It will create thousands of jobs nationwide and take over 10 years to complete.  When finished over 4 billion cubic feet of natural gas will flow from the Alaskan Arctic to homes and industries across America every day.  Since the beginning of oil production at Prudhoe Bay, natural gas, a by product of the oil fields, has had to be re-injected into the ground due to lack of a means to get it to market.  For decades Alaska has tried to initiate the process to get a pipeline built to allow it to bring its vast natural gas resources to the Lower 48.  Alaska Governor Sarah Palin initiated the Alaska Gas-line Inducement Act (AGIA) to help this process become reality.  Under the AGIA the long awaited pipeline is finally hoped to be built enabling America to access and benefit from the rich resources of Alaska.

Yet this is just the beginning.  The enormity of the project is unprecedented.  Rights of way need to be established, permits for construction and operation need to be issued, and the economics need to be sorted with the dozens of federal agencies involved.  At the helm of this operation is long term Alaskan and former State Legislator Drue Pearce who was appointed by President Bush as the official US Government Federal Coordinator for the project.  It is her job to keep the ball rolling between the agencies in Washington and the State of Alaska and the projects industrial constructors.  Drue Pearce was interviewed by Arctic Power on the details of the Alaska Natural Gas Pipeline and her role in helping to get the job done.  The following is a transcript of that interview. 

Potential Proposed Routes for the Alaska Natural Gas Pipeline (pdf)
    
   Drue Pearce Federal Coordinator for the Alaska Natural Gas Transportation Project  -   Interview , Washington DC, December 2007.

Q: The Alaska Natural Gas Pipeline Project will be one of the largest construction projects in North America, what is your roll in the project and what will your daily work involve?

DP: To clarify, when completed it will be the most expensive construction project ever built.  If it’s built during this window of opportunity, it will rival other major world projects such as the Three Gorges Dam in China.  Our role is to expedite and insure that the activities of the Federal Government are done in the most efficient and effective manner. We are charged to not only expedite the construction of the pipeline, but also to hold the costs down so that government regulations and government delays don’t either drive the costs up unnecessarily or ultimately result in canceling construction.

Q: So you are actually working with many federal agencies?

DP: We oversee all of the federal permitting agencies. Our roll is to oversee them as they go about doing their individual business of issuing individual licenses and permits and rights of ways.  We will ensure that they are meeting their timelines and that they don’t include a term or condition that isn’t required by law. If the OFC makes a determination that the term or condition would prevent or impair the expeditious construction, operation or expansion of the project.  For example, the Fish and Wildlife Service can’t go beyond their normal requirements for buried pipelines. We have the ability to step in and tell an agency they cannot require “X” if “X” goes beyond their usual standards. 

I can’t require higher standards than an agency stipulates.  We also have the role of being the coordinating agency with the State (of Alaska) and, if it’s an Alaska Highway project, with the Canadian Federal Government, as well as being a key contact with Native Alaskans during their government-to-government consultations.

Q:  As an Alaskan what is your opinion so far of the views of the national government towards the project?  Are they supportive?  Are you optimistic?

DP: From the Bush Administration to members of Congress on both sides of the aisle we have had unqualified support from every quarter.  Congressional members and staff ask us what they can do to help to move the pipeline project along.  They see it both as important to our national energy security and as a stable supply of natural gas at a stable price to heat homes in the Lower 48.  The Bush Administration has been a supporter of commercializing Alaska’s North Slope natural gas since the President’s energy plan was written. 

Q:  Will the next election for President and for Congress in the future change that or have any affect?

DP:  I don’t think the level of support will change because support has been high on both sides of the aisle.  Congress recognizes that Alaska gas is a key component to our (future) long term energy mix and energy security for the Lower 48.  I expect continued support from whoever is the next president along with future Congresses.

Q:  On November 30th this last month the bidding for proposals to build the Alaska Natural Gas Pipeline ended.  What were the results?

DP:  The State received 5 applications under AGIA (Alaska Gasline Inducement Act).  One company, Conoco/Phillips, chose to present an alternative proposal separate from AGIA

Q: That’s allowed, is it?

