Without $7 billion in state subsidy, North Slope 'bullet line' would come at a high cost to consumers
Cook Inlet natural gas will not be plentiful enough to keep the heat and lights on for all concerned during the next decade, according to a new utility study led by Enstar, the Canadian company that supplies natural gas to Southcentral.
The cheapest way to deal with the gas shortage is to import more gas from Canada or elsewhere. The most expensive option is to build a 24-inch gas pipeline from the North Slope. The most expensive is the preferred option in the study, provided there is a $7 billion subsidy to lower the cost for consumers.
Even with billions in subsidies, however, many people will not see it as a bargain because the cost to consumers in Anchorage would be close to today’s price.
The leading short-term solution—and the most economical option—would be to import natural gas, which would mean $600 million to $900 million in capital costs.
The Regulatory Commission of Alaska got its first look at the study Wednesday. I was disappointed that its members had few questions about the proposed solution to what RCA Chairman Keith Kurber referred to as the “crisis” in energy supplies for Cook Inlet.
Commissioner Robert Pickett was right when he cautioned that the models used to predict the future are almost always wrong, especially when it comes to matters of finance.
The in-state gas pipeline, with no subsidy, is among the most expensive options for our energy future.
The in-state gas pipeline, with a subsidy of $7 billion to $8.8 billion, would provide gas to consumers for close to what it sells for today in Southcentral. The study did not include what an 80 percent state subsidy would mean to other projects to import natural gas or what an 80 percent subsidy would mean to getting companies to drill more gas wells in Cook Inlet.
The study says that a bullet line with no subsidy is among the most expensive alternatives of all, costing about $8.8 billion for a 24-inch pipeline from the North Slope to the Kenai Peninsula. It would provide gas to Southcentral at $28 to $37 per million cubic feet, which is several times higher than the cost today.
(The much larger Alaska LNG project, which would cater mainly to export markets, could cost $43 billion for a 42-inch pipeline and related facilities. The gas would be cheaper, about $4 to $6 per mcf, but no one has come forward with $43 billion.)
The project that Enstar and the other utilities would like to see resurrected was known as the “bullet” line when we began hearing about it 20 years ago, a means of getting North Slope gas to Enstar and other utilities in Cook Inlet.
The subsidy under one alternative, a state-owned pipeline, would be $8.8 billion. Under the second alternative, an 80 percent subsidy would be in the range of $7 billion.
With those subsidies, the cost of gas to consumers would be from $7 to $12 for million cubic feet, which is close to what Hilcorp charges utilities now.
While the report says a state-subsidized gas pipeline is a preferred option, it makes no mention of how an 80 percent, or smaller subsidy, to underwrite the import of natural gas would lead to much lower heating and electric prices for consumers. The report also does not mention the economics of providing an 80 percent, or smaller subsidy, to companies to drill more gas wells in Cook Inlet and what that would mean for consumers.
These omissions, deliberate or not, need to be corrected to provide accurate side-by-side comparisons and a full public understanding.
Meanwhile, don’t be surprised if Gov. Mike Dunleavy’s Alaska Energy Security Task Force becomes a bullet line task force under Curtis Thayer, a former Enstar official who is a vice-chair of the task force.
John Sims of Enstar introduced the report to the Regulatory Commission of Alaska Wednesday. He is a member of Dunleavy’s energy task force. Keith Kurber, chairman of the RCA, is also a member.
At a task force meeting this week, Thayer had himself named to the “railbelt transmission, generation and storage” subcommittee, along with Sims of Enstar and Tony Izzo, a former Enstar executive who is now CEO of the Matanuska Electric Association. The fourth member is Jenn Miller of the Renewable Independent Power Producers.
Look for that subcommittee to find favor with the bullet line idea and the study Sims presented to the RCA.
Missing from the RCA meeting and the energy study is any inside information about the participation and strategy of Hilcorp, the privately owned company that dominates the gas market in Cook Inlet and wants high prices for as long as possible.
More than a decade ago, the 737-mile 24-inch diameter pipeline from the North Slope to Southcentral was expected to cost $7.5 billion, plus or minus 30 percent.
That wide gap is one reason why the $8.8 billion cost estimate is suspect. Along with inflation, cost overruns and the worldwide push to renewables to deal with climate change, whatever can go wrong, might go wrong.
There are also lessons to be learned from the past that are not in the PowerPoint from Enstar and the Berkeley Research Group.
Reporter Larry Persily, who has been following all of this longer than anyone both as a journalist and occasional bureaucrat, suggests “bite the bullet” as the preferred nomenclature for the slimmed-down pipe plan.
There were all sorts of people hyping it early in this century because the North Slope oil and gas companies balked at spending tens of billions on a giant project.
“The idea was, if North Slope oil and gas producers weren't interested in a bigger pipeline, we should build a smaller one ourselves and control our own destiny,” he wrote in 2020.
“Though it went by several names — Bullet Line, In-State Line, Backup Line, Alaska Stand Alone Pipeline (ASAP) — the economics never changed: They were lousy on the first day. There's no way a small market of several hundred thousand people could afford the mortgage, operating costs and gas on a $10 billion project.”
It all depends on the size of the subsidy. To be taken seriously, we have to understand that $6 billion or $8 billion is an enormous amount of money. Reducing our reliance on fossil fuels has to be part of the picture.
We have to understand where the subsidy would come from and whether that amount, or a much smaller chunk, might be better spent or saved elsewhere. Renewable energy perhaps?
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