseenes 4-7 4.3 State SUPPOrt.....ee ceseeceeceeeseeceeesseeesseessceeseeersoeerencersnedceneecesseesoessessssesseesesseseseeees 4-8 4.3.1 Capital Contribution/Investment .......cc.csessessesesneseeeoreseseesscereseeseesssereeeseenaes 4-9 4.3.2 Debt Issued by State 0...eseseseecsecseoonsonsessrecsseceresosessseessnensneesneesseesersaneees 4-9 4.3.3 State Credit Enhancement on Contractor Debt...ee eeeeeeceereeeeeeesceeeees 4-10 4.3.4 State Financing Options 20.0...eeesssssccssscsecssecesecereesesseesesenenereesenussesenesees 4-10 5.Engineering Analysis 5-1 5.1 Introduction...ccecsessesceceecsersccerersccsseseseesscosacsesssesssseseeseneeseessessseesensseneesneaseeseeessusees 5-1 5.2 Selection of Route...ce ceesseeeccsetscceccesssceesesesseeseessssccerseecsetsersesesaeseresaseesssecrseeessensees 5-] 5.2.1 Alltermatives AnalySis...........cccsssscssessescecescesscssscenscneersesecessesseessesesssessassesseeo 5-1 5.2.2 Discussion of Route Selection Criteria (House Bill 369)...ee eeeeeeeeee 5-9 5.3 Plan of Development for Proposed Project.......cessescssesssessesseesssscsersssseesseseesseseeeoness 5-11 5.4 Construction Plan/Logistics Plan...cee sessesseesseesscesecessassesssecsesssosesseeessssesesseesees 5-13 5.4.1 Pipeline Construction Plan ooo...ee cseeeeeseeeeessseussseseesescneessssesssssersaseeeers 5-13 5.4.2 Construction Milestone Schedule...eeeeeeeeeseecereesessscnscessseessessessees 5-15 5.5 Summary of Completed Engineering Work ..0...ccc cssscsssessssteereeseesseerssssereesenenes 5-15 5.5.1 Pipeline Alignment Investigation...eceescsssseessseseessesseessesessesscurneeseee 5-16 5.5.2 Pipeline Diameter Optimization ..........esses csseneesseeescersstonreseesereeseseeeees 5-18 5.5.3 Studies of Special Design Areas...te sscescesscesesscssenessscerscneneesseereesenseres 5-18 5.5.4 Geotechnical Analysis...eceeceecsseseeseseseeesenersressseensssseessesesssearssseeeanes 5-31 5.5.5 Project Geographic Information System (GIS)and Alignment Sheets..........5-32 5.6 Project Capital Cost 0.0...essssssssssiesssssssessesessesssssssesesssessensenseneensensseesstereneenrensarenses 5-345.6.1 Pipeline Cost Development...saseaceeetasesceceeaesaseeceeesseesnetesessessesssssessssesessesaussntersues 5-34 5.6.2 Facilities Cost Development...ccccesssscsssseesecssssscesneseescesssseesneenaeseeseaeeses 5-35 6.Environmental,Regulatory,and Lands (ERL)Analysis 6-1 6.1 Introduction...ccsesscccsesscteceeseccccerscossoseesseessccneconsoensosnenseuseessssassnsssauseesssecsseseneeeess 6-1 6.2 Environmental Field Work ....0...ese cescsssssessesssscsecosensseesseesesseseseasseasseassneceseeseeenesseees 6-1 6.2.1 Cultural Resources Survey and Sensitivity Model...eeeseessetessesseeseeeens 6-1 6.2.2 Wetlands Survey...cesscssssscsscnsssevsescsesceesssensecersuseensseassessseussenseecensseeseness 6-4 6.2.3.Stream Crossing Surveys for Fish and Fish Habitat...eee seeeeeeeneeeeees 6-6 6.2.4 Water Resources Availability Studies ............:csscssccsesseseeeesteesseceeeescenesensonses 6-8 6.2.5 Air Monitoring Program Preparations ...........ccsscssseseeseeseecsesenrsesetereceeseseres 6-10 6.3 Regulatory and Permitting Strategy........cecessccesesesseeennesesenseesesnesseessenseesersesstssetenes 6-11 6.3.1 Permit Acquisition Plane...es esssessesceeesnscesenseersisesnessascssserseeerecceeessers 6-11 Pageii ASAP PROJECTPLAN asa"**=™GASLINE *.Table of Contents DEVELOPMENT CORP. GAS FOR ALASKERS 6.3.2 Agency Coordination...eeescecesscesceerseeseceeseceestceeseneeseecaesaneeatesesseeeseseasentes 6-11 6.3.3 Plan of Development 0.0.0...eee eesesccecceescncesseesceenseseseesseeesseeacesesorssenscenseees 6-13 6.4 Permit Status...cesesecsececseeecssceceerscevessesssescsonecseneceseeessseersnseersansseseeesssaeeceeseesase 6-14 6.4.1 State Right-of-Way Permit Application 0.0.0....cccsscessccsscesseesecesseeetseeseceasens 6-14 6.4.2 Federal Right-of-Way Permit Application .............:esecscscseceseeeeetceenesaeeeeees 6-14 6.4.3 USACE Section 404 Application...ccsscsscessceseseecsenseesscesssersesenasenseees 6-14 6.4.4 Environmental Impact Statement 000...tee eseeeeeseeneeeseeeeesseesetenesenseeeeseeseoes 6-15 6.4.5 Biological Assessment Required by the Endangered Species Act.................6-15 6.4.6 Regulatory Commission of Alaska Certification....essecessseseeeescesresesenes 6-16 6.4.7 Other Permits...eee esseeeeseeseeseesecseteeesseceesscesceensesessecscersnsesevsasessosseenseaseaes 6-16 6.5 Land...eeseessecensessseeescesecesceesseesssnevsceessaceseasseseosseeseseassssesessesensseesesessessecsesuseassusoeses 6-16 6.5.1 Easements on Private Land...eeeceeeeeseeseeesersesseesssssseserseesssssessssssesess 6-16 6.5.2 State Right-of-Way.........ccsccesccssscesseceseetssecessneeenseeeseceesseserseesereesersceersnnerseses 6-16 6.5.3 Federal Right-of-Way.........cccscssscssscsscsssesseceecesecesscoosersceesonsceneceneversvsscesnsnsees 6-17 7.Stakeholder Engagement 7-1 T.1 Plan Approach 00...eccsseceseceeeseceeresenerssesscsceseesrscsersdeesesssssassesnsesssceeessessnssateneenesseees 7-1 7.2 Stakeholder Outreach...ee ecescssessecssecseessesssecssecssecsreesseeseeessersssrseseasssseseesseseneenes 7-2 7.3 Methods of Communication ........eeeessseccesesscesecsceessseseesseesseestessresesseessssesscensassrscesenes 7-3 7.3.1 Stakeholder Communication 0.0...eeeeeeceeeceeecereceecesscseeeessseesnsorssssesssesensonees 7-3 7.3.2 Communication with the Alaska Legislature and Executive Branch...............7-3 7.3.3 Electronic Communication 0...cc eeeecesscseceecseeseeseseessscssssssessesseessecsersnsseeeeess 7-6 7.3.4 Print Material...eeecsessceceeseceseeeseeseesseessesssescseesseeseesesasseseseesenseneeesseetanes 7-6 7.3.5 Project Branding 0...ssesecseeeeeeescececseesersesseccessseesssessessssesessessesnsseeesnssenes 7-6 ASAP PROJECT PLAN Page iii ALASKA”t+ List of Figures and Tables GASLI HE *t DEVELOPMERT CORP. GAS FON ALASE ENS LIST OF FIGURES Figure 1-1.Joint In-State Gasline Development Team ...0.....ee eeeeeesseneesrertecseseecesererersceeeeasnees 1-6 Figure 1-2.AGDC Organization Chart ..0..........cesssssssssnecerscsnecenescecesseceseessetecesccgessseosesonseensaeaeee 1-7 Figure 2-1.Stage-Gated Project Delivery Approach...teeseseccsssseceeesscesereccensveceesenseeseeeasseees 2-4 Figure 2-2.Front-End Loading Financial Requirements for the ASAP Project...eeeeeeeees 2-6 Figure 2-3.Current Schedule vs.Optimized Project Schedule...ce seeeeesseceeereessescesssesseneees 2-7 Figure 2-4.ASAP Route Map and Major Facilities 00...cscssssssssssecsscrssressseesssnessersecesenesenes 2-10 Figure 2-5.Flow Schematic of ASAP Facilities ...0....tesesscsssessssarsosssssessssessesessscsssesnesarees 2-11 Figure 2-6.ASAP Project FEL 2 Organization...ees ecccsssesssssesssssssssessscnesssecncessseesserenees 2-13 Figure 2-7.FEL 2 Alternative Selection/Project Execution Plan....csccsssscscrsscsseerserserises 2-14 Figure 2-8,ASAP Project Schedule...ee esccssscsessssecssestsosecessseseesensesatenrenesseersscsesseetenes 2-16 Figure 3-1.AGDC/DNR Cook Inlet Production Forecast .........cssssessssscssessessestensensensssenteneenenes 3-6 Figure 3-2.AGDC Cook Inlet Demand Forecast for ASAP Gas (Demand Net of Cook Inlet Production)..........ccccsccssccsssccestscssscesecesseescsseesceesosesecesessesseeseeesesseeersneonsees 3-7 Figure 3-3.Estimated Tariff Build-Up for Base Case Design in Nominal Dollars (Option 8)..3-10 Figure 3-4.Estimated Tariff Build-Up for Base Case Design with No Inflation from 2011 Dollars (Option 8).............scescesssessessssesesceeeseeesesssesesssossesseesseeseeneeeteenees 3-10 Figure 3-5.Estimated Nominal-Dollar Tariffs for Alternative Design Options (Option 4 and Option 7)occ eeesesoesesssesssereresseressessessersssessessesseneneerssssessesteeseees 3-11 Figure 3-6.North Slope Netbacks for Industrial ANChOIS.........ccsccssesseseseersesesseetscsseesnessessees 3-15 Figure 4-1.Three Financing Scenarios Analyzed by C&R...cccsessesseeeesssssrensenecsesseerseeenesnens 4-3 Figure 5-1.Richardson Highway Alignment Altermative ..........ccssscssoseessesssnsensesteneereerensensenees 5-5 Figure 5-2.Minto Flats State Game Refuge.....cscscssscsssssssssssesssessessseasessesssesseresnsensssserensenens 5-7 Figure 5-3.Minto Area Route Comparison .....ccsscsccsssssssssssesessessessesessssssseeseenseneesesssessssansseeaens 5-8 Figure 5-4.Simplified Construction Milestone Schedule ............:csssessscssssereresteeseetseesssensssseaees 5-15 Figure 5-5.Location of Special Design Areas ......c.ccecsssssecssrssesseseenesserssseessessensseeenseaensensesseesaes 5-20 Figure 5-6.Atigun Pass SDA Vicinity Mapu...ccsssssccssssscseesssecsecssensssersenserssesssesessensenrenes 5-21 Figure 5-7.Concepts for Crossing ADOT&PF Bridges...........cscsscscsseresseetseeesserenesseeseeseneeees 5-23 Figure 5-8.Options for Denali National Park and Preserve...........:cssscsesssersecseerssessenseeeneases 5-25 Figure 5-9.Yukon River Crossing Options.........cssssssssssesetsseesccssersssssecneenessesseneessessessenseaeenes 5-27 Figure 5-10.Conceptual Drawings of Bridge Options for Yukon River Crossing ............0000 5-28 Figure 5-11.Options for Tanana River Crossing at Nenana .........ccecssessssseessesreerensseeessseneneneees 5-30 Page iv ASAP PROJECT PLAN I reGASLINE**List of Figures and Tables DEVELOPMENT CORP. Gas FON RLASKARS Figure 6-1.2010 Cultural Resource SurveyS.........csscssssscssssecceesececcesseesecsecsessessesseeesceseesesenenees 6-2 Figure 6-2.2010 Wetlands Survey .....ccccssssescrssccsscesernsccssessessessesseessesceseesessesesoesarsoesarsacsessenses 6-5 Figure 6-3.2010 Stream Crossing SurveyS .......cccsscssssssssssssssssscesseesscscessteeseeessscssesscenssscenesencserses 6-7 Figure 6-4.2010 Water Resources Availability Studies 00.0.0...ee csssssscsseseseesssensseeesensescesssasensens 6-9 Figure 7-1.Sample Calendar of Engagement ................:sscsscessssssseecsscesenscesessscatssnsessssseeessnseanees 7-2 Figure 7-2.Affected Communities Along ASAP Route ........cs esesscsseesseeeceseeseesseesercerscseneeterses 7-4 LIST OF TABLES Table 1-1.Comparison of Findings:SAGP and AGDC o.oo.ee eeeeeenecsecesseeseseessceeeersoneereeeees 1-3 Table 1-2.AGDC Contract Support .........cesceescscecsseseescesesecensecensecensesesssecenseessonceneeecseseesenesereeees 1-8 Table 2-1.Cross-Reference of Project Plan to House Bill 369,AS 38.34...ceesecessceeseresreeeees 2-1 Table 2-2.Summary of Proposed ASAP Project Facilities...esccessesceseseseeeesseceersseeeetereneees 2-9 Table 2-3.Maturity Matrix for Engineering Deliverables:Present vs.End of FEL 2 ..............2-22 Table 3-1.Summary of Options for Capacities and Products...et eeseseessseeeeeseetetssnereeeneees 3-3 Table 3-2.Summary Capital Costs for ASAP Base Case (20119)...ee eeeseeeeeseceereeeseeeeeeeeeeees 3-4 Table 4-1.Lifecycle Transportation Tariff Differentials ($/MMBtu)..........cs esesseeeceseeeeereosenetes 4-] Table 4-2.Financing Assumptions for the Three Scenarios ............sccsscsssssssesseeesseeecceeenetossoneens 4-4 Table 4-3.Potential Builder/Owner/Operators..........cssscscsscessessssnessnscesssscesesssesessensceusessoeseesens 4-5 Table 4-4,State of Alaska Credit Rating History...sescssssseseeserenecserseesseesecsrseeersseeeessseeeses 4-9 Table 5-1.Impact Comparison of Proposed Route and Richardson Highway Alternative..........5-6 Table 5-2.Livengood to Dunbar Route Comparison .............:escsscesseeceeesescesececeessescesneenceneteceeeenes 5-6 Table 5-3.Summary of 2011 Alignment Changes .0..........cessssesnscereeseeerseceareesnescarsearsesesrseseoos 5-16 Table 5-4.Comparison of Yukon River Crossing Options ..........ee essesesseeseessseseeseeeeesaseserereneees 5-26 Table 5-5.Breakdown of Capital Costs (20118)...ee eesesesecneesseceeceeescesseesersetseesseeserseteeees 5-35 Table 6-1.Reported Sites Within or Near the ASAP Right-of-Way...eccsessceessceeseseceerees 6-3 Table 6-2.2010 Wetlands Surveys...eessssssescssccsscssecssscsnecssecsseesssssessnensnesseeseceesasseessuseets 6-4 Table 6-3.2010 Stream Crossing SurveyS ........:cssccsscsssssssesseeeeesesecseceeeteceesssesnetsecerseessorssessesenees 6-6 Table 6-4.Air Monitoring Program Activity 2011 oo.ceeeeseseeseseseeseesssecseesstscsnesseecssersrensnsees 6-10 Table 6-5.Summary of Required Permits 0.0.0.0...scscsssseseeeseesersesseeeersaeeserseceeeseesseensoeseeteasees 6-12 Table 7-1.List of Stakeholder Contacts,January-June 2011 oo...ee eeseessesseeesecenseetececeseseeensaees 7-5 ASAP PROJECT PLAN Page v List of Acronyms ALASKA”CASLIKE =+ °C °F AAAQS AAC AACE ACCE ACMP ADEC ADF&G AGIA ADOT&PF AES AGDC AHFC AHRS ANGDA APDES APP ARPA ARRC AS ASAP ASRC B&V BLM Btu C&R CAPEX CEO CFR CGF CIF CNG CO, DBFOM DEVELOPMENT CORP. CSS FOR RLASERWS LIST OF ACRONYMS degrees Celsius degrees Fahrenheit Alaska Ambient Air Quality Standards Alaska Administrative Code Association for the Advancement of Cost Engineering Aspen-Tech Capital Cost Estimating Alaska Coastal Management Plan Alaska Department of Environmental Conservation Alaska Department of Fish and Game Alaska Gasline Inducement Act Alaska Department of Transportation and Public Facilities ASRC Energy Services Alaska Gasline Development Corporation Alaska Housing Finance Corporation Alaska Heritage Resources Survey Alaska Natural Gas Development Authority Alaska Pollutant Discharge Elimination System Alaska Pipeline Project Archaeological Resources Protection Act Alaska Railroad Corporation Alaska Statute Alaska Stand Alone Gas Pipeline Arctic Slope Regional Corporation Black &Veatch Bureau of Land Management British thermal unit Citigroup Global Markets,Inc.and Samuel A.Ramirez &Co.,Inc. capital expenditure chief executive officer Code of Federal Regulations Central Gas Facility (North Slope) commodity-insurance-freight compressed natural gas carbon dioxide design/build/finance/operate/maintain Page vi ASAP PROJECT PLAN quusyg "*»=™GASLINE *Pig List of Acronyms DEVELOPMENT CORP. GAS FOR ALASKANS DGGS Alaska Division of Geological &Geophysical Survey DNP&P Denali National Park and Preserve DNR Alaska Department of Natural Resources DOR Alaska Department of Revenue Dth dekatherm EIS environmental impact statement ENSTAR ENSTAR Natural Gas Company EOI Expression of Interest EPA Environmental Protection Agency ERL environmental,regulatory,and lands FEED front-end engineering design FEL front-end loading FEL 1 front-end loading phase 1 FEL 2 front-end loading phase 2 FEL 3 front-end loading phase 3 FERC Federal Energy Regulatory Commission FOB freight on board FY fiscal year GCF Gas Conditioning Facility GIS geographic information system GTL gas to liquids H2S hydrogen sulfide HB House Bill HDD horizontal directional drilling IPA Independent Project Analysis,Inc. JD Jurisdictional Determination LDC local distribution company LiDAR light detection and ranging LNG liquefied natural gas LOA Letter of Authorization LPG liquefied petroleum gas MAOP maximum allowable operating pressure MI miscible injectant MMBtu million Btu MMscfd million standard cubic feet per day MP milepost NEPA National Environmental Policy Act NGL(s)natural gas liquid(s) NMFS National Marine Fisheries Service NPV net present value ASAP PROJECT PLAN Page vii nlnsxa ”*« List of Acronyms GASLINE +.