A Walker administration request to fast-track environmental studies on an 800-mile gas pipeline from Alaska’s North Slope to tidewater at Cook Inlet could backfire and spawn national opposition that slows the project, the once-chief federal official for Alaska gas development is warning.

Larry Persily, the former federal coordinator for Alaska National Gas Transportation Projects and a one-time deputy Commissioner of Revenue for the state, noted the state’s request comes at a bad time with angry, anti-pipeline activists turning to courts in Montana and Michigan in efforts to stall construction of projects they think threaten the environment.

“I have no doubt the Trump administration will move permits quicker,” Persily said Monday, “but if you try to move them too fast, you attract litigation.

“Why wave a red flag saying, ‘Hey, here we are?’ Being below the radar is always a better place to be.”

The Alaska Gasline Development Corporation last week revealed it has told the Federal Energy Regulatory Commission (FERC) that it wants a schedule for the project’s environmental impact statement (EIS) by Dec. 15.

The state is rushing to try to convince potential Chinese investors it can deliver gas to China by 2023. The state is hoping three Chinese entities, which have said they are interesting in helping finance a pipeline, can be convinced to show Alaska the money if the path to construction is cleared by completing an EIS in 2019, the (Kenai) Peninsula Clarion reported Monday.

The state is now saying the many-times-proposed, never-started gas project will cost $43 billion. Past estimates have ranged from $45 billion to as high as $65 billion. The Chinese have reportedly said they would be willing to fund up to 75 percent of the cost of the project in return for 75 percent of the gas coming down the pipeline.

How much gas would be available remains unclear. ExxonMobil, BP and ConocoPhillips hold leases that give them ownership of the gas, significant quantities of which are still reinjected into North Slope oil fields to increase oil production.

No promises

The state has yet to arrange sale contracts for any gas, and the Chinese have signed no binding agreements to do anything. But Gov. Bill Walker, who has fantasized about a gasline for decades, is projecting the deal he and high-priced AGDC president Keith Meyer worked out with the Chinese could be worth more than $1 billion per year to the state.

FERC has raised hundreds of questions about the gasline project, but AGDC Senior Vice President Frank Richard dismissed many of them at a meeting with the Kenai chapter of the Alaska Support Industry Alliance last week.

Some of the questions were a “a little bit picayune,” the Clarion quoted him saying. “One of them that FERC asked is how AGDC is going to prevent poaching along the new pipeline right-of-way. Well, from my perspective that’s not AGDC’s perspective, that’s a law enforcement, a wildlife enforcement issue, so that will be someone else’s responsibility. We know every rock. We’ve identified every tree. We know every wetland along the route.”

Whether environmental interests will buy the all-knowing view remains to be seen. And the project could run into trouble with the Committee on Foreign Investment in the United States, an interagency entity that includes the secretaries of the Treasury, State, Defense, Homeland Security and representatives of 14 other federal entities.

Reuters in July was reporting that the “secretive U.S. government panel has objected to at least nine acquisitions of U.S. companies by foreign buyers so far this year, people familiar with the matter said, a historically high number that bodes poorly for China’s overseas buying spree.”

President Donald Trumps recent trips to Bejing seems only to have heightened concerns about foreign investment. Congress is now talking about a prohibition on Chinese acquisition of U.S. assets, the New York Times reported last week. 

A 600-page report to Congress from the U.S.-China Economic and Security Review Commission recommended that Congress, among other things:

• Prohibit the acquisition of U.S. assets by Chinese state-owned
  or state-controlled entities, including sovereign wealth funds.
• Require a mandatory review of any transaction involving
  the acquisition of a controlling interest in U.S. assets by Chinese
  entities.
• And expand the definition of “control” to include joint ventures,
  venture capital funds, licensing agreements, and other
  arrangements or agreements that enable Chinese entities to
  access and/or determine the disposition of any asset.

That last recommendation might complicate Chinese financing of 75 percent of an Alaska gas line, but that issue isn’t expected to arise until after some sort of concrete agreement is inked between the state of Alaska and a China entity.

And before that, the state says it needs to get through the EIS process.

Persily, until recently an advisor to the Kenai Peninsula Borough on gasline development and taxes, has been tracking those developments daily and brings the situation up-to-date in this report:

The Dig Down:

By Larry Persily
paper@alaskan.com

The Alaska Gasline Development Corp. (AGDC) has asked federal regulators to “take immediate action” to speed up the environmental review of the state-sponsored Alaska LNG project “in a timely, efficient and cost-effective manner.”

