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Full Presentation

Alaska Natural Gas Pipeline: Closer to Reality?
Resource Development Council Breakfast
Anchorage, Alaska
March 19, 2009

By Drue Pearce, Federal Coordinator
Office of the Federal Coordinator
Alaska Natural Gas Transportation Projects

SLIDE 1: Introduction Page
Good Morning—Thank you to Jason, Carl and RDC for having me address your breakfast. I would like to quickly introduce you to Christa Gunn. She is and Environmental Engineer, working on the OFC staff here in Anchorage. She arrived last month and has hit the ground running.
I’m here to tell you about the need for and challenges of getting Alaska’s North Slope natural gas to market. As all of you know, one of the largest known reserves of natural gas in America sits in Alaska’s Arctic, associated with the development of oil at Prudhoe Bay. The 35 trillion cubic feet of proven natural gas reserves will make a significant long-term contribution to the United States’ energy supplies. Since the late 1990’s, the State of Alaska, the three North Slope Producers, TransCanada, and other major pipeline companies have been pondering whether now is the time when construction of the gasline is economically feasible. CLICK

SLIDE 2: TAPS
Before TAPS was built in the early 1970’s there were countless environmental, arctic construction, and native subsistence and sovereignty challenges to be resolved. It took federal enactment of the ANCSA and TAPAA in order for construction to proceed. At the time, the necessary infrastructure did not exist. It all had to be built before pipeline construction could commence.
This project, a mostly buried, chilled, high pressure natural gas pipeline, brings a host of new challenges. CLICK
SLIDE 3: ANGTA
Although many of you may already know it, I think it is important to provide you with a brief history about the federal laws governing the gas pipeline project.
While TAPS was being constructed, plans were initiated to build a large diameter pipeline to deliver the associated natural gas to the lower 48. Congress enacted the Alaska Natural Gas Transportation Act and President Carter designated the route, design and project sponsors for this transportation system.
The southern portions of the pipeline shown in light green on this map are known as the “pre-build” and went into operation in 1981-1982. The northern portion shown in dark green, would link North Slope gas to the pre-built legs. Foothills Pipe Line Ltd, now a subsidiary of TransCanada, is the legacy owner and operator of the pre-build. The northern portion is the route of the pipeline that has remained an elusive target but irresistible dream to Alaskans. CLICK
SLIDE 4: ANGPA
There have been countless proposals to produce North Slope gas since the late 1970’s. The latest effort led to Congress passing the Alaska Natural Gas Pipeline Act, known as ANGPA in 2004. That statute created my office, the Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects, and encouraged the expeditious approval, construction, and operation of a natural gas transportation project for delivery of North Slope gas to U.S. markets.

SLIDE 5: Planned Pipeline Projects
There are 4 projects that the Office of the Federal Coordinator is monitoring. The first two are mainline proposals and the final two are the in-state pipeline proposals.
TransCanada Alaska, the State’s AGIA licensee, has not entered the pre-filing process with FERC. Until they do, they have asked the OFC to help them coordinate their engagement of the U.S. federal agencies regarding the project. TransCanada Alaska has filed a Right-of-Way application with the DOI Bureau of Land Management. They are undertaking preliminary feasibility and routing studies in preparation for the design of a future gas transmission pipeline. TransCanada Alaska intends to complete its Open Season in July 2010 and anticipates that its application to FERC will be deemed complete in October 2012. I believe it is important to note that the State AGIA license does not grant an exclusive right to land use and right-of-way permits at the State level. Nor is there an exclusive right at the federal level.

Denali—The Alaska Gas Pipeline, is a joint venture of ConocoPhillips and BP. They opted not to engage in the State’s AGIA process. Instead, they have developed a competing project. Denali has entered the formal pre-file application process with FERC and they have filed a Right-of-Way application with the DOI Bureau of Land Management. In December, they submitted a detailed “Field Study Plan” to the FERC docket. The plan includes a resource data gap analysis that examined the public and private information that was produced over the past ten years and provided information regarding Denali’s ongoing and future collection of environmental and cultural resource data. Denali intends to begin its Open Season in 2010.