* sau O&M operation and maintenance P3 public-private partnership PBU Prudhoe Bay Unit PERS Public Employees'Retirement System PHMSA/OPS Pipeline Hazardous Materials Safety Administration/Office of Pipeline Safety (U.S.Department of Transportation) PJD Preliminary Jurisdictional Determination PLR private letter ruling POD Plan of Development PODS Pipeline Open Data Source ppm parts per million PS pump station psi pounds per square inch psig pounds per square inch gauge QA/QC quality assurance/quality control RCA Regulatory Commission of Alaska RFAI request(s)for additional information RFP request for proposals RIK royalty-in-kind ROD Record of Decision ROE return on equity ROW right-of-way SAGP Stand Alone Gas Pipeline SAIC Science Applications International Corporation SDA special design area SO,sulfur dioxide SPCO State Pipeline Coordinator's Office TAPS Trans Alaska Pipeline System WTI West Texas Intermediate US.United States USACE U.S.Army Corps of Engineers USC U.S.Code USFWS USS.Fish and Wildlife Service Page viii ASAP PROJECT PLAN masa *»= GASLINE **Section 1:Introduction DEVELOPMENT CORP. GAS FOW ALASERES 1.INTRODUCTION This document presents a project plan for designing,financing,constructing,and making opera- tional an Alaska in-state natural gas pipeline from Prudhoe Bay to the Cook Inlet region.The mandate for this project was expressed in House Bill 369,passed by the 26"Alaska Legislature in May 2010 in light of declining North Slope oil production,impending shortages of natural gas in Southcentral Alaska,and uncertainty regarding timing of a large-diameter pipeline to Canada to export Alaskan gas and to provide Alaskan gas to the Fairbanks area and to the Southcentral region. This project plan is the culmination of the efforts of the Alaska Gasline Development Corporation (AGDC)to refine the engineering and cost analyses previously undertaken by the Alaska De- partment of Natural Resources (DNR)in response to House Bill 113 and develop an economical- ly feasible plan for building the project.AGDC contacted potential pipeline construction and operation companies for interest in developing the project,studied financing alternatives,opti- mized route selection and engineering,and continued work with permitting agencies for rights-of- way and environmental impact statement (EIS)activities. 1.1.LEGISLATIVE MANDATE House Bill 369 established the Joint In-State Gasline Development Team in the Alaska Housing Finance Corporation (AHFC)and defined the team's mission as follows: "The Joint In-State Gasline Development Team shall produce a project plan for the development of an in-state natural gas pipeline.The development team shall ensure that the project plan is completed and delivered to the legislature by July 1,2011.The project plan must specify and document how an in-state natural gas pipeline can be designed,financed,constructed,and made operational by De- cember 31,2015.”[AS 38.34.040(a)] House Bill 369 goes on to set guidelines for the project plan stating that: e "The project plan must include specific plans to coordinate and facilitate con- struction,ownership,operation,and management of a natural gas pipeline serv- ing Fairbanks,the Southcentral region of the state,and other communities whenever practicable,connecting with or enhancing the existing gas pipeline sys- tem,and reaching to tidewater in the Southcentral region of the state.” e "The development team's work product shall include an analysis of alternative possible routes and the selection of a route that,consistent with the other re- quirements of this section, ©is economically feasible; o makes natural gas available to residents at the lowest possible cost; ASAP PROJECT PLAN Page 1-1 ALASKA""= Section 1:Introduction GASLIKE *\t DEVELOPMENT CORP. GOS FOR ALASKAUS o allows for connecting lines to serve industrial,residential,and utility cus- tomers along the entire route,and in other regions of the state that can be served at commercially feasible rates; o uses state land and existing state highway and railroad rights-of-way to the maximum extent feasible; ©uses existing highway and railroad bridges,gravel sources,equipment yards,maintenance facilities,and other existing facilities and resources to the maximum extent feasible.”[AS 38.34.040(c)and (d)] 1.2 HISTORY OF PROJECT Work on a small-diameter in-state gas pipeline has been ongoing for several years.Original work was undertaken by ENSTAR Natural Gas Company and targeted gas reserves in the Gubik gas field of the central North Slope region.The Gubik reserves were not sufficiently delineated to establish threshold reserves capable of supplying 100%of the pipeline capacity.In 2009,the Alaska Legislature passed House Bill 113,which established the Stand Alone Gas Pipeline (SAGP)Project to continue and enhance the original effort and to maintain a back-up plan to the large-diameter export gas pipeline that was designed to serve in-state needs via a spur line,The work product and permits generated by the state-funded SAGP team were envisioned capable of reducing project risk so the information and permits could be sold and transferred to an entity able to build and maintain the line.The team for this project,which was led by DNR,analyzed alternatives,performed preliminary engineering,developed cost estimates,and began the permit- ting process. The original SAGP project team was made up of state management that coordinated and directed the various contractors performing the tasks outlined in the enabling legislation.Project manage- ment was initially performed by Harry Noah,and later by Bob Swenson,both employees of DNR on special assignment to the Office of the Governor.The original work plan and schedule were maintained and kept on track throughout fiscal year (FY)2009/2010. The SAGP team transferred all of its reports and work product to AGDC on July 1,2010.The findings of the SAGP project team were presented to AGDC in a July 15,2010 report'.Included in the team's deliverables were reports,cost estimates,modeling results,and permit applications that serve as the baseline data as the project is optimized and project plans are developed. In taking over the work from the SAGP team,AGDC made every effort to avoid duplicating stud- ies,plans,and designs that have already been produced or obtained by the SAGP team and other state entities.The SAGP project team's principal findings are summarized in Table 1-1,along with AGDC's advancement of those findings. 4 Alaska Stand Alone Gas Pipeline Project Update and FY 2010 Deliverables.Presented to AGDC by the State of Alaska In-State Gasline Coordinator,July 15,2010. Page 1-2 ASAP PROJECT PLAN * flask "*»=™* ** *Section 1:IntroductionGASLIKE DBE LOPMEKT CORP. GAS FOR ALASKARS Table 1-1.Comparison of Findings:SAGP and AGDC AGDC JULY 2014 FINDIN Route The Parks highway route was chosen as the pre-AGDC continued work on the Parks Highway ferred alternative based on a comparison of poten-|route,refined the alignment,and confirmed thattialprojectcost,environmental impacts,and the route meets the requirements of House Bill potential customers.369. Cost Cost of pipeline,not including facilities or contin-The capital cost of the pipeline is estimated to gency costs,is projected at $3.8 billion.be $5.68 billion,and the Gas Conditioning Fa- Preliminary capital cost estimates for the entire cility is estimated to be $1.84 billion.The totalprojectcouldrangefrom$5.7 billion to $11.8 billion,|Capital is estimated to be $7.52 billion.(Thesedependingontheconfiguration,number,and loca-|@Stimates have a confidence factor of +30%.)tion of gas handling facilities.These estimates also |See Section 3.1.1 of this project plan for moredonotincludecontingencycostsorpotentialcostdetail. ranges,which were captured in the cost-of-service modeling. Tariffs The tariffs associated with a 737-mile 24-inch high-|The base case tariff from Prudhoe Bay to An- pressure pipeline that would transport natural gas chorage (Big Lake meters)is estimated to be and/or natural gas liquids from the North Slope to $5.63 per million Btu (MMBtu)in 2011$or tidewater in Southcentral Alaska could range from $7.75/MMBtu in nominal dollars assuming 3% over $14 to less than $7 per dekatherm (Dth).(A inflation. dekatherm is energy equivalent to 1 million Btu.) Sensitivity models run on increased flow rates show |The ASAP tariff from Prudhoe to Anchoragethemajorityoftariffreductionoccurswhenramping|(Big Lake meters)for a throughput of 250 up flow rates from 250 million standard cubic feet MMscfd is estimated to be $4/MMBtu higher per day (MMscfd)to 500 MMscfd.than for the 500 MMscfd case. Cost of The final cost to consumers must include the cost AGDC agrees with these findings. Service of the natural gas from the producer,carbon diox- ide disposal costs,and the cost of transport on a local distribution system.These costs would be in addition to the pipeline tariff costs and could vary significantly. All cost of service models run indicate the predicted cost to consumer will be higher than the current costs in the Cook Inlet. A combination of market demand increase,reduced project costs,and alternate finance and commercial parameters will be necessary to reduce the cost to current levels of service. 1.3.PURPOSE AND NEED FOR THE ALASKA STAND ALONE GAS PIPELINE PROJECT/ASAP Southcentral Alaska relies primarily on the Cook Inlet gas fields for heating and electric power. The deliverable reserves from the developed fields are in decline and are projected to fall short of demand as early as 2014.If investment in these fields is not made to increase supply and if new reserves are not developed,the gas shortfall will increase.The ASAP Project will provide gas to Alaskan consumers to offset these projected shortages.The project,combined with gas storage, will meet the region's peak seasonal gas demand and long-term energy needs. The ASAP Project will serve developed and developing markets within Alaska,including Fair- banks and the Railbelt.Much of Alaska has no long-term source of fuel other than oil.Currently, LNG is trucked in limited supplies to Fairbanks from Cook Inlet for a small local distribution sys- tem.A long-term,affordable energy source is needed for Fairbanks,the Railbelt,and western Alaska communities.Community,commercial,and industrial development in Interior Alaska ASAP PROJECT PLAN Page 1-3 ALASKA" Section 1:Introduction GASLINE *\* DEVELOPMERT CORP: GOS FOR ALASEAMS could be facilitated with a reliable supply of natural gas.ASAP will provide construction and op- erational jobs and new business development opportunities for Alaska citizens.New jobs and tax revenues will be created. The expected public benefit of ASAP is the potential for delivery of a long-term,reasonably priced supply of natural gas and propane to the Cook Inlet area and to Fairbanks and other com- munities along the pipeline corridor.Specifically,this supply could be used for the following: Heating homes,public safety facilities,military bases,and businesses. Generating electrical energy used throughout the region. Continuing economic stability and growth by supporting industrial users. Accommodating future population growth and increased commercial usage served by the existing ENSTAR local distribution system,and for the Fairbanks area and other Railbelt communities. e Promoting compressed natural gas (CNG)or propane as a substitute for gasoline and die- sel fuel used by cars and trucks in Fairbanks;for use by communities along the Parks Highway,including tour buses in Denali National Park and Preserve;and for use by An- chorage and communities on the Kenai Peninsula. e Potentially providing CNG or propane for distribution to rural Alaska communities via the Yukon and Tanana Rivers and marine barges from Cook Inlet. e Providing infrastructure to allow more economic development of mining and oil/gas pro- jects. Economic benefits of the project include the creation of new jobs and state and local tax reve- nues.Employment will include temporary jobs during engineering,procurement,and construc- tion,and long-term jobs during pipeline operation.The project has the potential to stimulate existing industries and encourage new industrial activities,including mining.Industrial users are essential to the project,since the project's initial capacity exceeds the expected demand for resi- dential use and power generation. 1.4 RELATIONSHIP TO OTHER PIPELINE PROJECTS For decades,various sponsors have studied projects to export natural gas from Alaska's North Slope to North America,Asia,or both.To date,none of these projects has advanced past the fea- sibility study period. ASAP is an intrastate project independent of proposed interstate natural gas pipeline projects.The Alaska Pipeline Project (APP),the project sponsored by the Alaska Gasline Inducement Act (AGIA),is studying the feasibility of exporting Alaska's North Slope natural gas via a large- diameter pipeline.(A second project,Denali-The Alaska Gas Pipeline project,was recently halt- ed).As export plans and studies continue,the near-term need exists for additional natural gas supplies to supplement Cook Inlet reserves and to serve developed and developing markets within Alaska.The ASAP Project was conceived as a smaller-diameter in-state gas pipeline that could be built sooner and help meet the urgent energy needs in Alaska,particularly in the population centers in Fairbanks and the Cook Inlet region. Page 1-4 ASAP PROJECT PLAN * ALASKA”*= GASLINE *,*Section 1:Introduction DEVELOPMENT CORP. GAS FOR RLASKAKS Several intrastate gas pipeline projects have been granted conditional right-of-way leases by DNR,but the ASAP Project has a non-conditional lease.Yukon Pacific Corporation received a conditional lease,but it has been relinquished.DNR applied for the Eastern North Slope pipeline oil and gas rights-of-way as conditional leases,but they were never issued and have not been worked actively for several years.The Alaska Natural Gas Development Authority (ANGDA) received a conditional lease,but they have not addressed the conditions to date.The ASAP lease is the first non-conditional pipeline right-of-way granted by the State for the purpose of transport- ing natural gas from the North Slope to market,and will likely be perceived as a significant mile- stone and increase project interest and confidence among potential shippers and developers. The ASAP Project is designed for a throughput of 500 MMscfd.The reason for this design throughput is that AGIA provides that the State will pay the AGIA licensee a significant penalty if a competing natural gas pipeline project is supported by the state: "If,before the commencement of commercial operations,the state extends to an- other person preferential royalty or tax treatment or grant of state money for the purpose of facilitating the construction of a competing natural gas pipeline pro- ject in this state,and if the licensee is in compliance with the requirements of the license and with the requirements of state and federal statutes and regulations rel- evant to the project,the licensee is entitled to payment from the state of an amount equal to three times the total amount of the expenditures incurred and paid by the licensee that are qualified expenditures...”[AS 43.90.440(a)] In AGIA,"competing natural gas pipeline project”is defined as a "project designed to accommo- date throughput of more than 500,000,000 cubic feet a day of North Slope gas to market”[AS 43.90.440(c)(1)]. 