Alaska natural gas pipeline project history

BACKGROUND As Lower 48 natural gas supplies began to respond favorably to the naon’s revised energy The Prudhoe Bay oil discovery announced in policy — and higher prices — any immediate 1968 also found an esmated 26 trillion cubic need for the Natural Gas Transportaon feet of natural gas – more gas than the enre System (ANGTS) declined. Natural gas prices consumes in a year. later soened as a supply bubble developed, In 1976, Congress passed the Alaska Natural Gas which persisted for years in response to Transportaon Act (ANGTA) to expedite wellhead price decontrol. Prices were too low to development of a natural gas pipeline from cover the costs of an Alaska gas line project, and Alaska’s North Slope and provide congressional commercial aenon to the Alaska pipeline and presidenal parcipaon in the process. The iniave essenally disappeared during the policy steps of the process were completed in 1980s. 1977. However, southern secons of the system were In May 1977, the Federal Power Commission, constructed. Producers from the province of now the Federal Energy Regulatory Commission, , along with U.S. and Canadian pipeline recommended an overland pipeline route companies completed the downstream legs of through to move Alaska gas to the ANGTS aer the discovery of significant Lower 48 states. In September 1977, President quanes of natural gas in the Western chose a route along the Alaska Canadian Sedimentary Basin. The western leg of Highway that the commission considered, and ANGTS (Pacific Gas Transmission) went into Congress approved the President’s decision by service from Alberta to California in 1981. The joint resoluon, taking another step toward eastern leg of ANGTS () moving Alaska natural gas to customers. went into service from Alberta to the U.S. In the winter of 1977-1978, federally regulated Midwest in 1982. price controls contributed to natural gas In the 1980s, the U.S. Marime Administraon shortages. In response, Congress passed the authorized a study of marine system opons to Natural Gas Policy Act of 1978 and the determine whether there might be commercial Powerplant and Industrial Fuel Use Act of 1978. opportunies for the U.S. shipbuilding industry. The Fuel Use Act restricted construcon of new The results indicated that U.S. liquefied natural power plants and boilers using natural gas and gas sales to Paci fic Rim naons generally had oil as primary fuels, encouraging instead the use greater economic potenal than delivering LNG of coal, nuclear energy and alternave fuels. to U.S. West Coast markets, but Pacific Rim (The restricons were lied in 1987.) exports were not polically viable considering

October 2012 Alaska natural gas pipeline history the large domesc energy resource that would enhanced oil recovery tax credit for the cost be exported. of a North Slope gas treatment plant. PIPELINE PROJECT REVIVED  Established guidance to ensure FERC would regulate the open season capacity bidding Serious reconsideraon of construcng a natural process so that access to pipeline capacity gas pipeline from Alaska’s North Slope began would be available to pares beyond the around 2000 on both federal and state fronts for three major North Slope producers. The mulple reasons, including rising natural gas intent was to promote compeon in North prices, long-term market projecons of growing Slope natural gas development. U.S. demand, environmental and climate concerns, declines in Western Canadian gas FERC issued a final rule on the open season Feb. producon and declines in Alaska oil producon. 9, 2005 (FERC Order No. 2005). In an open season, potenal shippers on a pipeline can The 2001 Naonal Energy Plan included a compete for available capacity. recommendaon to expedite construcon of an Alaska natural gas pipeline to serve the Lower 48 In 2006, former Alaska State Sen. Drue Pearce states. Also in 2001, an Alaska natural gas was confirmed as federal coordinator; she interagency task force formed. This task force served unl January 2010. The president included the State Department, Department of nominated Larry Persily as her replacement, and the Interior (including Bureau of Land the Senateh confirmed him in March 2010. Management and Minerals Management Service In 2006, 16 federal agencies with roles and — now Bureau of Ocean Energy Management, responsibilies relang to the pipeline signed a Regulaon and Enforcement), Department of memorandum of understanding to establish a Transportaon and Department of Energy framework for cooperaon on the project (including FERC). management. Other relevant agencies were Then in 2004, Congress passed the Alaska idenfied and added to the memorandum in Natural Gas Pipeline Act (ANGPA) that: 2010.  Created the Office of the Federal STATE ACTIONS Coordinator as a small, independent agency Since construcon of the trans-Alaska oil to coordinate acvies of other federal pipeline in the 1970s, every Alaska governor has agencies involved in the pipeline project, and tried to spur construcon of a natural gas expedite and strengthen oversight of the pipeline. The gas pipeline project has grown in project. importance for the state in recent years as North  Clarified that one environmental impact Slope oil producon has declined. statement would be wrien and used by all In 1998 the passed the Alaska agencies, and that FERC would be the lead Stranded Gas Development Act to encourage agency preparing it. North Slope producers to bring the natural gas  Provided for a federal loan guarantee up to to market by allowing the state and producers to $18 billion for the project (indexed to the negoate tax, royalty and other fiscal terms for a consumer price index from 2004). liquefied natural gas project. A new version of the law enacted in 2003 applied to any North  Provided for accelerated tax depreciaon for Slope gas pipeline project. Under that new law, the pipeline (7 years versus 15 years) and an