Now on to the in-state lines. The Alaska Natural Gas Development Authority, has proposed a spurline from Southcentral to Fairbanks. The scoping meetings for this project were just completed. The Army Corps of Engineers is the lead on ANGDA’s federal EIS. The BLM is a cooperating agency while other federal agencies are expected to be participating agencies. ANGDA anticipates their Draft EIS to be issued in December 2009 with a Final EIS in June 2010. Their goal is to have a ROD issued by the end of July 2010.
Enstar has proposed a bulletline that would run from the Gubik Fields near the Brooks Range through Fairbanks to Southcentral. The Army Corps of Engineers will also be the lead on the Enstar EIS. They are discussing potential route options with various federal and state agencies including one option that would run 7 miles along the edge of Denali National Park. Enstar intends to perform field work this summer with crews collecting and analyzing data with respect to water body crossings, seismic zones, wetland delineation, biologic, historical/cultural resources and geotechnical issues. CLICK

SLIDE 6: Obama Administration
The longest ever Presidential election is finally over and federal agencies are deep into the transition phase. Several months before election day, the agencies began to prepare for the transition teams.
I am pleased to report that the Obama administration recognizes the need for an Alaska natural gas pipeline. The President recognizes that the pipeline can increase America’s energy security, create jobs, and help bring clean natural gas to domestic U.S. markets. He has mentioned the project several times since taking office.
I am focusing my attention as Federal Coordinator on briefing key politicals on the project and the work the federal agencies and project proponents have done to date to prepare to build a pipeline that will supply natural gas to the lower 48 and create thousands of new jobs. (Click)

SLIDE 7: What is the Role of the OFC
My job as Federal Coordinator is to ensure coordination, compliance and oversight, as well as information dissemination. We are headquartered in D.C. and as I mentioned earlier, opened our Alaska field office last month. Additional staff will be added as appropriate.
Coordination among the various federal and State agencies is critical to the successful and expeditious construction of an Alaska natural gas transportation project. The OFC is the lead on development of project implementation plans to facilitate the roles of the federal agencies participating in the pipeline effort. The OFC has also begun negotiations with the State of Alaska on a joint Monitoring and Surveillance Agreement to oversee final design and construction of the project.
Expedience is crucial to the success of the project. Delays and unwarranted stipulations will add costs to the project and could result in its being uneconomic.

The OFC will conduct compliance and oversight reviews to ensure that no federal agency attaches any term or condition not required by law that may impair or prevent progress of the projects. We are mindful, of course, of our responsibility to ensure the pipeline is constructed in an environmentally responsible manner.
Given the magnitude of the project it is essential to our collective the success that coordination, oversight and communications are effective and efficient.
The Alaska gasline project is so big, it will make its own weather! CLICK
SLIDE 8: What are the Challenges?
So, what are the major challenges?
For the purposes of this talk, I have identified four categories. At the OFC we try to address challenges one by one, but there are inevitably linkages. The most straightforward but not necessarily simple of the issues are the technical ones. They are solvable but will require world class technical expertise.
There are also economic issues: The project will utilize approximately 2.5 million tons of steel and a 2004 estimate had the project creating 54 million man hours of work. At the same time the $26+ billion cost of the project will need to be financeable by the middle of the next decade and the tariffs have to be low enough to attract shippers.
But the most interesting—and by that I mean challenging—issues are the political and process issues that surround the project. CLICK
SLIDE 9: Technical
I want to talk for a few moments about the technical challenges. These are the straightforward, relatively easy to address issues that science and lots of money are expected to be able to solve. CLICK
SLIDE 10: Technical: Construction in Permafrost
Much of the land along the pipeline route in Alaska is permafrost. It is continuous in the North, discontinuous in the mid-sections and leads to areas near the 60th parallel that are subjected to only seasonal freezing. But even that freezing and thawing can cause the land to shift dramatically placing major stresses on a buried, chilled pipe.
Over the past 30 years, laboratory and field studies carried out by Canadian, American and Russian researchers have illustrated the magnitude of deformations that gas pipelines in permafrost regions undergo when exposed to both freezing and thawing of soils and to the movement of water within permafrost-affected sediments. These have special significance for design, construction and operation of pipelines in cold regions. In fact there are recent reports conducted in Russia that show that frost heave and buckling of pipelines are major causes of natural gas pipeline failures in permafrost regions.
The geologic instability of routes through permafrost put challenging demands on those who design and construct pipelines in cold regions. We have to get it right—the first time. CLICK
SLIDE 11: Technical: Arctic Construction
The second major technical issue involves the difficulty of construction in the Arctic. It is difficult to protect the labor force when it’s 60 below zero or when they are working in very remote locations. CLICK

