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Alaska governor orders halt to state funds for alternate North Slope natural gas pipeline

Highlights

Alaska Governor Bill Walker ordered a halt to state funds being spent on a state-led North Slope natural gas pipeline as a budget contingency, a spokesman for the Alaska Gasline Development Corp said Tuesday.

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The order affects unencumbered state funds appropriated for a 36-inchpipeline being planned by the state gas corporation as a backup in case anindustry-led 42-inch pipeline plan associated with a large LNG export projectdoes not proceed, AGDC spokesman Miles Baker said.

"The governor's order does not affect state funds being spent in supportof the larger industry-led project in which the state is a partner," Bakersaid.

The state's gas corporation is also the entity participating with NorthSlope producers BP, ConocoPhillips and ExxonMobil and pipeline companyTransCanada in the larger project, he said.

Walker's action affects several other large state-funded projects and wastaken in view of a $3.5 billion state budget deficit estimated for this year due to lower oil prices and state oil revenues.

AGDC's work plan for the current state fiscal year involves about $100million being spent on engineering and permitting for the 36-inch pipeline and$25 million in support of the larger project, Baker said. The plan anticipatescompletion of engineering and permitting for an open season for prospectivegas shippers in 2016.

However, much of the $100 million is for work that can be used on both projects -- only one would be built in the end -- such as environmental workand engineering on five gas offtake connectors planned to supply gas to localcommunities.

The state corporation would build those connections in any event, Bakersaid.

ADGC's plan is to continue development work on the 36-inch pipeline untilit is considered very likely that the larger industry project will proceed,which may be in 2016 if the sponsors agree to a multibillion-dollar commitmentto front-end engineering and design work.

The industry project is now in the pre-FEED phase, due to be complete inlate 2015. If built, it would export 15 million to 18 million mt of LNG yearlyfrom an LNG plant at Nikiski, on the Kenai Peninsula south of Anchorage.

State legislators who back the alternative backup pipeline aren't likelyto let Walker abandon the state-led 36-inch pipeline plan.

Representative Mike Hawker, an Anchorage Republican who co-sponsoredlegislation authorizing the backup gas pipeline, said it may be legallydifficult for the governor to block expenditures of a project the legislaturehas authorized in law, and such a move in any event would spark a fight withthe legislature.

"It seems wrong that the governor can impound those funds from astatutorily directed appropriation," Hawker said. "He could go after a change in Board of Directors [of the state gas corporation] but still have aconfirmation issue on his hands," for any replacements Walker might name tothe board.

House Speaker Mike Chenault, R-Kenai, also a sponsor of the enablinglegislation, was not available for comment.

If the big pipeline project stalls, one potential shipper of gas in thestate-led 36-inch pipeline is Resources Energy Alaska, a Japanese consortiumplanning a 1 million to 1.5 million mt/year LNG project at Port MacKenzie onupper Cook Inlet.

REI hopes to have its project operating by 2020 and plans to use CookInlet gas as feedstock, but if North Slope gas is available from either thestate-led 36-inch pipeline or an industry-led 42-inch line, REI could expandits plant to export larger volumes of LNG, its president, Shunichi Shimizu,said in a recent briefing in Alaska.

--Tim Bradner, newsdesk@platts.com--Edited by Jason Lindquist, jason.lindquist@platts.com