As a first step in that effort, the state corporation wants the Federal Energy Regulatory Commission (FERC) to issue a schedule for the project’s environmental impact statement by Dec. 15. Under FERC regulations and procedures, it issues a timeline for its environmental review after determining it has sufficient information from an applicant to predict — and adhere — to a published EIS schedule.

AGDC submitted its project application in April, and it appears the state corporation is growing tired of waiting for a timeline. AGDC has responded in full or in part to many — but not all — of the hundreds of detailed questions from federal regulators, with the
state pledging to provide more answers through this winter.

“Rather than postpone the issuance of an environmental review schedule until all information requested has been received, the commission … should issue a schedule now, while making it clear that such schedule is subject to modification if needed information is not received in time to meet the schedule,” AGDC said in a Nov. 16 letter to FERC commissioners.

“AGDC continues to diligently respond to … (FERC’s) requests for information, but not all of the information … is available at the current time.”

In announcing its application in April, AGDC said FERC would issue the timeline “soon.” In August, the corporation said it expected to receive an EIS timeline this fall. FERC never publicly responded to the state’s calendar expectations.

Additional and often detailed data requests from FERC are common before it issues a review schedule. Of the LNG projects that received a FERC Notice of Schedule for Environmental Review between 2011 and 2017, several took more than a year after an application to receive their schedule

Market needs a schedule

Having the EIS schedule is important to the project, the state wrote to FERC.

“The issuance of a schedule will provide valuable assurance to the market that the regulatory process, and particularly commission review of Alaska LNG, is on track and consistent with Alaska LNG’s targeted in-service date.” Under the state’s ambitious schedule for the $45 billion project, the first gas exports could start as soon as 2023, with the state looking to sell into Asian markets.

In keeping with the same schedule requested in its April application, AGDC in its Nov. 16 letter again asked FERC to prepare its draft EIS and then complete the final EIS and issue an order on the application all by Dec. 31, 2018. FERC approval is required to construct and operate an LNG export plant in the United States.

The state believes it could start producing and exporting liquified natural gas by late 2023 if it can receive FERC approval in 2018, with a final investment decision by AGDC and its partners/investors to quickly follow.

A 2023 start-up would be a year or two sooner than projected when North Slope oil and gas producers ExxonMobil, BP and ConocoPhillips were leading the project. The companies stepped aside a year ago.

They decided — amid weak global LNG market conditions — not to commit to
the $1 billion or more they estimated it would take to complete permitting, engineering and design work to reach an investment decision.

The state of Alaska, which was a 25 percent partner in the producer-led venture, then took over sole responsibility for the project. FERC’s environmental review will serve as the single federal EIS and will be used by all other regulatory agencies. It will cover impacts from construction and operation for:

• 62 miles of pipeline to bring gas from the Point Thomson field west to Prudhoe Bay.
• A gas treatment plant at Prudhoe Bay to remove carbon dioxide, water and other
  impurities from the gas stream. Prudhoe Bay would supply about 75 percent of the
  project’s initial gas reserves, with 25 percent coming from the Point Thomson field.
• 807 miles of high-pressure, 42-inch-diameter pipe on a southerly route through the
  state to Cook Inlet and across the water (29 miles underwater) to Nikiski on the Kenai Peninsula.
• At least five offtake points along the route to provide gas for in-state use.
• A liquefaction plant, storage tanks and marine terminal in Nikiski. The LNG facility and marine terminal would be the single most expensive component of the project — about half the total cost.

AGDC wants Corps studies used

AGDC  also asked that FERC speed up its review by relying on the U.S. Army Corps of
Engineers’ environmental analysis for a smaller, but similar, proposed gas pipeline project in Alaska that “has raised the same wetlands issues currently being reviewed in connection with the Alaska LNG project.”

The Army Corps is scheduled to adopt in December its final supplemental EIS for the state-sponsored Alaska Stand-Alone Pipeline, also known over the years as the in-state line, the bullet line and the backup project to meet in-state gas demand if the larger venture does not proceed. Also managed by AGDC, the smaller project does not include an LNG plant, nor does it include a pipeline from Point Thomson.

The pipeline would run about 730 miles south from Prudhoe Bay to connect with Southcentral Alaska’s existing gas distribution system north of Anchorage. The project is estimated at $10 billion and would have the capacity to move up to 500 million
cubic feet of gas a day — less than one-sixth the capacity of the Alaska LNG project pipeline.