1.5 PROJECT PLAN DEVELOPMENT 1.5.1.Project Organization This project plan was developed by the AGDC,under the direction of the Joint In-State Gasline Development Team established by House Bill 369 (AS 38.34.030).Figure 1-1 shows the organi- zation of the Development Team,which is comprised of five members: e The Commissioner of the Department of Transportation and Public Facilities. e The Chair of the Board of the Alaska Railroad Corporation. ©The Chief Executive of the Alaska Natural Gas Development Authority. e The In-State Gasline Project Coordinator. e The Executive Director of the Alaska Housing Finance Corporation who serves as the Chair of the Joint In-State Gasline Development Team. The team is responsible for hiring staff,entering into contracts,and any other activities necessary to carry out its functions.Quarterly expenditure reports and monthly progress reports are submit- ted to the Legislature. ASAP PROJECT PLAN Page 1-5 pLASKA "t= Section 1:introduction GASLIHE *,* DEVELOPMENT CORP.'Tes FouWLastans AGDC was established as a subsidiary of AHFC to develop this project plan and pursue the tasks outlined in House Bill 369.The AGDC project team staff is comprised of personnel from AHFC augmented with personnel from the private sector under various contractual arrangements.Due to the short duration of the planning process (July 1,2010 to July 1,2011),a decision was made to not establish direct-hire employees for AGDC staff.Instead,some employees of AHFC were made available to the project on either a part-time or full-time basis,and others were brought to the project under various contractual arrangements. The AGDC organization chart in Figure 1-2 shows the breakdown of responsibilities for produc- tion of the project plan. The President of AGDC is Dan Fauske (AHFC). The Vice-President and Chief Financial Officer is Joe Dubler (AHFC). Project management is the responsibility of Dave Haugen (contract). Commercial activities are handled by Michael Rocereta and Lieza Wilcox (both con- tract). e Engineering and permitting activities are the responsibility of Dave Norton (AHFC). e Administration and external affairs are managed by Leslye Langla (AHFC),assisted by administrative specialist Doreen Calahan (AHFC)and public affairs specialist Meda Snyder (AHFC). e Contract administration is managed by Kathy Gallaher (contract). e Project control is provided by George Heywood (contract). Alaska Housing Finance Corporation CEO/Executive Director Dan Fauske Chair Alaska Gasline Development Corporation Project Staff Office of the Governor In-State Gasline Coordinator Alaska Department ofAlaskaNaturalGas Development Authority / Alaska RailroadTransportation&Cc . Public Facilities orporation Figure 1-1.Joint In-State Gasline Development Team Page 1-6 ASAP PROJECT PLAN fina *»=*™GASLINE *.Section 1:Introduction DEVELOPMENT CORP. GAS FOR RLASKENS AHFC provides additional support to AGDC including issuing contracts,office administra- tion/acquisition,financial (including budgeting and tracking)payroll services,human relations support,information technology and communications services,and many other services.The support furnished by the AHFC organization has been critically important to the AGDC staff. 1.5.2.Contracting Strategy Due to the short time frame for developing the project plan,contractors were employed to per- form a substantial amount of work.Table 1-2 identifies the contractors AGDC retained for sup- port in project management/engineering,environmental and regulatory issues,and economic/market studies. President Dan Fauske 7 Vice President & Chief Financial Officer Joe Dubler Project Manager Dave Haugen 7 Commercial Administration 8Engineering ContractManagerStakeholder Michael Manager Administrator Dave Norton EngagementRoceretaManager Kathy Gallaher Leslye Langla /Administrative Specialist Doreen Calahan Public Information Specialist Meda Snyder Figure 1-2.AGDC Organization Chart ASAP PROJECT PLAN Page 1-7 No talks on Alaska pipeline deal:TransCanada exec |North America Page 1 of2 Thursday.Jul 08th Last update'10:58:30 PM GMT --Headlines:Uhraine should now focus on development of conventional gas resources .Tool Member [ESYQFry Searc HOME LATESTNEWS AMERICAS EUROPE ASIA AFRICA OCEANIA §REPORTSAND ANALYSIS |OPINION VIDEOS MAGAZINES NORTH AMERICA |CENTRAL AMERICA [|SOUTH AMERICA YOU ARE HERE:AMERICAS »NORTH AMERICA -NO TALKS ON ALASKA PIPELINE DEAL:TRANSCANADA EXEC ” No talks on Alaska pipeline deal:TransCanada exec THURSDAY.01 JULY 2010 17:58 REUTERS Alberta.TransCanada Corp (TRP.TO)would offer equity stakes in its $41 billion Alaska gas Pipeline to Ip proposing a rival project,but there have been no talks to date,a EMAIL TransCanada executive said on Tuesday. PRINT FAVORITES BP Pic (BP.L)and ConocoPhillips (COP.N),two of three major Alaska North TWITTER Slope gas producers,have proposed the Denali gas pipeline as an alternative to LINKEDIN TransCanada's project. FACEBOOK The Houston Chronicle,quoting an unnamed source,reported the Denali SHARE partners were in early discussions to joint TransCanada's project. "|have nothing new to report,”Tony Palmer,vice-president of Alaska development for TransCanada, told Reuters. The company has said it would offer equity stakes in the immense project to would-be shippers if they agree to back the pipeline,which would extend 1,700 miles to the Alberta gas grid from Alaska's North Slope. TransCanada would consider giving stakes in its project to Denali's sponsors,but not their pipeline company,Palmer said."BP and ConocoPhillips are major potential shippers on any pipeline out of Alaska.So those are the parties that we would be offering equity to --someone that has gas that wants to be a shipper.” A Denali spokesman was not immediately available for comment. TransCanada is currently in the midst of an open season to gauge shipper support for its 4.5 billion cubic feet a day project. The pipeline,which has the backing of the other major North Slope gas producer,Exxon Mobil Corp (XOM.N),could cost as much as $41 billion. TransCanada's proposal was selected by the state government under its Alaska Gasline Inducement Act,which made it eligible for $500 million in state money. The Denali project would take a similar route.The company is planning its own open season starting July 6. it is doubtful that both projects would be built to tap the 35 trillion cubic feet of reserves in the North Slope region.The earliest one of them could be in service is estimated to be 2020. Such a project has been envisioned since the 1970s,but high costs,political uncertainty and now weak natural gas prices have kept it on the drawing board. Palmer said it was too early to say if BP's troubles with the oil spill in the Gulf of Mexico could prompt it to negotiate a deal in Alaska. "Some folks believe that what's happened in the Gulf is positive for the gas business and some people think it's just negative for the oil and gas business generally,”he said. 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Update on Improvements to Vessels of Opportunity Program The Energy Report -7/7/10 ||Video One billion euro in new offshore contracts for Saipem Ordons News Report for July 7,2010 Clio-3 discovery expected to increase growth plans Shell To Sell Up To 800,000 Tons LNG A Year To Osaka Gas inpex to raise USD6.7 bin to fund Ichthys gas project BP agrees to inform US ahead of transactions LATEST NEWS 16:58 One billion euro in new offshore contracts for Saipem 12:28 Ordons News Report for July 8,2010 12:23 FMC Technologies Scores 1st Subsea Development Proj.in Russia 12:19 italy's largest power company Enel may take part in Russia's Skolkovo innovation hub,the company's 12:09 Ensco plc Schedules Second Quarter 2010 Earnings Release and Conference Call 12:03 Eni enters agreements with U.S.Department of Justic and SEC over former subsidiary Snamprogetti 11:58 Exploration &Production Announces New Appointme for Michaet Borrell,Arnaud Breuillac,Ladisias 11:47 European Gas Limited announces the appointment of new CEO and Managing Director 10:06 TAG Oil Announces a 450percent Increase to Mt. Messenger Reserves in Taranaki Oil Field, 09:51 Inpex to raise USD6.7 bin to fund Ichthys gas project http://www.ordons.com/201007015757/no-talks-on-alaska-pipeline-deal-transcanada-exec.h...7/8/2010 a ate ag:7A Stand Alone Gas Pipeline System Project Summary July 16,2009 ONTENTS aaeaaaenemnns INTRODUCTION ........ccssccosserecncssscccccceccccecsccsccocscsceceseccaceccecnessensssccsescneescopecsesccorsscsessecescossesensecsssescensceses 1 PROJECT COMPONENTS .....ccccssscsssssessecsersecsescsssesscesssesensesescscsesccscnsscncssesscecceseessoassecssussecesssosnersessseensases 1 GAS CONDITIONING PLANT.......cscccscsssssssscceccssseerscscecevscenscsseseesseecsescecsenseececseeesesnesseeeacsensesceesceeseseseecsestesessessatesseeeenss 1 PIPELINE -..ccessccseccessssscesscesscecsscscerssscssusescesceusnescnsssssecsssscesaevsssesseeacescsusessatsnsusessesenseuecsnesessaeessaesescesessensesssusssesseseaseese 1 COMPRESSOR STATIONS.......sscscssscesscsessssccesssesecssccncessscsssssssseeesssessecsnesessceesssscseeesnsceessasssseesssesessaceseesesscesstenssenseensecsess 2 NGL EXTRACTION ......secssssscesssccssasesscsssseenscescessenseesauceessesecesssecsssueessseeeensausesssateeesensuesacsnsaeessesaueeeeessesessaseeseneeeaeeeesunees 2 PIPELINE CONSTRUCTION........sccccssssssscneesscnssccsnsnscsnsssstsesssscnscssessesessseesscoesssnsssoessonsssscgcnsssossscsncssssssons 4 PIPELINE ROUTING .........:csssecccrnsssssscccscocseccccsssccensconnesssccseseesenseneescenesssosscosssaeevensstonssencassesanessosanseseseses 6 PIPELINE CROSSINGS ....ccccsessssvsesecesscessssseeneecsuecescstscsesecesensesessaueessecessneeeeesseessesenssesesneecessnnesecesnesesescusesausensaueeseneasnes 6 RIVER/STREAM CROSSINGS......cccssssscessesessssecccecevessnsecesevacensesecssessecesevessensaceescsesssnseneeasaucesesenensanseneesesenauaeceessaeaeasenazes 10 Bitel cee Ls a a FIGURE 1 COMPRESSOR STATION LAYOUT FIGURE 2 TYPICAL CONSTRUCTION ZONE ICE AND SNOW WORKPAD .......cccsccosersscseseessusesescnscseeesaseeccsessessessusseees 4 FIGURE 3 TYPICAL CONSTRUCTION ZONE GRAVEL OR ROCK WORKPAD......:ssssssssssessssscesscessceeseeseseeeeeseesesenseentenes 5 FIGURE 4 GRADED RIGHT-OF-WAY -SIDE HILL CUT .....csssssssssssscccssensensensersesneecseesaecoseseecessseusausosussesonssasoeeoness 5 FIGURE 5 TYPICAL CROSSING OF ABOVEGROUND FOREIGN PIPELINE ......ssesssssssseessecssereeveeseessceeessecsecseseersseneseonenes 7 FIGURE 6 TYPICAL CROSSING OF BURIED FOREIGN PIPELINE ......:ccsscossesccoscssereececsscesseessessesesseesssessssessuseeesseseesnrsees 8 FIGURE 7 TYPICAL CROSSING OF BURIED FOREIGN PIPELINE (2).....ccccssescssssescscesescecseeseesenescesesescsecaeseoeecaceesesenens 9 FIGURE 8 TYPICAL UNWEIGHTED STREAM CROSSING .......csscssssccssosssssssecsnensneesseceessnsenensvosessssseusesoasasensssecesseoeas 10 FIGURE 9 HORIZONTAL DIRECTIONALLY DRILLED (HDD)CROSSING .......cccccsssescsssessesseescescesssensoessessesnesssressensens ll Attachment1 Alaska Stand Alone Pipeline Alignment :-Michael Baker Jr.,Inc.117423-MBJ-RPT-001 Rev.1 ii Stand Alone Gas Pipeline System Project Summary July 16,2009 The Stand Alone Gas Pipeline project consists of a small diameter,high-pressure pipeline from Prudhoe Bay to Cook Inlet to transport North Slope natural gas to in-state Alaska markets.The pipeline will be located entirely within the State of Alaska with gas takeoff points located along the route.Gas off-take will be provided in Fairbanks.Industrial gas demand is critical to increase pipeline flow and hold down unit transportation costs to the average consumer.Potential gas markets in western Alaska will be investigated. The Stand Alone pipeline project includes a Gas Conditioning Plant on the North Slope prior to the pipeline inlet,compressor stations along the pipeline,and natural gas liquid (NGL)extraction facilities to produce utility grade natural gas.The gas reserves in the Prudhoe Bay and Point Thomson fields are the largest on the North Slope and represent the most likely sources of gas for the pipeline system. The Stand Alone project target start-up date is January,2016. GAS CONDITIONING PLANT e Amine process to remove carbon dioxide,hydrogen sulfide,and water. e Carbon dioxide and hydrogen sulfide re-injected into a North Slope reservoir. e Compression to increase gas pressure from approximately 600 psig to pipeline inlet pressure of 2500 psig. e Cooling and mechanical refrigeration to cool compressor discharge gas to 30 degrees Fahrenheit prior to pipeline inlet. PIPELINE e 24-inch diameter. e X7o (nominal 0.6 inch wall thickness). ¢2500 psig maximum operating pressure. e Two intermediate compressor stations required for 500 MMscfd. e Buried,except at fault crossings and select major river crossings. e HDDas preferred major water crossing method when technically feasible. e Chilled/ambient operating temperature. we .Michael Baker Jr.,Inc.117423-MBJ-RPT-001 Rev.1 1 Stand Alone Gas Pipeline System Project Summary July 16,2009 COMPRESSOR STATIONS Centrifugal gas compressors driven by natural gas fired aero-derivate turbines. Fuel supplied from the pipeline. Northern stations equipped with mechanical refrigeration for chilled operation.Along with permafrost soil considerations,an additional benefit to chilled gas operation is increased throughput for a given size of line and operating pressure.See Figure 1. Southern stations may or may not be equipped with coolers. Maximum pipeline flow through 24-inch pipeline with full complement of compressor stations around goo to 1000 MMsefd. NGL EXTRACTION Required for reference case to produce utility grade natural gas. Standard turbo-expander process. NGL fractionation. Small plant in Fairbanks with main plant in Cook Inlet. Propane used for in-state demand. Potential for large scale NGL extraction with export if hydrocarbons available from the North Slope. "so...Michael Baker Jr.,Inc.117423-MBJ-RPT-001 Rev.1 2 Stand Alone Gas Pipeline System Project Summary July 16,2009 or FILTER /SCRUBBER HOUSING Lew ee » REFRIGERANTCOMPRESSOR BUILDING. 