DP: Anybody can make a proposal so it’s certainly not disallowed.
 
The State has a team working 24/7 alongside a number of world renowned consultants to review each of those 5 applications for conformity with AGIA.  They will be announcing which of the 5 applications conform to AGIA and those applications, however many there are, will be made posted for public comment.

Q: So AGIA provides a timeline.  Can you discuss the timeline for the proposal process?

DP:  AGIA provides for a 60 day public comment period, but did not set a precise timeline for the State to do their review because there was no way to know how many applications they would get.  Deputy Commissioner Rutherford had hoped to be able to complete the review process and begin the public comment period on the 17th of December.  However, because there were two applications from companies virtually unknown to Alaska, the Governor is no longer saying they will be finished by the 17th of December.  They say now “as quickly as they can”.  When they announce which of the project applications are in conformity with AGIA they will trigger the 60 day public comment period which proscribed by law.

Q:  After that what is the next step?

DP: The State will take all public comments into consideration.  The Commissioners of Natural Resources and Revenue will make a determination whether or not any of the projects are worth advancing to the Governor for her to recommend to the Legislature.  If they choose to take one to the Legislature, it will be formally submitted for approval and the Legislature has 60 days (to approve it).

Q:  Is this expected to happen next year (2008)?

DP:  Yes, it’s expected to happen next year. Whether it happens in the regular session or a special session (of the Legislature) is unclear at this time. It’s really difficult to guess when the Governor will take an application to the Legislature, if she decides to do so.  My expectation is that the Legislature will need a special session if they want to spend the entire 60 days of permitted review.

Q:  How important is the Alaska Natural Gas Pipeline to the nation, from an energy, economics, and security point of view?

DP:  Under any scenario that I’ve seen published by the Government, by private consultants, or by individual companies, Alaska gas has a place in the markets of North American domestic natural gas supply.  In the next 15-20 years we know that the Canadian natural gas supply is being depleted, that there will be excess capacity in the Canadian (gas) lines coming out of Alberta into the upper Midwest and the Northwest in the 2015 to 2025 range.  Our project, if it’s a highway project (following the Alaska Highway into Canada), will bring at least 4, and perhaps more, billion cubic feet a day of  natural gas to the lower 48.  That will be a stable supply of gas at a stable price.  That’s very important because the alternative is LNG (liquid natural gas –super compressed gas).  While LNG supplies around the world are increasing, the prices are very volatile and the commodity is fungible.  Once LNG is loaded the tanker can go anywhere.  When you’ve got a pipe in the ground, you’ve got a defined end point where you purchase gas.  So the stability of the Alaska gas supply coming into the Upper Midwest, particularly for the farm markets, is extremely important. 

Q: The push to build a natural gas pipeline is not new.  It’s been 30 years since the Trans-Alaska Pipeline (TAPS) was built, why has it taken so long?  What are some of the obstacles that have been present in the past, and are they still a problem now?

DP:  The original project under ANGTA, the Alaska Natural Gas Transportation Act, had a success that many people don’t recognize.  This was in what we call the “pre-build”.  Over a thousand miles of pipe coming out of Alberta was built under that project.  And that pipe, the legacy pipe of ANGTA, brings natural gas into America everyday.  So there was success, just at the lower end of the project. 

The problem was, and is,  the massive cost of building a very long pipeline from the North Slope of Alaska through the Alaskan and Canadian terrain north of 60 (degrees latitude) to Alberta.  While not insurmountable, there are definite engineering and weather challenges.  While there was success in building the Southern piece of the project, the primary portion has not been built. 

Part of the problem back in the late 70’s and early 80’s was that the price of natural gas fell so dramatically that the project no longer made economic sense.  The proponents were not able to promise that the pipeline would be completed within a certain price.  Part of our job is to reduce as much of the risk of the cost component as possible and ensure that the Federal Government doesn’t create cost overruns and expensive delays. 