SLIDE 12: Technical: High Pressure/Large Diameter
This will be the largest high pressure gas pipeline ever built in the Arctic. At this time the expected design will use 48” pipe, X80 steel and 2500/2600 PSIG. The Pipeline Hazardous Materials and Safety Administration, PHMSA, and the Canadian National Energy Board will harmonize requirements on both sides of the border to withstand the extreme Arctic conditions.
SLIDE 13: Technical: Pipeline Design
The last thing we want is for a frost heave to damage the natural gas pipeline. PHMSA is well aware that the presence of permafrost presents significant challenges to the design teams. Their safety review of the natural gas pipeline design will include a detailed analysis which will review the stress based upon operating pressures; the stress due to overburden loading from the permafrost and soil; the operating temperatures of the pipeline; any possible freeze and thaw stresses caused by frost jacking or thaw settlement; and buoyancy control stresses in areas where wetlands thaw.

PHMSA recognizes that continuous or periodic monitoring may be required to confirm compliance with the design. The technical design basis review by PHMSA will be used to ensure that the pipeline owner/operators are considering all criteria in the safety design, construction and ongoing operation of the pipeline. CLICK
SLIDES 14 TO 29: Permafrost Map Slide Show
The climate in the Arctic is changing. It is important that we understand permafrost changes and other effects climate change may have on the pipeline after its construction.
Permafrost trends must be incorporated into the design of a pipeline so it will last 30-50 years. We assume that areas of solid permafrost will be displaced by discontinuous permafrost as change progresses. The University of Alaska, State of Alaska Geophysical Surveys, and U.S. Geological Survey have been working together to map and model the change. On the screen is a model that demonstrates the range of permafrost in Alaska from 1950 to today and how it is forecast to shift by 2100.

The areas in red are permafrost free and as you look further north the colors shift to light blue and dark blue areas – the darker the blue, the colder the ground temperature. Watch what is forecast to happen. CLICK
(PAUSE while slide show runs)
SLIDES 30 TO 40: Permafrost Maps One More Time – 2000-2050
I am going to play the map one more time showing you the map from 2000 to 2050. This time, we look at the forecast change every 5 years. CLICK
(PAUSE while slide show runs)
CLICK
SLIDE 41: Technical: Seismic
On average, Alaska records 50 to 100 earthquakes per day; one magnitude-7 event every year; and a magnitude-8 or larger event every 13 years. The seismicity along the route poses significant challenges to the construction of a natural gas pipeline. Most Alaskans felt the Denali Fault Line magnitude-7.9 earthquake that occurred on November 3, 2002.

That Fault slipped approximately 18 feet laterally and more than 3 feet vertically beneath the Trans-Alaska Pipeline. Not one drop of oil spilled from the pipeline. Why? Because 40 years ago the very best technical experts designed and located TAPS.
Innovative geological and geophysical engineering will be necessary to design a gas pipeline that crosses active faults and fails “safe”. The latest work by the State of Alaska Department of Geological and Geophysical Surveys indicates substantial recent activity along the highway route. Again, we have to get it right, the first time. CLICK
SLIDE 42: Economic
The economic challenges are of a grand scale. We have identified five major economic challenges for this project. CLICK
SLIDE 43: Economic -- Financing a $26+ Billion Enterprise
First, who is expected to finance the largest and most innovative natural gas transportation system ever constructed? Congress authorized a loan guarantee of up to $18 billion in 2004 dollars that will be adjusted for inflation. The loan guarantee is likely to be an essential piece of the financial puzzle. CLICK
SLIDE 44: Economic -- Infrastructure
Second, in order to construct a pipeline, it is imperative to have the necessary infrastructure in place to stage all the manpower and materials for construction. In both the U.S. and Canada, we need to either upgrade or build new bridges, highways, airports, material sites and maintenance camps to support tens of thousands of workers, the heavy equipment and the 2.5 million tons of steel needed to construct the pipeline. The latest estimate outlines at least a $1 Billion in projects just in Alaska. The State of Alaska may utilize part of its Stimulus package funding to begin these critical upgrades this year.
It will take 4-6 years to complete the major infrastructure projects necessary to the project. They must be done before pipeline construction can begin. We can’t afford unnecessary delays in completing these upgrades; they will kill this pipeline project. CLICK
SLIDE 45: Economic – Steel
Third, the project calls for a lot of steel. In ANGPA, Congress expressed the preference that such steel be sourced in North America. Are North American steel producers prepared to deliver 2.5 million tons of high strength steel pipe? CLICK
SLIDE 46: Economic -- Training/Retaining Qualified Labor
The fourth economic challenge is finding and training the labor pool needed on both sides of the border. This pipeline will require more than 50 million man hours of mostly skilled labor. That workforce must be trained and then retained throughout the preconstruction and construction. CLICK
SLIDE 47: Economic -- Natural Gas Prices
It happened in the 1970’s and 1980’s. The price of natural gas plunged. And the pipeline was put on the shelf. Why? Natural gas was discovered in large quantities throughout Canada and in the lower 48; and four LNG import facilities were constructed in the U.S and provided the adequate supply to meet increased demand. Therefore, it was considered that the Alaska pipeline was not really needed.
There has been a lot of talk lately about the economics of a project. Talking about whether or not there still is a market for Alaska natural gas.