70 x 60 REFRIGERANT CONDENSERS: comm TOWER:TANK FARM 500°«as.Michael Baker Jr.,Inc.117423-MBJ-RPT-001 Rev.1 Stand Alone Gas Pipeline System Project Summary July 16,2009 Three types of work pads will be used to facilitate pipeline construction:ice/snow work pad,gravel work pad,and graded right-of-way work pad.A fourth type of work pad,such as composite crane mats,corduroy, or board roads laid on filter fabric,may be advantageous in certain short swampy areas.Temporary bridges or flumes will be required on sensitive small stream crossings for movement of construction equipment.In non-sensitive stream crossings,a low water type crossing constructed of rock fill or concrete mats may be desirable. Ice/snow work pads will be utilized in areas designated for winter construction such as permafrost,marshy, and swampy areas.A layer of compacted snow and ice will be placed over the frozen ground to prevent damage to surface vegetation by construction equipment.Water sources for ice/snow work pad construction will be identified during later phases of detailed design.A schematic of an ice/snow workpad is shown in Figure 2. CONSTRUCTION ZONE WIDTH VARIES WITH DITCH WIDTH (100 TYP) PIPE _.16 'i 40'MIN MAX 3°"|ACCESS |PASSING WORKING . | SoeLANE|SPACE SPACE 1 \e 14.17 16 20'10'Z-e||FROZEN t t H TYP GROUND SURFACE ICE OR ICE-CAPPED SNOW WORKPAD COMPACTED SNOW Figure 2.Typical Construction Zone Ice and Snow Workpad Gravel work pads will be used in areas that are not conducive to either ice/snow pad or graded right-of-way, such as swamp areas that do not freeze over during the winter months.Also,gravel work pads will be necessary in some areas to provide permanent access along the right-of-way during and after construction and to provide traction on steeper slopes especially during construction.Graded right-of-way will not be restored to its original condition,thus allowing access to the pipeline after construction for maintenance.A schematic of a gravel or rock workpad is shown in Figure 3. ....Michael Baker Jr.,Inc.117423-MBJ-RPT-001 Rev.1 4 Stand Alone Gas Pipeline System Project Summary July 16,2009 CONSTRUCTION ZONE WIDTH VARIES WITH CROSS SLOPE AND DITCH TYPE 100'TYP 16°30°MIN PASSING SPACE SPACE 13'17°|10° ORIGINAL GROUND SURFACE: WINTER -FROZEN, 40"SUMMER -THAWED GRAVEL OR ROCK WORKPAD Figure 3 Typical Construction Zone Gravel or Rock Workpad Graded work pads will be used mainly in rolling and mountainous terrain and will be approximately 100 feet wide.This width is required to accommodate temporary storage of excess material moved during the grading operation.Steep side slopes and deep "V”cuts will require additional right-of-way to accommodate the excessive excavated material.Additional width may be needed in some areas.A schematic of a graded workpad is shown in Figure 4. VARIES 55'15'30'MIN -VARIES TOPSOIL \FINISHED GRADECUT ORIGINAL GROUND SURFACE Figure 4 Graded Right-of-Way -Side Hill Cut as,Michael Baker Jr.,Inc.117423-MBJ-RPT-001 Rev.1 5 Stand Alone Gas Pipeline System Project Summary July 16,2009 The routing along the two general alignments of the Parks and Richardson highways is chosen to: e Minimize total pipeline length for each route option. e Avoid known environmentally sensitive areas where feasible. e Avoid geohazards where feasible. e Utilize existing infrastructure to extent possible and appropriate. e Maximize pipeline constructibility. The general alignments are shown in Attachment 1.Some typical routing concerns are described below. PIPELINE CROSSINGS The proposed pipeline will cross other existing pipelines at various locations along its length.These pipelines include aboveground and belowground Trans Alaska Pipeline System (TAPS)crude oil pipeline and the TAPS fuel gasline (FGL).All pipeline crossings will be designed and constructed to minimize impacts on the existing pipelines and rights-of-way,and to maximize constructability of the Stand Alone pipeline.Crossings will be made near right angles to the existing pipeline wherever feasible. A typical aboveground pipeline crossing configuration is shown in Figure 5.Aboveground pipeline crossings will be made at midpoints between adjacent pipe supports.The Stand Alone pipeline wall thickness and depth of cover may be increased for a short distance on either side of the aboveground pipeline crossing if appropriate.Crossings of aboveground pipelines at points near anchors,valves,or other appurtenances will be avoided. A typical buried pipeline crossing configurations is shown on Figure 6 and Figure 7.The pipeline crossings may be belowgrade,but above the other pipeline;below the other pipeline;or buried in an earthen berm constructed abovegrade.In all cases,the Stand Alone pipeline will be buried with a minimum cover of 30 inches and with a minimum separation of 12 inches from the other pipeline and any other buried structure (49 CFR 192.325).The Stand Alone pipeline wall thickness and depth of cover may be increased for a short distance on either side of a belowground pipeline crossing if appropriate.Crossings of belowground pipelines at points near valves,test stations,or other appurtenances will be avoided.If thermal consequences that might harm either pipeline or the right-of-way are predicted during final design, mitigative measures such as insulating the pipe or increasing the separation between the pipes may be taken. _:Michael Baker Jr.,Inc.117423-MBJ-RPT-001 Rev.1 6 Stand Alone Gas Pipeline System Project Summary July 16,2009 EXISTING FOREIGN PIPE SPAN veneers_---------y }ST ee en a se -am eePIPELINE(ABOVEGROUND)JK crossine aucttBOVARIES 3 cu i 9FOREIGNgg\Q Ua"Q \Q 4 WOF e+=ie =4 Ft 4 =4 =-- WORKPAD 5 5 8 i i 77en PROPOSED suse VeGASPIPELINE PLAN €EXISTINGJForesPIPELINE EXISTING FOREIGN WORKPAD FINISHED GRADE f ra -LE 2 1 ONS Le COVER ctUEeeefeleeCPROPOSED W GAS PIPELINE SECTION Figure 5 Typical Crossing of Aboveground Foreign Pipeline .é.Michael Baker Jr.,Inc.117423-MBJ-RPT-001 Rev.1 Stand Alone Gas Pipeline System Project Summary July 16,2009 EXISTING FOREIGN PIPELINE (GURIED) FOREIGN ey |18WORKPAD aPROPOSED- ewvetPLANGASPIPELINE GRAVEL BERM >eo INSULATION PROPOSED GAS.PIPELINE PRISTING GROUND SURFACE EXISTING FOREIGN PIPELINE (BURIED) st INSULATION " PROPOSED GAS PIPELINE XN EXISTING GROUNDSURFACE SECTION B--B Figure 6 Typical Crossing of Buried Foreign Pipeline ._..Michael Baker Jr.,Inc.117423-MBJ-RPT-001 Rev.1 Stand Alone Gas Pipeline System Project Summary July 16,2009 A EXISTING FOREIGN PIPELINE (BURIED)CROSSING ANGLE B a VARIES 5ae,dicted - ¢PROPOSED Pane SS 4GASPIPELINE AC PLAN ORIGINAL EXCAVATION MATERIAL SELECT BACKFILL |orn - 7 "TN »/XNbaeeeeeneenPnaLcanaPieaeneeeea Mi INSULATION IF 'VvREQUIRED EXISTING FOREIGN PIPELINE(S),BURIED €PROPOSED GAS PIPELINE SECTION A-A \FOREIGN PIPELINE RIGHT-OF WAY EXISTING FOREIGN FINISHEDPIPELINE(S),euRieD |\J ee NO VERT.OR HORIZ. BENDS WITHIN RIGHT-OF-WAY SECTION B-B NOTE: 1.FOREIGN PIPELINE LOCATIONS &DEPTHS TO BE DETERMINED IN ADVANCE OF PIPELINE CONSTRUCTION.AND CONFIRMED BY EXPOSING THE FOREIGN PIPELINES Figure 7 Typical Crossing of Buried Foreign Pipeline (2) be Michael Baker Jr.,Inc.117423-MBJ-RPT-001 Rev.1 Stand Alone Gas Pipeline System Project Summary July 16,2009 RIVER/STREAM CROSSINGS One of the major factors in route selection is river/stream crossings.The route has been selected,to the extent practical,to minimize the number of river and stream crossings,and to minimize the total length of pipeline in river/stream crossing mode.Even so,the pipeline will still cross many flowing waters,including several large rivers.Careful study,design,and construction techniques will be required to ensure pipeline and public safety,minimize environmental impact,and minimize project cost.A typical crossing of a small waterway is shown in Figure 8,For larger waterways,Horizontal Directional Drilling (HDD)may be utilized -a schematic is shown in Figure 9. ye STREAM/fe[q \os J eres EDGE'bojipi | |€PROPOSED GAS 'PIPELINE ia J ld 0]== T t \ | H } I \ \ | PLAN PYFICAL WARNING SIGN \{VYPICal WARNING S!G\,TOP OF BANK t FINISHEDJ\|va GRADEwhZSeesGe,is wohBis}1 Sat . F BOTTOM SASBEND SAGBENDSETBACK-.,SETBACK BURIAL ----- DEPTH t CA-\"PROPOSED GAS PIPELINE STRAIGHT PIPE PROFILE Figure 8 Typical Unweighted Stream Crossing 117423-MBJ-RPT-001 Rev.1 10 Stand Alone Gas Pipeline System Project Summary July 16,2009 PILOT HOLE DIRECTIONAL DRILLING HORIZONTAL DRILLING RIG ENTRY POINT . DRILL PIPE fo"POINTWATERBODY PILOT HOLE DESIGNED DRILL PATHGENERALDIRECTIONOF PILOT HOLE DRILLING REAMING DRILLING FLUID RETURNS WATERBODY >-LL GENERAL DIRECTION REAMER OF REAMING PULL BACK PREFABRICATED PIPELINE SECTION SE _-ee GENERAL DIRECTION -SWIVELOFPULLBACK NOTE: 1.SET UP DRILLING EQUIPMENT A MINIMUM OF 50'FROM THE EDGE OF THE WATERCOURSE;DO NOT CLEAR OR GRADE WITHIN 50'ZONE Figure 9 Horizontal Directionally Drilled (HDD)Crossing Michael Baker Jr.,Inc.117423-MBJ-RPT-001 Rev.1 41 Stand Alone Gas Pipeline System Project Summary July 16,2009 sigeAagat ne "OA tan .Michael Baker Jr.,Inc.117423-MBJ-RPT-001 Rev.1 12 Deaqnorse LAE fyPEGIRSee 'uation "cients 2ooGlennailes EES Fairbanks Lateral Parks Highway Route Richardson Highway Route Alaska Stand Alone Pipeline Date:07/14/2009 Revision:Original Data Sources: USGS NED DEM,Baker,ADOT DetunvProjecton,Alsake Aber,NAD 83 (Ove:Amaka_m_ping.112 17_P_gst wat bor,BCustreer Executive Summary -Prospects For Development of Alaska Natural Gas:A Review Page 1 of 5 Prospects For Development of Alaska Natural Gas:A Review Special Report by Kirk W.Sherwood,James D.Craig January 2001 Executive Summary Alaska Gas:Key Drivers and Issues e The first gas production from northern Alaska will focus on the proven,low- cost reserves at Prudhoe Bay (26 tcf). e The most likely scenario for exports of northern Alaska gas is a gas pipeline down existing highways from Prudhoe Bay to Alberta,Canada.No decision has yet been announced.The State of Alaska,Yukon Territory,and most stakeholders advocate a highway route.Existing regulatory permits and international treaties,subject to review,authorize the highway route. e Phillips Alaska estimates that prices above $3.50/mcf at Chicago city gate are needed for economic success.Chicago city gate prices were approximately $8/mefin January 2001. e Gas delivery to U.S.via gas pipeline from Prudhoe Bay is not expected before years 2007-2010.Regulatory delays or litigation could delay it. e The gas pipeline will be sized for efficient transportation of the known gas reserves at Prudhoe Bay.For a 4.0 billion cubic feet per day pipeline,excess capacity would become available in year 2023 (assuming a 2007 start up). e Cook Inlet remaining natural gas reserves (2.56 tcf)will be depleted by year 2012.New gas sources must be located soon to supply the majority of the State's population which lives in the area around Cook Inlet. e The most attractive gas province in the Bering Sea is North Aleutian basin, which is closed by moratorium until year 2012. e LNG export models are required for future Bering Sea gas production. Potential gas resources cannot be taken to the U.S.West Coast because there are no LNG receiving facilities.The most likely LNG export models deliver gas to Japan or other Asian Pacific Rim countries. e Alaska has a huge resource base of discovered and undiscovered gas (217.91 tcf),but 88 percent of this gas is undiscovered.Expensive and time- consuming exploration programs will be required to identify new commercial gas fields. Summary Alaska contains 39.88 trillion cubic feet (tcf)of gas remaining in developed and known undeveloped fields.Some of this gas is in fields too small or remote to justify economic development.Of the known gas reserves,26.92 tcf may be considered available for export at appropriate market prices and pending construction of new gas transportation systems.Most of this gas is in onshore fields and mostly beneath State of Alaska surface or submerged lands.No Federal offshore gas reserves are considered to be readily available for export at present. Three percent (0.92 tcf)of Alaska's exportable gas reserves occur within fields in the Cook Inlet basin of southern Alaska and are at present dedicated to future LNG exports to Japan.Cook Inlet has 2.56 tcf in total remaining gas reserves,most of which is used locally or converted to fertilizer feedstock.At present rates of consumption,all Cook Inlet gas reserves will be depleted by year 2012. Ninety-seven percent (26 tcf)of Alaska's exportable gas reserves occur within fields in or near the Prudhoe Bay field in northern Alaska.The Prudhoe Bay area gas reserve base totals 30.90 tcf (developed fields and Point Thomson field,not including carbon dioxide),but some of this gas will be consumed (current rate 0.2 tef/yr)by future (oil and gas)production activities at Prudhoe Bay.The stranded gas reserves at Prudhoe Bay are presently attracting proposals for construction of a gas transportation system that can take the natural gas to markets outside of Alaska. http://alaska.mms.gov/re/natgas/akngases.htm 7/7/2010 Executive Summary -Prospects For Development of Alaska Natural Gas:A Review Page 2 of 5 ° In the Mackenzie delta area of Canada (300 miles east of Prudhoe Bay),exploration drilling from 1970 and 1989 discovered 53 oil and gas pools about equally divided between the onshore and offshore areas.The Mackenzie delta area contains approximately 9-12 tcf of discovered gas,some of which may be in pools sufficiently large to justify construction of a new gas pipeline to take the gas south to Alberta.The largest gas field is Taglu (2.07 tcf)located onshore.All of the Mackenzie delta discoveries are stranded at the present time,although several development proposals are under consideration. A total of 83 exploration wells have tested prospects in the Federal waters offshoreAlaskasince1976.Exploration results have been disappointing,and the few significant oil and gas discoveries made in the Arctic remain undeveloped due to high capital costs and uncertain prices.Two offshore oil fields,Liberty and Northstar,will begin production in 2001-2003,but the associated gas will be used for lease operations.The Burger well,located on the Chukchi shelf 360 miles west of Prudhoe Bay,penetrated the largest gas pool found to date in the Alaska Federal offshore.However,Burger is located in a formidable setting far from existing infrastructure and is uneconomic to develop with current technology and price conditions. Most (82%)of the 190.99 tcf of undiscovered natural gas resources forecast for Alaska and the Alaska Federal offshore occur in the Arctic.If the undiscovered gas resources in the Mackenzie delta (53 tcf)are added to those onshore in northern Alaska (63.5 tcf),and Federal submerged lands on the Beaufort (32.07 tcf)and Chukchi shelves (60.11 tcf),the Arctic regional undiscovered gas potential totals 208.68 tcf.This volume is equal to 40%of the total U.S.undiscovered conventional gas resource base (526 tcf).Arctic Alaska and the Mackenzie delta seem destined to someday become major producing areas for natural gas.However, a significant fraction of the undiscovered gas resources could occur in small,remote accumulations that may never be profitable to develop. Across Alaska and the Alaska offshore,unconventional sources like gas hydrates and coal bed methane are estimated to contain up to 170,000 tcf of natural gas in place.Most of this hypothetical natural gas resource is contained in gas hydrates that are located far offshore in water depths exceeding 300 m and will remain inaccessible for the foreseeable future.However,37 to 44 tcf of gas are estimated to occur in sub-permafrost gas hydrates in and around the Prudhoe Bay-area developed oil fields and might be exploited on an experimental basis once a gas transportation infrastructure is installed. Resource assessments in 1995 and 2000 estimated the total undiscovered conventionally recoverable gas resource base and the fractions of that gas resource base that could be profitable to develop.Several Alaska provinces,onshore and offshore,were found to potentially hold economic gas resources at landed market prices of $2.11 and $3.52/mcf (constant $2000,equivalent to oil at $18/bbl and $30/bbl).At $2.11/mef paid at a variety of markets,6.172 tcf gas might be economic to develop across Alaska (5.14 tcf for offshore alone).At $3.52/mcf,12.23 tcf gas might be economic to develop (8.67 tcf for offshore alone).Theundiscoveredeconomicallyrecoverablegasresources(12.230 tcf)represent only 6%of the 190.99 tcf total undiscovered conventionally recoverable gas resource base for all of Alaska. At high gas prices like those witnessed in the U.S.in recent months,economic recoverability improves for most offshore Alaska provinces.At a gas price of $6/mcef (constant $2000)delivered to a variety of markets,the Alaska Federaloffshorecouldcontainatotalof35.78 tcf of undiscovered economicallyrecoverablegas.At $6.00/mcf,20.0 tcf could be economic to co-produce with oil resources on the Chukchi shelf and deliver as LNG to Pacific Rim markets. Associated gas resources produced through new offshore oil fields on the Beaufort shelf and delivered to a plantgate at Prudhoe Bay become economic at prices of $1.00/mcf or