FERC issues Alaska report card

By Dave Harbour
Publisher
Northern Gas Pipelines (NGP)

Late last week the Federal Energy Regulatory Commission (FERC) issued its “Eighth Report to Congress on progress made in licensing and constructing the Alaska Natural Gas Pipeline”. Section 1810 of the Energy Policy Act of 2005 required the FERC to make such regular reports to the Congress. Section 109 of H.R. 4837, The Alaska Natural Gas Pipeline Act of 2004, established a way the Federal government might take control of the project. Insufficient progress as reported by the FERC could trigger an effort by some to seek Federal control.

Maintaining its generally optimistic tenor common to the previous seven reports, the FERC now sees, “further progress”. I would expect current FERC Chairman Jon Wellinghoff  to be consistent with this policy, undertaken by his predecessors, Pat Wood and Joe Kelliher.

The progress the FERC cites refers to Denali-The Alaska Gas Pipeline LLC (Denali), continuing its, “…pre-filing process for its project….”, and TransCanada Alaska Company, LLC (TC Alaska), having begun a Pre-filing process with the FERC. The report also notes, “…other natural gas transportation projects in Alaska which would not be subject to Federal jurisdiction….”

FERC staff has coordinated with National Energy Board (NEB) counterparts in Canada and with Alaska state officials, toured the pipeline route, and hired Argonne National Laboratory (Argonne) to assist it in preparing the environmental impact statement for the Denali project.

Finally, the FERC concluded that a massive investment into various highways, bridges, ports and airstrips must be completed before any project is constructed. This is a big item that could delay a project.
Alaskans might “take away” this message:

1. For now, the Feds are generally optimistic about the future of an Alaska gas pipeline. But don’t expect an Alaska gas pipeline to satisfy the State’s growing financial deficit or supply Alaskans with in-state gas anytime soon.

2. The next FERC report will likely have not much new to say about the “Open Seasons” both TC Alaska and Denali plan to conduct. However, the mid-2010 report will have a lot to say about open seasons which will have likely begun in early 2010 and may be completing by then. Will any capacity agreements emerging from the open seasons contain ‘fiscal clarity conditions?

3. Producers have always said that a successful project requires fiscal clarity in Alaska and Canada. We will be watching to see if the Legislature undertakes decisive effort to improve on Alaska’s bad oil and gas tax policy this next session. Without some sort of long term fiscal arrangement like that developed with the Murkowski Administration, one could envision open seasons for the two companies coming and going without final commitments to proceed.

Governor Bill Sheffield a few months ago told me that the economic health of the State requires either: ANWR, a gas pipeline or OCS. ANWR is many years away. The gas pipeline’s future is tied to Alaska’s Legislature, the overabundance of world LNG supplies and the new, Lower 48 gas shale phenomenon. Doesn’t OCS become our best, near and medium term prospect?

OCS can provide 30,000 jobs in Alaska alone and that, alone, is useful. But with the annual decline of TAPS throughput--along with state oil revenue related to that throughput--we also need OCS revenue sharing with the Federal government. The Feds currently share 37.5% with some Gulf of Mexico states and there are bills in Congress now to apply that revenue sharing to Alaska.

Alaska OCS could save Alaska’s bacon. Revenue sharing, exploration and lease sale activity could continue at a fairly rapid pace if special interests can contain their greed.

OCS revenue sharing could also help provide Alaska with the means to build the highways, bridges, ports and airstrips the FERC says are needed for a gas pipeline to move forward. OCS can provide additional oil to sustain capacity of the Trans Alaska Pipeline and additional gas to improve a gas pipeline’s economies of scale. OCS can also help America further support its Arctic sovereignty, its national defense, its national economy and balance of payments imbalance.

Readers agreeing with this conclusion can join me in taking action. The Department of Interior’s Minerals Management Service has invited us to comment before September 21. All Alaskans’ livelihoods here are at stake, whether we be young, old, urban, rural, public or private sector. For an easy way to state your position, click here.