Since cancellation of the original ANGTA pipeline construction (former) Governor Hickel has worked tirelessly to build an LNG project to bring gas off the North Slope of Alaska. Every governor that I served with (during my 17 years in the Legislature) did some amount of work on the gas line, but there were questions about long range need for additional gas supplies of this magnitude in the Lower 48, coupled with a hesitancy by the producers to engage  in building a project.

Q:  There are many different aspects of the project.  It’s not just a pipeline.  There are projects at the beginning of it, at the end and in the middle. Can you briefly discuss these different aspects?

DP:  A major component of this project is the infrastructure upgrades that need to be built before construction can proceed.  I’m talking about upgrades to the Alaska Railroad, to ports in both Canada and Alaska, to the Alaska Highway, to bridges, to culverts, to the roadbed, etc.  Studies have been done and depending on the route, they estimate as much as half a billion dollars worth of infrastructure construction projects would need to be completed.  That is not part of the cost of the project itself and it is not expected that the company that is licensed to build the project will bear those costs. 

The governments of the State of Alaska, the US Federal Government, and the Canadian government (if it’s a highway project) are going to have to figure out how they are going to finance those upgrades.  Those upgrades have to happen parallel to the pipeline project itself.

Another aspect is the massive gas treatment plant that will have to be built on the North Slope to ready the gas ready for the pipeline. 

Q:  Will that initial aspect of the project, putting in a gas processing facility on the North Slope, be done by the same company that does the pipeline?

DP:  It depends…each of the applicants will have described their project and they may be different in that respect.  We will have to wait and see what the eventual applicant plans.

Q:  What about at the other end of the pipeline?

DP:  Well, you have to think about the material side; where do you get the gravel?  Massive amounts of materials will be needed to build the pads, whether you build a buried or above ground pipeline.  Where do you get that material?  Where do you put your construction phase housing sites?  Where are all the compressor stations?  And then there are some very valid concerns that Alyeska Pipeline Services Company (Alyeska) has for whatever portion of the route the two pipes will co-exist, coming down the Dalton Highway and then south of the Yukon River.  They have concerns about access and the integrity and security of the TAPS (Trans-Alaska Pipeline System).

Q: Alyeska (Pipeline Company) operates the Trans-Alaska Pipeline. 

DP: That’s correct

Q: So the beginning of the pipeline regardless of the route, would be roughly parallel to TAPS?

DP:  It is expected to be since Congress banned an “over the top” route.  The route will come south within the federal corridor to the Yukon River.  Once it crosses the Yukon River it will continue on a parallel course, though not necessarily alongside, until it gets to Delta Junction.  At Delta Junction it will either diverge down the Alaska Highway or, if it’s an LNG project, it might come down to Valdez. 

Q:  The difference between the two, whether it’s an LNG or a straight gas line is a quite significant difference.  Can you discuss that difference?

DP:  Having not seen the actual applications, it’s my understanding that the proponents of an LNG project have discussed building a pipe that’s larger than what they need for their project as far as Delta Junction and then a smaller line from Delta down to Valdez.  (At Valdez) they would have to build the LNG plant and then a terminal for export of the gas in (LNG) tankers.  The question is then would that gas then land back somewhere on the West Coast of North America where it would come into the US markets.  There is no import terminal capacity available at the moment.  The option would be to export the gas elsewhere in the Pacific Rim?  It’s our expectation, although none of us know yet, that the Sinopec ZPEB application probably is an export package.  We haven’t seen the details of that proposal but that is the expectation at the moment. 

Q: Sinopec ZPEB is one of the applicants that applied to the project from China.

DP: That’s correct.  They are one of the five applicants that the State is reviewing at the moment.  The highway proposals come through the Yukon and BC to the Alberta Hub and then propose to make use of the pipeline system that’s already in place (from Alberta south) or to build new capacity into the Lower 48. 

Q:  In your role as Federal Coordinator as appointed by the President.  Do you any conflict between the State of Alaska and the Federal Government on any aspects of the project in the future?

DP:  The State’s process was designed to bring the greatest return to the State of Alaska, as it should.  It’s a state process.   Should the State choose an LNG export project where the gas is exported rather than going to the Lower 48 domestic markets, the Federal Government and Congress will likely object. Exactly how that conflict would be resolved, I’m not sure.  But clearly, when Congress wrote the enabling legislation that created my office and my position and set aside up to 18 billion dollars for a loan guarantee, their intention was that the gas would come to domestic markets. 

