Parnell administration shifts focus from oil to natural gas
If this legislative session was all about oil, the next one could be more focused on natural gas. The end goal is a pipeline capable of moving the massive supply of gas on North Slope to market. The state is looking at the issue of getting a project online from multiple angles.
Joe Balash didn’t get much rest after the legislature gaveled out. He didn’t even have time to clean out his desk. As a deputy commissioner for the Department of Natural Resources, Balash had to fly straight to LNG17, a conference that’s billed as this year’s “biggest global gas event.”
“We went directly from Juneau down to Houston.”
After spending the past few months as one of the key players on Gov. Sean Parnell’s bill to lower oil taxes, he and the rest of that team immediately pivoted to natural gas policy.
“We’ve now got some clarity on what the business is going to look like on the oil side, and now we and the producers can turn our attention to how gas fits into that.”
The state is trying to advance a couple of major projects. The bigger project would cost up to $65 billion. The idea is that it would be like the Transalaska pipeline but for gas, making money for the state through export. The other line would be smaller and built to serve Alaska’s own consumers with cheaper energy at a cost of $8 billion. The governor has said that it could be possible to merge the two projects.
Over the next few months, the state will try to move those projects forward from two fronts: the policy side and the design side. When it comes to policy, the state is trying to figure out whether it wants producers to pay them directly in money, or if it wants an actual cut of the gas itself. Right now, Alaska has the option of switching between the two every 90 days, which Balash says creates some uncertainty for companies. The Department of Natural Resources is currently accepting bids from contractors to study the economics of a large-diameter gasline.
On the design front, Gov. Sean Parnell said he wanted the companies involved in the project — TransCanada and the big North Slope oil producers — to be at what’s called the “preliminary front end engineering design” stage this summer.
“That’s a lot of words to say actually doing the math and understanding what it’s going to take to physically put together the pipe,” says Balash.
So far, the administration is still in talks to make that happen. But Balash says they’re hoping companies start doing field work by June.
Dan Sullivan is the commissioner of the Department of Natural Resources, and he says keeping momentum up on the project is important. The natural gas market is volatile. When the state first made financial commitments to develop a big gasline, the idea was to ship gas to the Lower 48. With that market now glutted with cheaper energy, Sullivan says they want send gas to countries like Japan and South Korea instead.
“There’s certainly a window in Asia that’s open right now for gas from Alaska, but we’re not sure how long that window’s going to be open.”
The Parnell administration has put a lot of effort into wooing Asian nations, with the governor even touring the Pacific Rim this fall to promote Alaska’s resources. But Alaska isn’t the only place that’s courting that market.
Larry Persily handles pipeline issues for the federal government, and he follows the economics of energy closely. He says that if the state wants to get enough buy-in from those countries to go ahead with a big pipeline, it’s going need to offer competitive rates.
“There’s no question in the decades ahead — 2020s, 2030s, 2040s — the world is going to need more natural gas than it uses to today. And a lot of the old contracts that were written in the Nineties to supply Asia will be expiring. So, that’s another potential to go in there. But it’s going to come down to price. Alaska gas is not going to command any higher price in the market than any other molecules. It all burns the same.”
As far as whether all of this work from the state will amount to a pipeline anytime soon, Persily says that there are a few indicators as to whether or not North Slope producers are getting serious. His office will be watching for companies to start collecting environmental data for permitting work and for the state to begin official talks on how it should structure its fiscal system with regards to natural gas.