higher,with 4.66 tcf economically recoverable at $6/mcf.If produced gas is delivered to a hypothetical plantgate at Kivalina-the port for the Red Dog mining operation-Hope basin could have economically recoverable gas resources of 2.27 tcf at $6/mcef.Not all basins invite economic development.Even at a $6.00/mcf price,most of the Bering Sea provinces remain uneconomic.Gas prices of $10/mcf to $15/mcf would be required to support significant economic gas development in Norton basin,St.George basin,or Navarin basin.At $6/mef,North Aleutian basin in southern Bering Sea offers 5.90 tcf of undiscovered,economically recoverable gas.However,North Aleutian basin is under a moratorium forbidding oil and gas leasing,exploration,or development until year 2012.At $6/mcf delivered to the local gas transmission pipeline network in Cook Inlet region,the http://alaska.mms.gov/re/natgas/akngases.htm 7/7/2010 Executive Summary -Prospects For Development of Alaska Natural Gas:A Review Page 3 of 5 Lower Cook Inlet (Federal waters)could have 1.24 tcf of undiscovered economically recoverable gas.At $6/mcf delivered as LNG to Japan,the Shumagin-Kodiak shelf and Gulf of Alaska shelf could have 1.40 tcf and 0.31 tcf, respectively,of undiscovered economically recoverable gas. The Prudhoe Bay-area gas reserves (26 tcf )are the key assets that will drive near- term strategic decisions about how to transport and market stranded natural gas from northern Alaska.Since 1977,natural gas recovered during oil production has been re-injected to increase oil recovery or used as fuel for production facilities. Over 35 tcf of gas has already been produced and re-injected or consumed at the Prudhoe Bay area fields.In 1999,gross gas production from the North Slope oil fields was 3.15 tcf (8.63 befpd)of which 93 percent was re-injected. The 5.8 billion barrels oil reserves remaining (as oflate 1999)in the Prudhoe Bayareafields(originallyt7 billion barrels)are now only a little larger than theremaininggasreserves-an energy asset equivalent to 4.6 billion barrels of oil. Northem Alaska oil production is declining precipitously and there is some concern about when production will fall below the minimum required to profitably operate the Trans Alaska oil pipeline (TAPS).As the Prudhoe Bay area oil fields begin to approach depletion,daily gas production is increasing and gas-handling capacities may someday further constrain oil production.Expansion of gas-handling facilities may be required to allow oil production to continue at optimum rates,or,at least at rates sufficient for TAPS operations.Alternatively,gas sales out of Prudhoe Bay could help avoid capital outlays for new gas-handling equipment.Limited gas sales could begin at any time from the Prudhoe Bay-area fields without affecting recovery of the remaining 5.8 billion barrels of oil reserves.Major gas sales could begin after year 2015 with no harm to ultimate oil recoveries,and the impacts of earlier gas sales could possibly be mitigated through measures like increased waterflood and carbon dioxide re-injection (Meyers,2000). At present,three concepts are in the forefront for commercializing the stranded gas resources in northern Alaska and Mackenzie delta: e A New Pipeline Connecting to the Canadian gas pipeline network.Build conventional or high-pressure gas pipelines to carry the gas from Prudhoe Bay and Mackenzie delta to northern Alberta or British Columbia,where the new pipeline would join the Canadian pipeline network and supplement ongoing transmission gas exports to the U.S.Pipeline capacities of 2.5 bcefpd (0.9 tcf/yr)or 4.0 befpd (1.46 tcf/yr)delivered to the western Canada pipeline network typify most proposals. e Liquefied natural gas (LNG)to Asian Pacific Rim.Build a conventional or high-pressure gas pipeline that carries the gas from Prudhoe Bay-area fields to a port in southern Alaska,where the gas is chilled to liquefied natural gas (LNG)and loaded on special LNG tankers for transport to the Asian Pacific Rim or perhaps the U.S.West Coast via return pipeline from hypothetical a port in western Mexico.System throughput for current proposals ranges from 1.5 befpd (0.5 tcf/yr)to 2.5 befpd (0.9 tcf/yr). ©Gas to liquids (GTL)and tankers to U.S.West Coast.Build a new facility in the Prudhoe Bay area and use GTL technology to convert natural gas to middle-distillate (diesel-like)liquids.The GTL product could be pumped in segregated batches through the Trans Alaska oil pipeline and then transported by tankers to the U.S.West Coast.A 50,000 bpd (0.5 befpd or 0.2 tcf/yr) plant has been promoted by one group,but BP-Amoco,a major owner of the gas at Prudhoe Bay,is presently building a small experimental GTL plant at Nikiski in Cook Inlet,Alaska (operational in 2002). The original proposal for a gas pipeline through Canada-the Alaska Natural Gas Transportation System (ANGTS)and now sometimes called the "Highway Route"-followed the Dalton Highway from Prudhoe Bay to Fairbanks and then followed the Alaska Highway to central Alberta.A 1995 study published by the ANGTS group (abstr.by Thomas and others,1996,p.3-4)estimated that deliverycostsfortheir$16.7 billion project would range from US$2.82/mcfto US$4.17/mefin$1995 (or $3.29/mefto $4.86/mcfin $2000).A similar "highway"gas pipelineprojectnowbeingstudiedbythePrudhoeBaygasownerswouldcostUS$10 billion (2.5 befpd line)to US$12 billion (4.0 befpd line)and could profitablydelivergastoChicagofor$3.50/mcf (Meyers,2000).Chicago city gate prices wereapproximately$8/mcf in January 2001.U.S.domestic natural gas demand,now at 22 tcf/year,is predicted to rise to 35.57 tcf/year by year 2020 (AEO,2000,tbl.A1),thus ensuring a future of strong demand for any gas that can be profitably broughttotheU.S.market from northern Alaska or Canada. http://alaska.mms.gov/re/natgas/akngases.htm 7/7/2010 Executive Summary -Prospects For Development of Alaska Natural Gas:A Review Page 4 of 5 Alaska has the only LNG export operation in the U.S.Small amounts of LNG (0.06 tcf/year)from gas fields in Cook Inlet have been sent to Yokohama,Japan since 1971.A much grander LNG export model,shipping perhaps 0.9 tcf/year,has been proposed by Yukon Pacific Corporation for moving gas from northern Alaska into the Asian Pacific Rim and U.S.West Coast markets.The LNG project at the largestscalewouldrequireconstructionofanewgasconditioningplantatPrudhoeBay,an 800-mile gas pipeline,a new LNG plant and marine terminal at Valdez in southern Alaska,and a new LNG tanker fleet,all for approximately $12.76 billion ($2000).No economic studies of the most recent LNG proposals are publicly available.A 1995 study by Thomas and others (1996)using a 0.85 tcf/yr LNG project costing $16.03 billion ($1995)found that a flat world oil price of $19.36/bbI ($1995)was required for the LNG project to economically "breakeven"(NPV )=0). The AEO (2000)Reference Case forecasts that world oil will reach this price in year 2015.A $19.93 world oil price is approximately equivalent to an LNG price of $3.77/mef (in September 2000,Cook Inlet LNG shipments to Japan were receiving $4.33/mcf).A 1999 DOE update study by Robertson (1999)found the LNG projecttobeunprofitable(NPV,>=-$2,402 billion),in fact providing the poorest return of all marketing concepts modeled by that study.An LNG export volume of 0.9 tef/year would be equal to a very large fraction (28%)of the entire 1998 AsianPacificrimLNGmarket(3.225 tcf/year).The chief risk element of the LNG proposals is that such large exports might flood the principal market and cause a price collapse.Because of market risk and capital cost considerations,plans for smaller initial LNG-based projects (output as low as 0.46 tcf/year,costing $8.2 billion to construct)have also been proposed,but the economics of the smaller scale projects are not publicly available. Gas-to-liquids (GTL)technology forms an attractive option because it can supplement the throughput of the Trans Alaska oil pipeline (TAPS)and perhaps extend the operating life of this critically important oil transportation system decades into the future.The addition of GTL liquids to the oil transportation system would also moderate per-barrel oil pipeline tariffs,which are expected to rise in thefutureasthevolumeofpipelinethroughputfalls.The continued existence ofthe oilpipelineandaloweringoffutureoilpipelinetariffsarecriticaltotheeconomicsof future development of smaller,undiscovered oil fields in northem Alaska and the Arctic Federal offshore.A 1995 study by Thomas and others (1996)of a hypothetical 300,000 bpd (3 befpd or 1.1 tef/yr)northern Alaska GTL projectcosting$13 billion found that a "breakeven"(NPV,,=0)flat world oil price of $19.94/bbl ($1995)was required for economic viability.The AEO (2000) Reference Case forecasts that world oil prices will not reach this price until after year 2020.However,in September 2000,the actual world oil price averaged $31.10/bb1 (or $26.69/bbl in $1995).GTL,or at least its modern component processes,involve relatively new technologies that are only now entering commercial applications.A recent study of northem Alaska GTL economics by Robertson (1999)revealed that incremental construction of several small GTL facilities allowed for "learning"-resulting in cost reductions to facilities built later in the life of the project.This "incremental"GTL model provided the most favorable economic outcome.Future market demand for GTL product is expected to be robust.The chemical conversion of natural gas to liquid hydrocarbons creates an essentially refined product that is free of polluting agents and that as a transportation fuel can command premium market prices,particularly on the U.S. West Coast,where ultra-clean motor fuels will be mandated. The gas transportation system that is eventually constructed to take Prudhoe Bay gas reserves to market will be scaled to the known reserve volumes.For this reason, the gas transportation system will be completely filled for years after start up with production from Prudhoe-area gas fields.Newly-discovered gas will have to await declines in the area production levels such that excess capacity (unfilled space) develops in the gas transportation system.If we assume that a gas pipeline to Prudhoe Bay is operational by year 2007 and that excess capacity becomes available after 90 percent depletion of known reserves,the earliest shipments of newly-discovered gas would be in year 2015 for an 8 befpd line,or year 2023 for a 4 bcfpd line,or year 2033 for a 2.5 befpd line.An 8 befpd gas pipeline has not been proposed but this is the present rate of gas recycling in the Prudhoe-area fields.There are currently proposals for the two smaller pipelines,of which the 4 befpd pipeline seems to be favored.Of course,if substantial new gas discoveries justified the additional expense,increasing pipeline pressure (adding compression equipment)could increase pipeline capacity at any time. Northern Alaska and its contiguous continental shelves are richly endowed withnaturalgas.However,finding and developing any significant fraction ofthis http://alaska.mms.gov/re/natgas/akngases.htm 7/7/2010 Executive Summary -Prospects For Development of Alaska Natural Gas:A Review Page 5 of 5 undiscovered resource will prove very costly.At the current slow pace of leasing, exploration,and development,a significant fraction of the undiscovered natural gas endowment of northern Alaska could remain unavailable to meet market demands for many decades. Because of the long lead-time required for major construction projects,the time may now be at hand for decisions about how to export the stranded natural gas reserves of northern Alaska and northwestern Canada.These decisions will lead to construction of a huge natural gas marketing infrastructure costing billions of dollars.Gas production strategies and new infrastructure will determine the character of oil and gas development in northern Alaska and northwestern Canada for many decades to come. Download the full report in Acrobat PDF format (6.55 mb) Last updated 01/24/2005 http://alaska.mms.gov/re/natgas/akngases.htm 7/7/2010 f i.B weeweSEMaer 2 eeeeCeeeOeeyaeetniantenantnrentedSeevegeaLeen:=. |»> February-2003:,meweoeKaseSMoteaBeSeecane puteneaglacaeEYeteonepy',ietaweyqet'ee vets 'YD+gee tenn 8%LAE LENetelathweeae oe ager:een¥ae la 's a a ae eee LSROSYTeeay woCeseas Apes Ae ry et i eee Bet isa a Sg ss Sees pt ei sees >Rae February 2003 Alaska Oil &Gas Reporter Quarterly *ee+ P=pee «de ehatectgeetb opeeeeinTRhee SneakespaivaGt24 Ee ma verewine -.net:A SPN ers "7: -caaahoir eaeanrnoeon re neae[rea tay!'. amen*Pye a,anemia he ed$8 Oh eerenen-aae wt eoaye hsEeSet wey ella nepilesaidreas,eel ._ Poa RS me Se hasta rgetoroe ma teat te oe eee camimer eon roveees aye we toesahiedbsai aesmespectlacl mer} =e tee Na teeeM CLES EstisergecanarapretyeeeaseveelaREALatbaseanaspiemnnavant:4?gy waa2S.aweeendebeamgbSeedcighsee oe*aut : :.atts ares:ad o te taeeweTEL.Ptetkaaead aedLe aemmeniel tna le *\si TP iscepearacaotReceorneslame cttaeeeniemmentcial enna aah at recienmdcS iUae aePasict ;ikeRaita Jhons|wone;af OTE7 ee ueibinCRRs eeeal:paar ooaieAP Seton Ba cerkar:sae pet wosPoaGNgnatsA A aidsraacer-=tere ™ Low 4 nbn,Pai Saad ee yea)17,. :he kt ne Dine,eeeiyBPExplorotion(Alaska!A revitalized oil andgas industry iis hey to governor's economic,'fiscal plan By Tim Bradner Alaska Oil &Gas Reporter ov.Frank Murkowski has staked his hopes of rekin- dling Alaska's economic growth,and heading off a fiscal crisis for state government,to one industry -petroleum. How realistic are the governor's hopes? In the long term,excellent.In the short term,prospects are mixed. The outlook for future discov- eries is excellent if the governor can create a business environment where more companies come to Alaska to explore,bringing new investment,most experts agree. But this will take time to hap- pen,and the pace of new explo- ration has to be speeded up. Mark Myers,director of the state Division of Oil and Gas, thinks the number of exploration wells drilled each year needs to be tripled to make the discoveries needed to "grow”the industry. Myers made his remarks to a state legislative committee Feb.13. Meanwhile,the near-term problem is that the large oil fields that were discovered in the late 1960s,1970s and early 1980s - the giant Prudhoe Bay and "What is our plan for increasing revenue? In a single word,oil.” -Gov.Frank Murkowski. State of the State address, January 23,2003 Kuparuk fields and the smaller Endicott and Point.McIntyre fields -are declining in produc- tion faster than new discoveries can be made. Production in the large fields is dropping about 7-10 percent per year.Point McIntyre is declining even faster,about 25 percent per year. The oil producing companies have been able to offset some of this decline by tapping small "satellite”pools near the big fields which can be reached through existing infrastructure. The also expanding the development of _companies are heavy,or viscous,oil deposits, which are very large but are diffi- cult to produce. In the last three years two medium-sized new oil fields have been brought online,the Alpine and Northstar fields.These new -projects are producing enough new oil this year to offset the decline of the large fields. But there are not enough of the new projects.Next year the decline in North Slope produc- tion will resume. There are other projects in the works.In 2006,if permits are approved and the project is gets the go-ahead from Exxon Mobil Corp.,the Point Thomson gas