Q:  Is there a rule on export?

DP: No there is not, there’s no ban on export.

Q:  Some of the largest oil companies such as BP in particular, didn’t submit bids for the pipeline.  What’s your opinion as to why this is, and what are some of the economic risks that perhaps BP would have claimed for not submitting a bid?

DP:  Both Exxon/Mobil and BP have been consistent in saying that they did not support the AGIA process. They didn’t support the AGIA bill. They did not agree to meet the terms of AGIA.  They were not willing to make the required commitments and they felt that AGIA poses too much upstream risk.  They clearly didn’t think that the fiscal terms that were offered in AGIA were sufficient. 

Why they didn’t confer with Conoco/Phillips in bringing forth the alternative proposal, I don’t know.  Conoco/Phillips says as part of their proposal that they will begin engaging other major companies.  They want to bring partners on line. 

Q: Is that because there or other projects around the world that an oil company can go do with less economic risk than this one?

DP:  This project is, under every scenario at least a 20 plus billion dollar project.

Q:  Which is huge.  It’s unprecedented.

DP: It’s unprecedented.  When you’re financing a 20 plus billion dollar project,  the biggest risks are cost overruns and delays.  The financial risks, if there are major cost overruns or major delays, are staggering. 

Q:  It’s not as if a company has a huge bank account of 25 billion dollars that they can just reach into and pay for.  That money has to be borrowed and spread out and so and so forth. 

DP:  Oil prices have been so high some of the majors such as Exxon certainly have that kind of cash.  But it would not be prudent to pay cash for a project such as this.  Nor would the State want them to…. So yes you’re right. Some companies have said they didn’t need the loan guarantee, others want the loan guarantee…each proponent has a different financing scenario. 

Q:  And does the loan guarantee have only to do with the State of Alaska and not the Federal Government?

DP:  No. The loan guarantee is a federal guarantee that is authorized by Congress for a project that brings gas to Lower 48 markets.  So it is only available to projects that would bring gas to the Lower 48 in some fashion.

Q:  Can you briefly touch on exploration projects in the Arctic.  Arctic Power deals with the 10-02 Area of ANWR and the hopeful expectation that Congress will eventually allow exploration in that area.  But you’ve also got the National Petroleum Reserve – Alaska and many offshore projects in Prudhoe Bay, the Beaufort Sea and Chukchi Sea for example. What role will these play towards the future of the gas line?

DP:  They have a huge role.  The State lands on the North Slope where Prudhoe Bay and Kuparuk sit are surrounded by federal lands.  You’ve got the Arctic National Wildlife Refuge, ANWR, to the east with the 10-02 Area, you have the National Petroleum Reserve-Alaska to the west and then you’ve got the Beaufort Sea, offshore federal OCS (outer continental shelf).  Proven North Slope reserves today are 35 trillion cubic feet (tcf).  The pipeline, over its initial projected life, needs 50 tcf.   The pipeline project needs another 15 tcf of proven reserves .  The good news is that many companies, some new, are exploring for oil and gas in Alaska.  But it is extremely important for this project that exploration programs - both onshore and offshore - continue. Companies must be able to access lands and waters to continue that exploration so additional gas reserves can be found. 

Q: So the expectation is that future exploration projects will help make up this shortfall?

DP: Exactly.  If a pipeline project is moving forward then we would expect increased exploration activity on the North Slope and offshore.  We have had at least one company this year that has announced that they are doing exploration, and they are looking for gas, not oil.  That is unique. Companies in Alaska have always looked for oil.  Gas was, if not a nuisance, at least something that they had to put back in the ground to help produce more oil. 

Q:  So people are pre-planning the future?

DP: That’s correct.

Q:  Last question for you. Promotion of the gas line project, your job, your office, where can the public go to have a look and find the facts out for themselves?

DP: We are in the process of standing up our website.  It’s www.arcticgas.gov.