2 Office of the Federal Coordinator, Alaska Natural Gas Transportaon Projects the state negoated project contract terms with TransCanada and the North Slope producers the North Slope’s three major producers: more me to determine the best market for ExxonMobil, ConocoPhillips and BP. In 2006, Alaska gas and review the opon of liquefying then-Gov. Frank Murkowski presented the the gas and shipping it to Asian markets. contract to the public and legislators. The Alaska Producer involvement in the TransCanada-led Legislature rejected the contract that year. project started when ExxonMobil announced In 2007, the Alaska Legislature enacted the June 15, 2009, it had joined up with Alaska Gasline Inducement Act, another aempt TransCanada under the name Alaska Pipeline to spur gas pipeline construcon. AGIA provided Project. More informaon can be found at the 50 percent state reimbursement of a Alaska Pipeline Project’s website. developer’s qualifying expenses through the —The , a joint venture inial open season and 90 percent thereaer. of North Slope producers ConocoPhillips and BP, The reimbursements are capped at $500 million. was established in April 2008 to compete with In exchange for the AGIA license, the applicant the TransCanada project. Denali entered the pre had to agree to a number of “must-haves,” -file process with FERC in 2008 and conducted including rolled-in pipeline tariffs for any project an open season in 2010. In May 2011, Denali expansions, an aggressive development announced it would no longer pursue schedule, an open season in 2010, proceeding development of the project due to lack of through full licensing by FERC, and a interest from potenal customers. commitment to use project labor agreements with unions. AGIA, however, is merely a financial THE PROJECT IN CANADA partnership with the state and does not give the Besides 803 miles of pipeline in Alaska, the licensee any exclusive right to permits or state project envisioned to serve North American rights of way, and it does not affect FERC markets would span 972 miles in Canada, with jurisdicon over the interstate gas line. the pipeline ending at the Brish Columbia- TransCanada’s AGIA proposal was the only one Alberta border. The Canadian secon already deemed complete by the state. On Aug. 1, 2008, has some key government authorizaons. the Alaska Legislature approved TransCanada as Foothills Pipe Lines Ltd. is the project sponsor in the state licensee and on Dec. 5, 2008, the AGIA Canada. Foothills is a TransCanada subsidiary, license was signed by the governor and issued to and it originally received the crical Canadian TransCanada. On April 23, 2009, TransCanada construcon cerficate, a land easement in the applied to FERC to iniate the pre-file process Territory, and other authorizaons in the with the agency. FERC granted the request on late 1970s and early 1980s. Foothills works with May 1, 2009. TransCanada held its open season the Northern Pipeline Agency, a Canadian in 2010 and formally closed its open season in federal agency, to coordinate the perming, May 2012 without signing any agreements with construcon and operaon of the project in shippers. Canada. The project underwent environmental The AGIA license required TransCanada to file a and socio-economic reviews in Canada inially. complete applicaon with FERC in October 2012 To update that work from 30 years ago, for a cerficate to build and operate the TransCanada/ExxonMobil has been conducng pipeline, but the state in May 2012 agreed to summer field work in Canada. postpone that deadline for two years, giving

3 Alaska natural gas pipeline history THE ENVIRONMENTAL IMPACT ExxonMobil, ConocoPhillips and BP wrote to Alaska Gov. Sean Parnell that their companies STATEMENT had started working with TransCanada to assess On Aug. 1, 2011, FERC announced it would whether a project to export liquefied natural gas prepare an environmental impact statement on from Alaska made more sense than a pipeline the Alaska poron of the TransCanada/ into Canada because of more favorable prices in ExxonMobil gas pipeline project. Asia. An LNG project would include a pipeline On Jan. 13, 2012, TransCanada/ExxonMobil filed from the North Slope south through the state to 11 environmental reports – called dra resource a liquefacon plant at dewater. reports – on the pipeline corridor for the project THE to the Canadian border. FERC requires project applicants to provide these reports, which detail PROJECT and discuss the project's potenal impact on On March 30, 2012, the chief execuves of soils, vegetaon, streams, lakes, wetlands, water ExxonMobil, ConocoPhillips and BP wrote to quality, wildlife, fish and other resources. The Alaska Gov. Sean Parnell that their companies final reports would be submied when the had started working with TransCanada to assess project developer formally applies to FERC for a whether a project to export liquefied natural gas construcon and operang cerficate, and from Alaska made more sense than a pipeline would be used by FERC as it prepares the into Canada because of more favorable prices in environmental impact statement. State and Asia. An LNG project would include a pipeline federal agencies submied comments on the from the North Slope south through the state to dra resource reports for the project developer a liquefacon plant at dewater. to consider if it proceeds to final reports and a On Oct. 1, 2012, the four companies provided formal applicaon to FERC. Gov. Parnell with an update on their inial work In January and February 2012, FERC began assessing an LNG export project. Their early government-to-government consultaons with concept envisions a project cosng $45 billion to Nave Alaska tribal enes along the pipeline more than $65 billion for a gas treatment plant, corridor and held seven public scoping meengs roughly 800-mile pipeline, liquefacon plant at a across Alaska to help define what environmental site to be determined, LNG storage and a tanker effects the impact statement would consider. terminal. This concept would involve exports of FERC prepared a report of issues raised during 15 million to 18 million metric tons of LNG the scoping meengs. annually, the equivalent of 2 billion to 2.4 billion On March 30, 2012, the chief execuves of cubic feet a day of gas.

For more information, please visit our website: www.arcticgas.gov

Contact information: Locations: Larry Persily, Federal Coordinator OFC Washington, DC (202) 756-0179 1101 Pennsylvania Ave. NW, 7th Floor lpersily@arccgas.gov Washington, DC 20004

General Questions: OFC Alaska info@arccgas.gov 188 W. Northern Lights Blvd., Suite 600 Anchorage, AK 99503

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