field will be developed to produce 75,000 barrels per day of gas con- densate,a liquid which can be mixed with crude oil and shippedthroughthetrans-Alaska pipeline. New discoveries in the Nation- al Petroleum Reserve are also like- ly to be developed.Work on an Environmental Impact Statement to develop two discoveries in the NPR-A will begin soon. But Myers,at the Division of Oil and Gas,says the best that can be expected from all of these is to offset the decline from the large fields,not actuallyincrease production. at about the Arctic Nation- al Wildlife Refuge?Or a nat- ural gas pipeline project? ANWR does have the geolog- ic potential for very large oil dis- _coveries,unlike the rest of the | North Slope which has now been -picked over.Chances are improv- ing that Congress might approve ANWR exploration. But even Murkowski,an enthusiast for ANWR,admits it will take work to get the critical 51 votes in the U.S.Senate needed for ANWR.In other words,- "ANWRis still iffy: As for a gas pipeline project, because of its marginal economics and huge cost -an estimated $20 billion -construction has been pushed back to late in the decade.There seems little doubt that Alaska gas will be needed someday in the continental U.S., but it now looks to be later rather than sooner. Even when a gas project is built,however,it will need the production infrastructure that is sustained by oil production. Ken Konrad,BP Exploration (Alaska)Inc.'s senior vice presidentforgas,thinks gas can help sustain _Alaska's petroleum industry for decades.But to be successful,hepointsout,gas production must take place alongside a healthy oil production business. There may not be "magic bul- let”that will solve Alaska's problems -no quick bailout from ANWR or a gas pipeline -but there are still good long-term prospects for new:discoveries on the North Slope,the Cook Inlet basin in Southcentral Alaska and the large, untested sedimentary basins of Interior and Western Alaska. "As a geologist,I see tremen- dous potential,”says Myers."The ".strength of the North Slope is as a 'generator'of petroleum.It may be one of the best in the world,” he said. By this he means the conditions were exceptionally good for the cre- ation of petroleum eons ago,when layers of decomposed organic material were overlaid by rocks,and over millions of years,placed under See Industry,Page 6 Alaska Regional Office: XTO Energy Inc. 52260 Shell Road Kenai,AK 99611 Telephone:(907)776-8473 Corporate Office: XTO Energy Inc. 810 Houston Street Fort Worth,TX 76102 |. Telephone:(817)870-2800 www.xtoenergy.com 4 Alaska Ol!&Gas Reporter Quarterly February 2003 New technologies revolutionize Alaska's "oil-patch” By Alaska Oil &Gas Reporter Staff en North Slope oil pro- duction started in 1977, many believed the oil fields would be depleted and the trans-Alaska oil pipeline shut down by 2000. Instead,the slope is still going strong.Billions of barrels of new oil reserves have been added in the existing fields and hundreds of mil- lions of barrels have been found in new deposits. New discoveries and,ultimately, development of large natural gas reserves could extend the econom- ic life of the North Slope decades into the future. What has accomplished this are new technologies that have revolutionized the petroleum industry.Many were developed on the North Slope. One is "horizontal”drilling,or production wells drilled laterally to intersect thin layers of oil-bear- ing sandstone.These would be uneconomic with conventional "vertical”wells. ENGINEERING EXCELLENCE Complete Multi-Discipline Engineering Services Project Management Conceptual and Feasibility Studies Project Scope and Development Cost Estimating and Scheduling Engineering and Detailed Design Procurement Services Field Engineering Inspection and Quality Control Environmental Engineering Serving Alaska Industry Since 1974 - ALASKA ANVIL INCORPORATED 509 Wesl Third Avenue $0720 Kenat Spur Hwy.Anchorage AK 99501 Kenai,AK 99611Hs276-2747 )776-5870'AX (907)270-4088 "AX (907)776-5874 A second is the "multi-lateral” well,or multiple production wells drilled below ground off a single vertical well from the surface. Effectively,this results in several wells tapping the reservoir and flowing into one well.There are big cost savings because pads,roads and pipelines on the surface are reduced. Multilateral wells have made previously uneconomic oil deposits possible to produce,for example the huge "heavy,”or viscous,oil resources of the North Slope. Another new technology is the "designer”well,where drillers drill a well that twists and turns through the reservoir,usually around fault blocks,to tap small pockets of oil bypassed by earlier development. A new variation is the "undulat- ing”well,a horizontal production well chat is curved like a snake to tap several small oil pools at differ- ent levels.One undulating well does the job of several traditional vertical wells,cutting the cost of producing the oil by about half. "Extended reach”well tech- nologies,developed elsewhere,are also being used in Alaska.Wells are now being drilled to locations several miles from the drill rig on the surface.This has allowed exploration wells testing for potential oil deposits several miles offshore to be drilled,and even produced,from shore. BP Exploration (Alaska)Inc.is producing its small Niakuk field on the North Slope in this manner, eliminating the need to build an artificial gravel island and a gravel causeway or buried pipeline to See Technology,Page 5 ae whe Feat si "a eral ealexeRaoepare % Courlesy BP Exploration (Alaska)Inc. 'Geologists,petroleum and drilling engineers collaborate in the "Hive,”BP's high-tech reservoir simulation center in Anchorage. Lh, Courtesy Laymon Fine Aris and Design Extended-reach drilling technology allows wells fo be drilled to reservoir targets four miles or more from the surface location of the drill rig. February 2003 Alaska Oil &Gas Reporter Quarterly Technology holds key to expanded resource base Continued from Page 4 shore.Though it will stretch the technology,the company is also investigating whether Liberty,a deposit with 150 million barrels of oil six miles offshore in the Beaufort Sea, can be developed with wells drilled from shore. Multilateral Well Types More exotic technologies are on the horizon.Hallibur- ton Energy Systems,a major oil services company that operates in Alaska,is working on "Anaconda,”a robotic self- propelled drill unic.The drillers can program it where to go underground,and then it goes there. Then there's the "electric oilfield,”a concept still on the | drawing 'boards but which could become real within a few years. This involves development of miniaturized equipment placed underground to sepa- rate oil,gas and water in the Courlesy BPP Exploration (Alaska)inc. "Mutti-lateral”wells allow multiple producing legs to berawcrudeoilstream.There drilled off one well to the surface. would be less need for the large oil processing plants, now part of the landscape in the North Slope oilfields,to be built on the surface. One of the most importantnewtechnologiesthatindustryis using todayin Alaskais "three- dimensional”seismic. "3-D”seismic presents geolo- gists with much more information than the older "two dimensional” seismic.However,it has also taken the development of powerful new computers in recent years to allow large quantities of data to be processed and presented to geolo- gists in ways they can use it. serevice n:The performance of work or duties for another; Assistance;help.|syn :Stallone's;The Men's Clothing Store Service has been a guidingprincipalofStallone's for over 30 years. Combined with new computer systems,3-D seismic gives geolo- gists a powerful new tool,allowing them to see subtle underground rock formations like the strati- graphic traps. One of the most important results is that because much more . can be known about the subsur- face geology,exploration wells can be planned with more care. That,in turn,means the suc- cess rate of exploration drilling has Let, improved greatly.Previously, about 5 percent of exploration wells drilled found commercial oil and gas deposits.Now about 35 percent to 40 percent of explo- ration wells are successful. Courfesy Laymon Fine Arts and Design "Designer”wells (shown at right)are angled around fault blocks to reach isolated pockets of oil. at ae Dae SAS lice iaSree$3 lan”o oe -!Se ime IR Pr coreceel iieneaartOurcustomersexperienceSoat ee pe :ee .qeererie yi t aa 1 emia!pihseieeneapas whothepersonalattention|PRL 4 ceSeger ;ars tn%fi a7,a yeewr nd aeyouwouldexpectfrom2Georsett: Alaska's finest Men's store.ffs :7 :J .oe -Stallone's -A edbeitbaie ei!<2 reliable ann+BBA MsServiceDefined aeBy 2010 we will need to produce an additional 245 million tonnes of grain to feed the world. Agrium has three deep-water ports located in Alaska and Argentina. Agrium transports 2.1 million tonnes of fertilizer to international markets every year. z - 3StalloneN)Kenai Nitrogen Operations www.agrium.com'i P.O.Box 575 STheMen's Clothing Store Kenai Atzska 99611 .7 Telephone:907-776-8121Stallone's 274-7848 In the Sears Mall Alaska Oil &Gas Reporter Quarterly February 2003 As a.'generator of petroleum,slope may be one of worlds DEST continues trom Page3tremendouspipressureandheat. In studying potential drilling sites,geologists still wrestle with whether the right "reservoir”rocks are there,whether they are porous enough to hold oil and gas fluids, and whether the rocks are perme- able enough for petroleum fluids to flow through them so they can be produced through a well drilledintotherock. Thereis also the need for a "caprock,”a layer of impervious rock above that traps the fluids so they don't seep away.All the con- ditions have to be right for an oil and gas deposit to exist. There have been some nasty surprises for the industry.One was the famous Mukluk exploration well drilled in the early 1980s in the Beaufort Sea,offshore from the large producing fields. Geologists were confident there were hundreds of millions of bar- rels of oil in Mukluk and a consor- tium of companies spent over a billion dollars buying leases and drilling the well,which itself_cost.- $160 million."gee Mukluk curned out to be dry, and went into the history books as the industry's most expensive dry hole. A technical postmortem showed the geologists were right.There was oil in Mukluk -at one time. It had.probably leaked out through a small,undetected hole in the "caprock,”the layer of rock needed to trap the oil. Still,if the oil was once there, where did it go?Some of Mukluk's oil may,in fact,be turning up in the smaller oil deposits which, armed with new technologies,the industry is now finding and devel- oping.There could be a lot of these,Myers thinks. "There are new technologies now available,like 'three-dimen- sional'seismic,which allow these rompanies to find'stratigraphic GoldGPcoiaer Geotechnical .Engineering Environmental Sciences Engineering Geology Water Resources Bright Minds... Down to Earth 11750 AbbottRd Si¢'2007"Anchorage,Alaska :At oe agi!myLatcg Mare907-344-6001!FAX:(907)344-6011oewe »Golder Companies Worldwide 5°hate,che WE Aa TY Popes,nf .th?.¢°ee "ay "Shey .if aot oni'<SeeereroreyesnaraeyoM7,Trans-Alaska pipeline system on the North Slope. deposits that were missed in earli- er exploration,”Myers says. "There are whole new 'plays'ofexplorationthatcanbebuile around stratigraphic traps,”Myers said."Almost all the new oil being 'found is in these kind of deposits, and there's no reason there can't be a lot more.”,, A stratigraphic deposit is a type of rock formation that is different than the classic "anticline”forma- tion,a dome-like rock structure in which many larger oil fields like Prudhoe Bay are discovered. In stratigraphic traps the rock formations are more difficult to detect with seismic.With the older,"two-dimensional”seismic, most of the stratigraphic oil deposits were missed. For example,the new Alpine oil field,which began production on the North Slope two years ago, was missed completely when only the older "two-dimensional”seis- mic was available. t's still possible that very large oil fields might still be found on the slope,the kind that can produce hundreds of thousands of barrels per day.ANWR has prospects for large fields,perhaps even a super- giant like the Prudhoe Bay field. But there isn't enough known about ANWR to be certain,one way or the other.Whether there's AIRCRAFT PROPELLER §OVERHAUL &REPAIR § SALES @ SERVICE Hartzell,McCauley,Beechcraft Hamilton Standard,Sensenich Authorized McCauley Service Center Propeller Service,inc. 16709 Meridian St.E.,Unit 3 &4,Puyallup,WA 253-770-7400 FAA Approved Repair Station #HTER625NPierceCountyAirport VERDI Has "really oil there can't be determined until there's drilling,and Congress must approve that. Most of the rest of the North Slope still has potential but oil will probably be found in smaller deposits,geologists now think. Myers said the same is probably true for the National Petroleum Reserve-Alaska,the vast 23-mil- lion-acre federal reserve being opened again for exploration bythefederalgovernment. The U.S.Geological Survey estimates that both ANWR and NPR-A probably hold about the same amount of economically 'recoverable oil,some 10 billion barrels each. The difference,Myers says,is that based on what geologists cur- rently know,oil in ANWR is likely to be in larger deposits which will be more profitable for the industry. In NPR-A,he says,the oil is likely to be scattered in smaller accumulations which cost more to develop and produce,and which will be less profitable. But if enough of these medium- sized and smaller deposits are found,they can still add up to a lot. If this is combined with gas production from the large Prud- hoe Bay field and the Point Thompson gas field,and if devel- opment of the large heavy,or vis- cous,oil deposits continues,Alas- ka could have a sustainable oil industry that will last for decades. If there's luck -if ANWR is opened and large discoveries are found,or if geologists are surprised and a very large oil field is found somewhere else on the slope,oil production can even be increased. 