Alaska Natural Gas Pipeline Project History

GENERAL BACKGROUND

In 1976, Congress passed the Alaska Natural Gas Transportation Act (ANGTA) to expedite development of an Alaska natural gas transportation system and provide congressional and presidential participation in the process. The policy steps of the process moved expeditiously and were completed in 1977.

In May 1977, the Federal Power Commission (FPC), now the Federal Energy Regulatory Commission (FERC), recommended a land-based pipeline route along the Alaska Highway, one of three options. In September 1977, President Jimmy Carter recommended the highway route proposed by the FPC and Congress approved the President’s decision by joint resolution.

In the winter of 1977-1978, the nation experienced serious problems with natural gas deliveries in the interstate market because of the distortions of wellhead natural gas price controls. In response to these delivery problems, Congress passed the Natural Gas Policy Act of 1978 (NGPA) and the Powerplant and Industrial Fuel Use Act of 1978 (PIFUA).

As natural gas supply and demand began to respond favorably to the revised energy policy, immediate need for the Alaska Natural Gas Transportation System (ANGTS) declined. Natural gas prices softened as a supply "bubble" developed, which persisted for years in response to wellhead price decontrol. Commercial attention to the Alaska Natural gas pipeline initiative essentially disappeared during the 1980’s.

However, sections of the system were constructed. Producers from the province of Alberta, Canadian authorities, and United States and Canadian pipeline companies completed the downstream legs of the ANGTS after the discovery of significant quantities of natural gas in the Western Canadian Sedimentary Basin. The Western leg of ANGTS (Pacific Gas Transmission) went into service from Alberta to California in 1981. The eastern leg of ANGTS (Northern Border Pipeline) went into service in 1982.

In the 1980’s the United States Maritime Administration authorized a study of marine system options to determine whether there might be commercial opportunities for the United States shipbuilding industry. The results indicated that LNG sales to the Pacific Rim generally had greater economic potential than LNG for West Coast United States markets, but the Pacific Rim exports were not politically viable given the large energy exports that such options would entail.

United States imports of LNG through lower 48 receiving and regasification facilities built during the 1970s expanded in 1997. The United States imported enough LNG that, for the first time, imports exceeded the approximate 60 billion cubic feet per year exported from South Central Alaska (Cook Inlet/Kenai Peninsula) to Tokyo. This milestone proved to be an early indicator of a tightening supply situation in the lower 48.

Serious reconsideration of the construction of a natural gas pipeline from the Alaska North Slope began around 2000 on both federal and state fronts for multiple reasons, including: long term market projections, environmental and climate concerns, declines in Western Canadian gas production and declines in Alaska oil production.

FEDERAL ACTIONS

The 2001 National Energy Plan included a recommendation to expedite construction of a natural gas pipeline from the Alaska North Slope to make deliveries to the lower 48. Also in 2001, an Alaska natural gas interagency task force formed. This task force included the State Department, the Department of the Interior (including Bureau of Land Management and the Minerals Management Service), the Department of Transportation, and the Department of Energy (including the FERC).

Then in 2004, Congress passed the Alaska Natural Gas Pipeline Act (ANGPA) that:

· Created the Office of the Federal Coordinator (OFC) as a small, independent federal agency to coordinate, and expedite and strengthen oversight, transparency and predictability of the project;

· Clarified that one EIS would be written and used by all agencies and the FERC would be the lead agency for it;

· Mandated that need for the project be assumed, and directed FERC to consider any application under the ANGPA or ANGTA;

· Provided for a federal loan guarantee up to $18 billion (indexed to the CPI from 2004);

· Provided for accelerated tax depreciation (7 years versus 15 years) and an enhanced oil recovery tax credit for the cost of a gas treatment plant on the North Slope; and

· Established guidance to ensure the FERC would regulate the Open Season capacity bidding procedures so that access to pipeline capacity would be available to parties beyond the three major Alaska North Slope producers to promote competition in Alaska North Slope development of natural gas.

The FERC issued a final rule on the Open Season matter on February 9, 2005 (FERC Order No. 2005). In an "Open Season" process, all parties wishing to become shippers can compete for available capacity on a pipeline. There are no special rights for existing shippers.

In 2006, former Alaska State Senator Drue Pearce was confirmed as federal coordinator. Drue Pearce resigned January 2010. The President nominated Larry Persily as her replacement. He was confirmed as the second federal coordinator in May 2010.

In 2006, sixteen federal agencies with roles and responsibilities relating to the pipeline signed a Memorandum of Understanding (MOU) to establish a project management framework for cooperation among participating agencies. Other relevant agencies have been identified and added to the MOU in 2010.

STATE ACTIONS

Since construction of the Trans Alaska Pipeline System in the late 1970’s, every Alaska Governor has tried to spur construction of a major natural gas pipeline. The natural gas pipeline project has grown in importance for the State in recent years as Prudhoe Bay oil production has declined. In 1998 the Alaska Legislature passed the Alaska Stranded Gas Development Act (SGDA) to encourage North Slope producers to bring their natural gas to market. The State of Alaska negotiated terms of a contract under SGDA with the three major producers until 2006 when then Governor Frank Murkowski proposed amendments to SGDA to conform the law to the draft contract. The Alaska Legislature rejected the amendments and the contract.

In 2007, the Alaska Legislature enacted the Alaska Gasline Inducement Act (AGIA). AGIA allowed a successful applicant reimbursement of 50 percent of qualifying expenses through the initial Open Season and 90 percent thereafter. The reimbursements are capped at $500 million. In exchange for the AGIA license, the applicant had to agree to a number of "must haves" including rolled in rates, an aggressive schedule, an Open Season in 2010, proceeding through full licensing by the FERC, and a commitment to use Project Labor Agreements. The AGIA is a financial partnership with the State of Alaska and does not give the licensee an exclusive right to permits or State Rights of Way.

TransCanada Alaska’s proposal was the only one deemed complete by the State. On August 1, 2008, the Alaska Legislature approved TransCanada Alaska as the state licensee and on December 5, 2008, the AGIA license was formally signed by the Governor and issued to TransCanada Alaska. On April 23, 2009, TransCanada Alaska submitted an application to initiate the Pre-File Process with the FERC. The FERC granted TransCanada Alaska’s request on May 1, 2009. TransCanada Alaska began its open season April 30, 2010. It should run through July 2010. The project anticipates filing a complete application with FERC in October 2012. On June 15, 2009 a partnership joint effort between TransCanada Alaska and Exxon Mobil was announced (referred to as The Alaska Pipeline Project), which expects to deliver its first shipment of gas to market in 2020. More information on The Alaska Pipeline Project can be found at http://thealaskapipelineproject.com/.

Denali—The Alaska Gas Pipeline (Denali), a joint venture between ConocoPhillips and BP, was established in April 2008 to compete with the TransCanada Alaska AGIA project. On June 16, 2008, Denali submitted an application to initiate the Pre-File Process with FERC. On June 25, 2008, FERC granted Denali’s request to utilize the Pre-File Process. Denali’s open season commences July 7, 2010 and will run 90 days. Denali anticipates filing a complete application with FERC by October 2013 and delivering its first shipment of gas to market in 2018. More information on the Denali project can be found at http://www.denalipipeline.com/.

CONTACTS AND ADDITIONAL INFORMATION

Larry Persily, Federal Coordinator, (202) 478-9755, (907) 351-8276 cell, lpersily@arcticgas.gov

Jennifer Thompson, Director of Communications, (202) 406-0815 cell, jthompson@arcticgas.gov

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