I was very pleased to see the comments last week by ConocoPhillips’ President and CEO Jim Mulva regarding the projects economics. He discussed the fact that current gas prices have led ConocoPhillips to cut back on its Canadian operations, but discounted the low prices as a roadblock to the pipeline project's development. He said, "You can't look at gas prices today. You have to look at prices 10 years from now." This is a very important point. Prices are in flux and there are many factors that can change them every day – some natural, others manmade.
When discussing the supply of natural gas for consumption in United States today, the general focal point includes pipeline imports from Canada; imports from overseas in the form of liquefied natural gas (LNG); and domestic production of non-conventional (supplemental sources of supply) natural gas. Based on recent historical analysis and future projections, the Alaska natural gas pipeline would be completed in 2018 and the economics continue to be favorable. Once the pipeline is in service, Alaska’s total natural gas production would be 2.0 trillion cubic feet in 2021 and remains at that level through 2030.
Declining production in Canada is expected to reduce the availability of natural gas supplies for export to the United States. Canada is already experiencing a decline in conventional production from the Western Canadian Sedimentary Basin. Decreased availability of natural gas from the U.S. remains true even if Canada’s Mackenzie Gasline is constructed. The Mackenzie Delta has less than 1 tcf of proven reserves, it’s expected to be easily absorbed in the North American integrated markets without displacing Alaska gas.
The Department of Energy has significantly reduced the short and long term prospects of supply on overseas importation of LNG. Indeed, supply from the international LNG market is dictated by price. In 2007, the United States imported the largest amount LNG ever. However, importation of LNG significantly slowed in the latter part of the year due to increased demand in Europe and Japan. We expect the European nations to consistently outbid the U.S. in the LNG market.

In 2008 the United States imported less than half of LNG that it imported in 2007. Europe and Pacific Rim countries (including Japan) outbid the United States and there was an increase in domestic shale production. It is also worth noting that Europe is likely to expand its LNG import capabilities as a result of the recent Russo-Ukrainian dispute, during which European countries experienced a supply disruption.
The other potential source of natural gas is unconventional domestic production. Shale formations have emerged as a leading source of supply. Domestic natural gas production saw an upward swing beginning in 2006 that generated 3% growth between first-quarter 2006 and first-quarter 2007, followed by an exceptionally large 9% increase between first-quarter 2007 and first-quarter 2008.
The increased domestic natural gas production can be directly related to advances in technology that have allowed more production of shale gas.

The most commonly referred to sources of shale gas production include the Barnett Shale in Texas; the Fayetteville Shale in Arkansas; and the Haynesville Shale in Louisiana. There is one other shale basin that is in its infancy stage of development known as the Marcellus Shale that spans parts of New York, Pennsylvania, Ohio, West Virginia and Kentucky. It is estimated that the Marcellus Shale basin may contain between 50 tcf and 363 tcf of recoverable shale gas.
However, it is important to note that there are many hurdles to overcome in order to effectively produce shale gas. For instance, to produce one well in the Marcellus shale region requires more than one million gallons of fresh water. There is an inadequate amount of waste water treatment facilities with which to handle the refuse derived from hydofracing the wells. There are environmental concerns relating to noise, heavy truck traffic, air pollution and the chemical solution utilized in hydofracing. These are affecting shale gas projects today. For example, New York has slowed down shale production until the state can develop appropriate regulations. Lastly, much of the basin is located below private property where lease negotiations are becoming ever more cumbersome. CLICK
SLIDE 48: Politics!
The technical and economic challenges are intriguing but there are bigger challenges. Politics are at play! CLICK
SLIDE 49: The Competitors
I’m pretty sure Congress didn’t envision the competitive process that has evolved. The good news is that both Denali and TransCanada Alaska are excellent candidates and bring unique strengths to the project. The competition has spurred fast moving developments. Only one pipeline will be built. So the key question remains, will the two competitors merge? And when? The competition will become inefficient and costly at some point in the near future. Federal agencies are prepared to deal with both projects for as long as necessary but it is not an ideal situation and it certainly isn’t efficient. CLICK