'o find enough new oil depositsT..arrest the decline of the older North Slope oilfields,or to actual- ly increase production,the num- ber of exploration wells being drilled each year must be at least tripled,says Myers. To do this,more companies ztPegs.:oat7aeoemust be enticed to come to Alaska to explore.Of the three major owners of North Slope reserves, BP Exploration (Alaska)Inc., ConocoPhillips Alaska Inc.and Exxon Mobil Corp.,only Cono- coPhillips is still exploring. Even that effort is down this year,a result of the belt-tightening done following the merger fast year of Phillips Petroleum and Conoco,Inc.ConocoPhillips itself will drill”only two new exploration wells thisis” winter and is a partner in a third well drilled by Encana,a major Canadian independent company. The company is also redrilling an exploration well in Cook Inlet that was drilled lase year but which encountered problems. BP previously a major explorer, has refocused its efforts on devel- opment of satellite accumulations near the big fields and the devel- opment of heavy oil deposits. As a partner with BP in those deposits,Exxon Mobil is con- tributing to the projects operated by BP as is ConocoPhillips.Exxon Mobil's primary focus,however,is on on developing the large Point Thompson gas condensate field. To get the new exploration wells drilled,new companies must be encouraged to come to Alaska,Myers said.Only three .,. exploration.wells are 'being . drilled on the slope this winter, and that's not enough,he said. Independent companies like Anadarko Encana and Pioneer Natural Resources Inc.are now explor- ing.TotalFinaElf,a major Euro- pean oil company,has bought Petroleum Corp., leases and opened an office in Anchorage. There are also smaller, entrepreneurial companies like Armstrong Oil and Gas, of Denver;Andex,exploring in Interior Alaska;and Win- star Oil and Gas,which is owned by Alaska business- Courlesy BP Exploration (Alaska)inc. man Dale Lindsey and a groupof partners and man- "aged by Jim Weeks,a former ARCO manager. This is encouraging,Myers says, but it's not enough.More compa- nies are needed,and more wells. "We have five independent _companies now working on the slope.We need a couple of dozen,”Meyers said. -That may just happen.TheNorthSlope,outside ANWR,may no longer have prospects for very large discoveries,the kind that will attract large companies like BP.But the medium-sized prospects that do exist are very attractive for smaller independ- ent companies. "Alaska is attractive because it's the last place in the U.S. where a smaller company can get in and find large oil discoveries,” says Jim Dodson,executive vice president for Andex Resources,a Denver-based company planning exploration wells in the Nenana Basin west of Fairbanks. n the industry,the slope has tra- ditionally been considered the exclusive turf of only very large companies,because costs are high and the regulators are tough. That perception is beginning to change. Encana and Pioneer,and Anadarko before them,are demonstrating that independent companies can get permits and drill on the North Slope.Both are drilling offshore wells this winter,and other independents are watching. "What happens this winter will make a big difference,” Myers said. If those wells show success, even just a "technical”success (the project is completed with encouraging,if not commercial, results)many more independent companies will be interested in Alaska,Myers said. Alaska Olt &Gas Reporter Quarterly -February 2003 eesRagNOPoneeenaPOLENENETAOPOEEETIGTNRoeBPSShENOREBigyeERNEOEMr?seaPuviaqg1=\j| ConocoPhilli drilling testthis inter in-NPR-A. National Petroleum © *Created in 1923 as Naval Petroleum "source for the U.S.Navy.: *Explored by U.S.Navy and U.S.Geolog- Reserve -Alaska. _.Reserve No.4,as a potential fuel supply x PMP ae . =LneyetewshchenecomenenngepiSTEOATMere"SE ae oo yr Lookout,Spark Development permitting has ConocoPhillips and Anadarko."started for these discoveries by]. Pa : mat its R ee lean Se ea ESS ps Kuparuk field Central Processing Facility2. permitted for development. Fiord Schrader Bluff Small discovery by BP expandingConocoPhillipsnowbeingthisheavyoilproject "hint Tabasco Hot Ice project Anadarko drilling © : Exploration well being tests in gas hydrates iN a ron West Sak :ical Survey,1950s-1970s,with no com-*| drilled-by ConocoPhillips |{ConocoPhillips expandir f mercial discoveries.--this heavy oil project'-©Leased by Reagan administration in early;1980s.Limited exploration produced no oe :discoveries._.no...©BLM reopened 3.9 million acres for eas-.a'ing in 1999;867,451 acres were bid on .ane ee mei :co, ;and leased .eT [_]Producing fields Bef©Acreage was reoffered in 2001,with -:So oe '579,269 acres bid on and leased.cS Prospects orin development! ¢Discoveries announced by ConocoPhillips - \ *Alaska Inc.and Anadarko Petroleum . -' 'Corp.in five locations in 2001.Feasibility -i 1 +of commercial development still being Z MILES :evaluated,oe ne February 2003 Alaska Oil &Gas Reporter Quarterly IS Offloading modules at Northstar. BP geologist NPR-A exploration well. Jennifer Snow on ld _«Endicott oilfield,first offshore field on the North Slope...,aod t 'Prudhoe Bay field production facilities,.. as d *¢1960:First major oil company geologists,from BP and Sinclair,survey the North Slope. ©1964:First exploration wells by BP and Sinclair in Brooks Range foothills,Colville River delta. All are dry. ©1966:Atlantic Richfield,Humble Oil (now Exxon)drill first exploration well on slope. It was dry. *1968:ARCO,Humble drill exploration well at Prudhoe Bay.Discovery is confirmed by confirmation well in 1969. *1969:Planning starts for trans-Alaska oil pipeline construction. ©1974:Construction begins on Trans-Alaska Pipeline System ©1977:TAPS is completed,production begins *1978-86:Other fields are developed on slope: ) Kuparuk River,Endicott,Milne Point, Point McIntyre and Niakuk *1989:North Slope production peaks at over 2 mil- lion barrels per day,begins decline. ¢2000:Alpine field begins production ¢2001:Northstar field begins production *2002:Slope production at 1 million barrels/day Endicott: Pt.Thomson Exxon Mobil Corp. working on development. Project is now being permitted. Badami rs McCovey |?oint -:Explorationwelldrilled byiaa" Northstar.Encana Oil and Gas Midnight Sun --alae ore RS NiakukOrafoNNO _ Orion Heavy oil project planned VE by BP in Prudhoe field Prudhoe Bay 'Trans Alaska -> Pipeline System (TAPS)CeeeeaeeeateLe WR hla as BP revamping development plan. May be drilled from shore. Liberty s 44 ? ak Alaska Oil &Gas Reporter Quarterly February 2003Alaska's Cook Inlet -where the action.is in 2003 YZ Coal bed Methane <>Gas field |Evergreen Resources is Lewis 4 .testing coalbed gas wells]RIVER x.a--=Gas line near Wasilla,Houston. <=>Oil field -----Oil line PRETTY MoQuawkie Aurora Gas developing this small gas discovery, plans further exploration c"f °°MOQUAWKIE a :f-"ay 4 Firelsland ;Granite Point ee ah ; he J NORTH \8S eNICOLAICREEKKALOA=COOK INLET %,*eAS=oe \®eecececcreceed Nicolai Creek SESSA GRANITE aN a"Aurora Gas developing ug te POINT €i \aaeaaaPodNORTHthissmallgasdiscoveryhecysoe2 TRADING BAY _7 by ff a 2 BIRCHFyHILL Swanson River satellites Unocal Corp.plans two small satellite projects:J McARTHUR 7 Ywo/_RIVER |4 SWANSON o WEST ty...RIVER Fi FORELAND fo REDOUBT Nikiski:.SHOAL ra N ;Redoubt Shoal i -Drift River Forest Oil has started production '\WESTisiatthisnewfield.Production now \ny FORKvyerminabeingrampedup.|" Sterling Higy Kalgin Island Kenai-Ninilchik gas pipeline Gas pipeline now being constructed to new gas discoveries near Ninilchik Milestones:Cook Inlet oil and gas development '©1853:Russians find oil seeps on inlet's west shore *1882-89:Prospectors attempt to drill for oil on inlet's west side.One well briefly produces oa ,50 barrels per day. ra ¢1911:Union Oil of California (now Unocal)begins selling petroleum products on Kenai Pa _..Peninsula. ;r:¥Ninilchik ¢1950:Havenstrite Oil Co.drills testst wells on inlet's west side.Wells are dry. Cosmopolitan ©1957:Richfield Oil Co.discovers commercial oil field at Swanson River,on Kenai. ConocoPhillips will redrill *1958-60:Unocal and Marathon Oil Co.discover gas on Kenai Peninsula,including Kenaithisexplorationwelltogasfield.test an oil accumulation North Fork .*1961:Swanson River field begins production.discovered in drilling last year.Development of this ©1962:Beluga River gas field on inlet's west side is discovered.small gas discovery is planned ©1964-66:Middle Ground Shoal,Granite Point,McArthur River offshore fields in inlet are discovered. N rk Uni *1967:Offshore production begins in Cook Inlet.orth Fork Unit *1969:Major plants at Nikiski,near Kenai,open:Tesoro refinery,Unocal ammonia/fertiliz- . _er plant,Phillips-Marathon liquefied natural gas plant.e Anchor Point *1978:Unocal doubles size of ammonia/fertilizer plant.. _©1985:Marathon installs Steelhead platform. . *2002:Forest Oil Co.begins production of Redoubt Shoal oilfield.New field doubles inlet'sHomer,. :remaining reserves. February 2003 Alaska Oil &Gas Reporter Quarterly - Natural gas: Geiiing the deal By Tim Bradner Alaska Oil and Gas Reporter he owners of North Slope gas, who will in one way or another have to bankroll any major nat- ural gas pipeline,say they need four things to make the project happen:| *The estimated $20 billion cost of the project must be reduced,with new technologies playing a key role; *There must be new federal regu- latory and tax legislation to help reduce uncertainty and risk; *There must be continued progress on regulatory and land claims issues in Canada;and ¢There must be an agreement with the state of Alaska to establish simple,clear and certain tax and royalty rules. In some ways,the needed agree- ment with Alaska is the more com- plex and challenging of the four requirements. "This part of the discussion is not about tax breaks.Those conversa- tions will occur at some point,but it's a separate discussion,”said Bob Reynolds,who heads BP's Alaska production tax and royalty group. "What we do need is simplicity, clarity and certainty on how taxes and royalty will be administered,” he said. BP and the other two major gas producers,ConocoPhillips Alaska Inc.and Exxon Mobil Corp., believe that sitting down with the state to negotiate is an essential step toward achieving fiscal certainty. Gov.Frank Murkowski signaled his intent to address the issue in his State of the State message Jan.23. "The state must do its part to provide the regulatory and fiscal certainty necessary to get a gas line project underway,” Murkowski said.The gov- ernor said he would work with the Legislature to pass the necessary statutory authority,"and then get to work negotiating the details with all the stake- holders.” "We have already met with the producers to the kind of costly lawsuits and dis- agreements that occurred following the start of oil production wouldn't be repeated. "About five hundred million dollars were spent by all sides on attorneys in those tax and royalty disputes.That doesn't include the cost of the settlements that were negotiated,”Reynolds said. "Saving that half billion dollars is the prize we're seeking,”he said. "It's essential that we reduce the possibility of disputes.Gaining clarity in this area will be funda- mental to moving a gas project for- ward,”Reynolds said. There are several principles BP will seek in an agreement with the state,Reynolds said. Issues are grouped under three broad categories:Simplicity,clarity and certainty. "Simplicity”"clarity” includes several items,which seem at first glance like common-sense "Certainty” issues,like some form of guarantee of tax stability,that could be com- plex and difficult. For starters,the state and the companies need to agree on a way to resolve disputes.An arbitration procedure is the best option,and this approach is now used to resolve and measures.includes disagreements on oil royalties. It is working well,and a similar approach could be taken for the state on natural gas,Reynolds said. Under "simplicity,”the state could administer severance taxes and royalty under the same or similar set of rules.Both are based on subtract- ing transportation costs from market prices to determine a "value”for the resource on the North Slope. The state then takes 12.5 per- 'The state must do its part to provide the regulatory and fiscal certainty necessary to get a gas line project under way.' -Gov.Frank Murkowski thebeginthisprocess,” governor said. In the Legislature,Rep.Hugh Fate,R-Fairbanks,has proposed a reauthorized and amended version of the state Stranded Gas Act,a 1998 law that allowed the state to negotiate a special set of fiscal terms for a liquefied natural gas export project.The law expired in 2001. Fate proposes to reenact the law and to expand it to include any major gas project,including a pipeline to the Lower 48 states. Reynolds said the three produc- ers and the state need to work out agreements on fiscal issues in advance of major investments so cent of that value for its royalty and,for gas,an additional 10 per- cent in severance tax.But because taxes and royalties are handled by 'Y paoaeearid.PeieNeeMaenBeesasgayealc.¥sy rswan:>ZI re ES Couresy BP Exploration (Alaska)inc, Drill rig being moved In Prudhoe Bay oll field. two different state agencies -the Department of Revenue for taxes and the Department of Natural Resources for royalty -different sets of procedures have grown up within the two agencies. That makes for double work within the state and the producers. If the two agencies would adopt the same or similar procedures,it would save a lot of time and money,Reynolds said. What seems a "no-brainer”is to simplify royalty administration by adopting uniform terms for leases across the North Slope.These now vary because many were sold in dif ferent lease sales. An agreement for a uniform royalty -the same rate for fields contributing gas to the pipeline - would again simplify administra- tion and save money for both par- ties,Reynolds said. More challenging negotiations LiLjo WOOD GROUP Calibration & Instrumentation Division NIST Traceable Calibration and repair of measuring and test equipment.On site service available. 5311 Minnesota Or.©Anchorage,AK 99518 907 339-4500 Fan:907 339-4555 Rotating Equipment Division ¢Gas Turbine Removal, Installation &Commissioning ©Borescope Inspections @ Fleet/Inventory Management for both sides. One important topic will be See Producers,Page 14 will be involved in several issues in "clarity,”or making terms in administering tax and royalty clear diptata ceFaroeWhethervoheed|0.st ih round ori Naemakesgood|businesscents<Moreflights to:more iotitadons to)and from:yA lasks and within the state's simply put,dit award winning aie cared'Feervicé iga yor pest choice,From Baja |to Barrow,/Anchorage to'Amblefouretworkk'of flights offers ¥rout(and your customers 'Yonveniened al.nis¢affordableprices.Zs ;Horie aE na :SO ar ee 3 ,£4 00.TALASKA4"300.228:atea pe'Sup www.alaskaalr,com:a Sk 12 Alaska Oil &Gas Reporter Quarterly February 2003 a ewgates OH oe en "-% oh. bry.. eeraiipipeEEBistMy) 2 emitSind SS men ft renee> fi tog Liquefied natural gas tanker being toaded at Phillips-Marathon LNG plant at Nikiski,near Kenai. What prospects now for the gas pipeline? Analysis by Tim Bradner Alaska Oil &Gas Reporter hat are the prospects for bringing Alaska North Slope gas to market? Efforts to build a gas pipeline from the North Slope have been under way since the mid-1970s,and over' the years over a billion dollars have been spent. Two years ago there were big expectations that a long-awaited natural gas pipeline project might finally be at hand.The three major North Slope gas owners,BP Explo- (Alaska)Inc.,Cono-ration coPhillips Alaska Inc.and Exxon Mobil Corp.,formed a joint proj- ect team to study once again the prospects for a pipeline to the Lower 48. But hopes were dampened, again,when the $125 million engi- neering and route study of the overland pipeline came in with a $20 billion price tag. And as 2002 came to a close an effort in Congress to pass a federal energy bill,which contained sever- al sections important for the Alaska gas project,failed.Now the effort in Congress must start over. UVTI Where Size Matters... ©Barrow ©Wainwright ¢Atqasuk ?LEGEND « @ Villages @ ASTAC Coulter tower ©3 milo covorsge rads 1 Arctic Ocean |*Anaktuvuk Pas: Beaufort Sea *Kaktovik no second place. local customer service you count on. The others don't even come close. that describes coverage area,and nobody offers you more footprint than ASTAC Cellular.ta fact,when it comes to our North Slope coverage footprint,there is From Wainwright to Kaktovik,with seamless coverage from Nuiqsut to Badami and down the road to PAD 2L, only ASTAC Cellular has both the footprint you need and the rate packages you want-all supported with oe,Stetaye\\J antwireless phone service?What you really eh ta ASneedisahig'footprint'.Footprint is the term While efforts on the Lower 48 pipeline seem to have hit a plateau, some Alaskans haven't given up on an idea of a pipeline to southern Alaska and a liquefied natural gas (LNG)export project. In the November 2002 elec- tions,Alaska's voters approved a cit- izen initiative to create a state gas pipeline authority that could build a LNG project. A LNG project has been stud- ied several times over the years, but its supporters say the new authority will keep the option on . the table.This could be important if the Lower 48 pipeline winds up matte re ti ts Sdr"wttee hay athe ss ere ae ak ABeADAY:**ab vonaricwrnettan 2$COMPETITIVE RESPOS 1 atiPied! AS reyes ge HVAC Design being delayed for a long time. If that happens,the stars may align for a LNG project.New work by its supporters,including Yukon Pacific Corp.,suggests that a project, which combines sales of LNG with natural gas liquids like propane and butane,could be viable. Sales of gas liquids hadn't been considered earlier,they say. The state gas authority has its critics,however,They argue it will divert attention from efforts need- ed for the Lower 48 pipeline. Besides,there's already a public port authority formed by three Alaska municipalities to build a d +1 oe Jiid Wen Sof&In=Complete File photo LNG project,the critics say. Regardless,Gov.