Even at that lower volume, however, it would be more than double the current demand for gas in Alaska, all of which is supplied from Cook Inlet and Kenai Peninsula fields. The project’s supporters have long argued that Cook Inlet gas production is in decline, and that in-state demand would significantly increase if North Slope gas were available at affordable prices.

The state legislature created AGDC in 2010 for purposes of developing the Alaska Stand-Alone Pipeline (ASAP), specifically adding the LNG project to the corporation’s portfolio in 2014. AGDC on Nov. 16 requested that FERC “issue an order … formally adopting, or otherwise incorporating,” the Corps of Engineers’ EIS for the Alaska Stand-Alone Pipeline “as it pertains to the methods, processes and techniques for constructing the pipeline segments of the Alaska LNG project through Alaska wetlands and assessing the impacts of, and mitigation required for, such construction through wetlands.”

In its 20-page brief to FERC, the state pointed out that the Army Corps “has been conducting an extensive National Environmental Policy Act (NEPA) analysis on the ASAP pipeline that is of similar dimension to the Alaska LNG pipeline, shares the same right-of-way as the Alaska LNG pipeline for about 670 miles, and would transport the same North Slope natural gas as Alaska LNG.”

Costly wetlands mitigation

The state also asked FERC to grant “any necessary waivers or variances” of its Wetland and Waterbody Construction and Mitigation Procedures “that impose greater or more restrictive requirements than those imposed” by the Army Corps for the Alaska Stand-Alone Pipeline Project.

“lf not waived, these procedures will have a significant impact on project construction
planning, schedule and cost.” The commission “should rely on and defer to the Army Corps to determine the need for and level” of mitigation measures for damaged or lost wetlands, AGDC said, “rather than imposing more restrictive and impractical construction methods that would delay and significantly increase the cost of Alaska LNG.”

While FERC’s Office of Energy Projects “has not made any final determinations concerning the need for Alaska LNG to comply with its wetlands procedures, it has informed AGDC that several of its construction methods relating to wetlands are not in compliance with its procedures, and that a waiver or variance of these methods would need to be justified through a demonstration that Alaska LNG’s methods provide equivalent or greater protection to the environment than those required by the procedures.”

However, because of Alaska’s unique geographic conditions and remoteness, several of the methods in FERC’s wetlands procedures, though perhaps reasonable for Lower 48 projects, would be “impracticable for the Alaska LNG project,” AGDC said. The state has submitted information justifying a waiver, but said in its Nov. 16 letter that the waiver process “is costly, creates uncertainty and is unnecessary in light of the Corps of Engineers’ analysis of these same issues.”

The state asked that the commission rely on the Army Corps’ expertise “without regard to FERC’s generic national wetlands procedures.”

Costs are important if the Alaska project is to succeed in the highly price-competitive global LNG market. “AGDC is making unprecedented commercial progress advancing Alaska LNG,” the state said in its letter.

AGDC has signed memorandums of understanding with Korea Gas and PetroVietnam Gas, and a joint development agreement with several Chinese companies. All
are interested in the Alaska project but none have agreed to firm purchase
commitments, investments or financing.

State reminds FERC of Trump

AGDC said its requests of FERC are supported by the president’s “objective of coordinating and streamlining the environmental review of infrastructure projects,” including a recently issued executive order. The state also quoted a recent statement by FERC Chairman Neil Chatterjee:

“The commission will look for greater efficiencies in FERC’s review processes in an effort to reduce the time it takes to perform NEPA analyses without sacrificing safety and environmental protection.”

President Donald Trump on Aug. 15 issued Executive Order 13807, which emphasized “the benefits to the nation’s economy, society and environment that would result from more efficient and effective federal infrastructure decisions.”

The order does not govern FERC as an independent federal agency, but does make it the policy of the federal government to conduct “environmental reviews and authorization processes in a coordinated, consistent, predictable, and timely manner in order to give public and private investors the confidence necessary to make funding decisions for new infrastructure projects.”

The order sets out a goal of completing all federal environmental reviews and authorization decisions for major infrastructure projects within two years.

In February, Alaska Gov. Bill Walker wrote to President Trump, proposing “several practical and innovative means by which the U.S. government can assist” with the project. Those included exempting the Alaska LNG project “from all federal wetlands compensatory mitigation requirements of the Clean Water Act.”

The governor also proposed the president limit several executive branch actions to reduce federal agency oversight of the project. Walker wanted an exemption from EPA oversight of programs that have been delegated to the state under the Clean Water Act and Clean Air Act, and directing the Army Corps of Engineers “to ensure that any areas with underlying permafrost shall not be jurisdictional wetlands.”