SLIDE 50: Key Players
The next interesting piece of the puzzle is how the U.S. and Canadian federal governments and the State of Alaska and provincial and territorial governments—who want to see this pipeline built—ensure it happens. Will the Governor or the President or the Prime Minister step in to break the gridlock and take control similar to the 1970’s process? Will Congress act? And, with Governor Palin in cycle, how will Alaska State politics affect the State’s actions? Inevitably, there will be local winners and losers as ports of entry and final routes are chosen. How will local and regional politics – always so lively in both Alaska and Western Canada – affect the project? CLICK
SLIDE 51: Process Related Issues
The final challenges we will encounter are process related, permitting, environmental review and consultations. CLICK
SLIDE 52: Process Related Issues: U.S. Federal Agencies
On our side there are at least 22 federal agencies that have a role to play. Just keeping track of these agencies and their responsibilities is a full-time job. CLICK
SLIDE 53: Process Related Issues: Enviro Review
The State of Alaska and the Government of Canada also have approval processes that must proceed alongside FERC licensing.
Many of you are familiar with the FERC process. ANGPA designates the FERC as the lead agency for completing the environmental review, or EIS, and gives them 18 months to do it. That timeline puts the Alaska project into a different category at FERC. The Government of Canada and the State of Alaska have agreed to time their processes to coincide with that aggressive schedule. The schedule is very demanding, especially if two applications move to the EIS phase of the project. CLICK
SLIDE 54: FERC Pre-Filing Enviro Review Process
On this slide, the check depicts the point at which Denali and TransCanada Alaska’s latest timelines are expected to mesh. The boxes above the check indicate activities each expect to complete within the next 24 months. (NOTE the public input opportunities, comment periods.) A major part of the FERC pre-filing process is completion of the FERC Resource Reports. CLICK

SLIDE 55: Process -- FERC Resource Reports
The Environmental Resource Reports constitute the “environmental report” portion of a FERC application and are similar to the information required by the Canadian authorities. Both applicants expect to complete Resource Reports one and ten before the end of the year as they prepare their Open Season packages and get ready for EIS Scoping. CLICK
SLIDE 56: Process – Consultations GTG
The last issue I want to discuss is consultation. There are two separate requirements. First, when the federal government permits a project that will impact Native Americans we are required to engage in Government-to-Governments (tribal) stakeholder consultations with all directly or indirectly affected federally recognized tribes.
These consultations are crucial. They provide the forum to ensure that the impacted Alaska Natives’ concerns are considered as the planning moves forward. In order to ensure continuity throughout the life of the project, FERC is working to establish a written Government-to-Government consultation plan that will serve the needs of all the federal agencies. The OFC will provide oversight to ensure the plan is followed. CLICK
SLIDE 57: Process – Consultations Section 106
The second federal agency requirement is a cultural and historic resource analysis and consultation. The National Historic Preservation Act of 1966 created the National Register of Historic Places and the Section 106 review process. The Section 106 consultation ensures that preservation values for cultural and historic properties are factored into federal agency planning and decisions. FERC is the lead federal agency for the Section 106 review. CLICK
LAST SLIDE: 58
Challenges? We have many. Insurmountable? Not if we all pledge to come to the table with an attitude that we want to find ways to say “yes”. North America needs this gas. Alaska and Western Canada need this project. Its time is now! Thank you. THE END

It is important for the RDC to continue spreading the message that exploration is essential. We still need to find 15 tcf more of natural gas to make this project economic. That won’t happen if companies don’t explore. The OCS, NPRA, ANWR are all places that could potentially bring us those critical extra tcf of gas. We all need to work together to educate the appropriate policy makers to ensure Alaska is a place companies can develop.