-Frank Murkowski has acceded to the vot- ers'wish and has promised to appoint a board for the state gas authority,and to seek funding for its organization.How the authority will mesh its work with the existing port authority is unclear. Work on the Lower 48 pipeline hasn't stopped,however... The project team formed by thethreeproducershasdisbandedbut the companies are continuing work -on their own.BP,for its part,is working on finding ways to reduce the $20 billion capital cost.John Browne,chairman of BP.told an Alaska business group last summer that his company hopes to find a way to trim $2 billion in costs. Is a $20 billion project really needed? There are some that believe the three gas producing companies designed a gold-plated Cadillac of a project,where a plain Chevrolet might do the trick. Foothills Pipe Lines,a Canadian pipeline company that was part of a 1980s consortium that worked unsuccessfully on an Alaska High- way gas pipeline project,has pro- posed a lower-cost alternative to the producing companies. The plan involves using pipe with a smaller diameter,which would ship less gas but would lower the huge up-front capital cost. Another Canadian _pipeline company,Enbridge,has suggested building two pipelines sequentially.This would See LNG,Page 14 smaller-diameter 14 Alaska Oil &Gas Reporter Quarterly February 2003 Natural Gas:What prospects now?Continued from Page 12 "not only lower front-end costs,but would allow the project to get into + the market with smaller volumes of _gas.That would have less of a dis- ruptive effect than the producers' plan for a large-diameter pipe that would ship 4.5 billion cubic feet of | gas per day. Many experts say that amount of gas could temporarily over- whelm the supply in Lower 48 markets,possibly resulting in a drop in price. The three producers,however, defend the larger scale of their project,which includes using a thick-wall pipe that can accom- modate the larger volumes of gas shipped at high pressure. Despite the higher initial cost, the project would be more eco- nomic in the long term because it would ship more gas to market at lower cost.Any market disruption would be temporary,they say, because in the long term the Lower 48 will need all the gas it can get. he big bumps in the road for the overland pipeline remains its high cost;the risks of a con- struction cost overrun on such a large project;and the probable periodic slumps in Lower 48 gas prices.The project is economically marginal at best,and these risks now make it uneconomic,the pro- ducers say. There isn't much that can be done to)mitigate the risk ofcon- *.struction cost,overruns:other ° File photo Liquefied natural gas storage tanks near Kenai. than to do careful planning and engineering. But the price risk can be off- set,giving the project some pro- tection,through a proposed fed- eral tax credit that would kick in if gas prices dropped below a certain point. The tax credit is one of the provisions the companies are has become very controversial,how- ever.Domestic U.S.and Canadi- seeking in Congress.Ie an gas producers don't want to see a form of federal subsidy for competing gas from Alaska. Significantly the Bush admin- istration and several key Republi- can senators dont like the idea of federal intervention in the market, which they argue a tax subsidy for an Alaska pipeline represents. Also,the producers aren't unified on the idea. *ConocoPhillips proposed.:it ,*first and says the credit is'a "must” Gas to Fuel|7"ProvidingNaturalgSouthcentralAlaska. for its participation in the pipeline.BP has been somewhat supportive,and has suggested a variation to ConocoPhillips'orig-inal idea that includes accelerated depreciation for an Alaska gas pipeline,which would also help its marginal economics.Exxon Mobil Corp.,however,has said that it opposes any federal incen- tives for the gas pipeline.The project must be able to stand on its own without support,the company has said. The forces combined against the tax credit,however,make the fight for it an uphill battle in Con- gress despite the influence of the 'Alaska congressional delegation. All three companies support another goal in the federal legisla- tion,to streamline regulatory procedures for the gas pipeline. They are noncontroversial and are likely to pass as a part of an energy-related bill. eanwhile,even if its costs are reduced and Congress agrees to an indirect tax subsidy for the pipeline,changes in the Lower 48 gas markets have effectively delayed the project anyway. When the nation's economy was surging and gas prices were high,it appeared that large vol- umes of gas from some new source would be needed by 2007.The original hopes for the pipeline were for construction to begin in 2005 and for the first gas to be shipped in 2007. Gas beenmarkets.have -volatile,however.They softened when the U.S.economy turned down,but are now strong again because of a cold winter in much of the United States.Experts agree it now appears the market will be ready for large new supplies,such as could be delivered from Alaska, in 2010 or 2012. It's also now likely that a small- er,less-costly project to build a pipeline to tap gas resources in Canada's Mackenzie River delta will be built before the Alaska pipeline.Two of the three compa- nies which also own large amounts of Alaska gas,Cono- coPhillips and Exxon Mobil,are also involved in the Mackenzie pipeline project. That pipeline will satisfy some of the increased U.S.gas demand in 2009 and 2010,but much of the gas delivered through the planned Mackenzie project will be sold in Canada. A more serious threat to the Alaska gas project are the several projects proposed to import liq- uefied natural gas into the U.S. Several LNG "regasification”plants are now proposed for the U.S.east,gulf from overseas. and west coasts. Experts say these projects can be economic at about the same price range as the Alaska gas pipeline,and don't face the requirements for huge capital out- lays and risks of cost overruns and other problems faced by the pipeline. They can be built incremental- ly and be expanded as the market grows,which are important eco- nomic advantages. B'once the Alaska pipelinegetsupandrunningitcan compete with imported LNG because of the huge amounts of gas it will ship.The project would also make it possible to develop new gas that most experts predict will be discovered in Alaska once there is a way to move the gas to market. The Alaska project also fits the national strategy of developing more domestic energy supplies. Imported LNG increases the nation's dependence on foreign energy sources,and worsens the USS.trade deficit at a time when there are large gas resources 'Stranded”northern Alaska.'. The deal on gas:Continued from Page 11 how market "value”will be estab- lished for sales of gas.Market value is the starting point for sub- tracting transportation costs to arrive at "wellhead value”on the North Slope,on which taxes and royalties are paid. "Value should be closely related providing goodness sake,where? AnchorageTel:1-907-569-4049 ReadingAlaska's Seismic PalmAlaskansknowalotaboutoil,We know,for"example,that it employs thousands of Alaskansandbringsbillionsofdollars:of revenue into the."state.We know how to drill for it,how to refine it,how to sell it and how to ship it We know whatitis,who wants it and why.But one question burns and will continue to bunaslongasAmericansburnoil.Whereiis a PGS Onshore is in the business of the answers to the industry's most pressing questions: Is there oil?How much?And for WWW.pgs.com/technologynaw i" to what the gas is actually sold for, or some agreed-on indicator that - reflects,as accurately as possible,the actual sales values,”Reynolds said. "What has to be avoided is the state coming back later and saying we have to pay more because we could have sold the gas,or oil, somewhere else for a higher value,”he said. Surprisingly,this has hap- pened frequently in the state's administration of oil royalty and severance tax."Approximately 85 percent,or more,of the disputes over oil tax and royalty -in which both the state and industry paid $500 million in attorneys fees -were disagreements over value,”Reynolds said. "Tt seems logical that the pro- ducers will always seek the best sales price and that tax and royalty should be based on what gas is actu- ally sold for,not on what it could have been sold it for,”he said. There's also a question of how the state can track,and audit,the thousands of sales transactions that will occur in Lower 48 gas markets once a pipeline goes into operation. An agreement on how this will be handled has to be worked out too,Reynolds said. One approach is to audit the See Gas deal,Page 15 February 2003 15 The deal on gas:Continued from Page 14 actual sales,as numerous as they _ will be.Ken Thompson,a retired"Atlantic Richfield Co.executive who served on Gov.Tony Knowles Natural Gas Policy Council,said the state of Texas uses a computer-based system of tracking market transactions for state royalty oil and gas. Texas has offered to give Alaska their program so that something similar could be developed, Thompson said. Reynolds said -another approach would be to agree on a market indicator of some kind, like the Henry Hub gas trading hub in Louisiana or a similar trad- ing hub in Alberta,where Alaska gas is likely to be traded anyway. It's important to have an indi- cator mechanism that is highly liq- uid and large enough such that it reflects the market as a whole,and won't be influenced by regional events,Reynolds said. T”of the most challengingissuesthenegotiatorswillface are among those in the fiscal "cer- tainty”category. These include agreements on some form of future tax stability, covering both the state and munic- ipal governments,and changes in the way the state can now take its royalty gas "in kind,”or in actual gas instead of being paid for the royalty share by the producers. Royalty-in-kind terms.in cur- rent oil and gas leases allow the state to switch back and forth at six months'notice between taking its _royalty in the form of gas or taking it in value,and being paid for it. Although it's a contractual term in the leases,this creates uncer- tainty for the producers as to how much pipeline capacity will be available for their own gas when the state can take its royalty in kind and sell it to another party. "It leaves us hanging as to whether we will be able to ship 100 percent of our own gas or only 87.5 percent,”which is the producers'share if the royalty in taken in-kind,Reynolds said. A solution to this could be longer-term commitments for roy- alty-in-kind."All of these issues can be negotiated,but we've got to have assurance on how much gas we will actually have to market,”he said. "The gas owners are the ones who must make the commitments to ship specific volumes of gas through the pipeline,and it is on those commitments that the proj- ect is financed,”Reynolds said. The royalty in-kind and in-value © question is likely to be debated vig- orously.There are those,such as for- mer ARCO executive Thompson, who feel the state needs the maxi- mum flexibility in its ability to takeroyaltygassothatitcannegotiate sales for better prices to buyers other than the producers. _The state must also assure Alas- ka communities that gas will be "hg 4was * is iat + iaawy:ast} pearyect Rep a:' "or,5 ih Summer tundra in the Arctic National Wildlife Refuge,which may hold large reserves of oil and gas. available for local utilities at the most reasonable prices,and that gas can be available for any in-state manufacture of petrochemicals or other products, "The state shouldn't give on this lightly,”Thompson said. he most contentious issue to negotiate under "certainty”is some way for the state to guaran- tee that the state or its local gov- ernments won't unreasonably hike taxes on a gas pipeline. '"Gas production will not enjoy the robust economics of crude oil production.It can't withstand the kind of tax increases and disputes -that were experienced with oil after production began in 1977,” Reynolds said. The state raised taxes on oil in the 1970s and 1980s,although there have been no tax increases in the last decade. What focuses concern on this problem is the state's seeming inability to come to grips with the SE sHeGipopensame seat Fahy aon *rest Oil's Osprey plhesatatesietneSiitlizedfosuccessh fiscal gap -the operating deficit between declining oil revenues and the state budget -and the companies'concern that oil and gas will be tapped with new taxes. A dilemma for both the com- panies and the industry is that although the royalty terms are set by binding contract terms through the oil and gas lease,most believe the state constitution forbids the Legislature from passing a law that restricts future lawmakers. There are some who think there may be ways to construct a fiscal contract that passes muster in the courts,however. . Reynolds said there is one way an agreement could be struck.Because the royalty terms can be set by binding contract, one solution would be an amendment to the lease contract that allows tax increases to be subtracted from royalty pay- ments.This could keep the over- all fiscal burden on a gas project 'stable,he said. '& : 2 4 .PTR.Chante ear, aieeter ae +oe if Kod Another part of this difficult issue is how the state manages municipal taxation of a gas proj- ect.Since the municipal authority to tax is granted by the state,state law could also impose restrictions on municipal taxation. However,Alaska lawmakers have traditionally been reluctant =ee i: a |Ng . pat Shy os)fe rt 407]4745100 Fax:(ip)874-51022cheEeVisitpurwebsiteatwww.ntel.ogm or ef esshee,4,e-mail ps:hte!@ntel.comatsBleot4S,3 t we mF Bool:geewt | 4 7 rd q File photo to tamper with local authority, preferring to allow cities and bor- oughs maximum flexibility. Reynolds said the concern is not about traditional municipal property taxes that are paid by all local taxpayers,including industry, but new taxes written in a way to target just the industry. fe |aA Gacne teem