gas storage bill passes

Vol. 15, No. 13 • www.PetroleumNews.com A weekly oil & gas newspaper based in Anchorage, Alaska Week of March 28, 2010 • $2

� N A T U R A L G A S



Trond-Erik Johansen named to headConocoPhillips Alaska

page8

The March issue of North of 60 Mining News is enclosed

PHOTO COURTESY OF AGNICO-EAGLE LTD.

Mine workers at the newly opened Meadowbank Minein Nunavut joined Agnico-Eagle Mines Ltd. President andchief operating officer Ebe Scherkus (middle of front rowin red shirt) in celebrating the open-pit operation’s firstgold pour in late February. Meadowbank is expected toproduce about 350,000 ounces a year over the next nineyears. Located on a huge and highly prospective proper-ty in north-central Nunavut, Meadowbank has 3.6 millionounces of reserves and a tremendous potential resource

A special supplement to Petroleum NewsWEEK OF

March 28, 2010

A special supplement to Petroleum News

2 Outlook cloudy for Red Dog MineTeck seeks answers after EPA switches up conditions for Aqqaluk permit

12 Miners gain foothold in Nunavut Ancient rocks under Canada’s youngest territory promises mineral bonanza

15 Major makes play for White GoldFriendly bid by Kinross offers premium for Yukon’s Underworld Resources

March Mining News inside

Another Aussie indie enters inlet;Buccaneer acquires Stellar acreage

An Australian exploration company is picking up a packageof Cook Inlet leases.

The Sydney-based independent Buccaneer Energy Ltd.announced on March 25 that it was acquiring 57,600 grossonshore and offshore acres from Stellar Oil and Gas LLC.

Stellar Oil and Gas, owned by several executives from theTexas-based independent Renaissance Alaska, holds around10,000 gross offshore acres at the North Middle Ground Shoaland the Northwest Cook Inlet prospects and more than 47,000gross onshore acres on the Kenai Peninsula at the North Sterlingand West Eagle prospects.

Greening of Oil: Latest from Mac Ackers

ALASKANS, GOO WANTS TO HEARFROM YOU … Greening of Oil recentlyposted an article, Hydrokinetic proposi-tion for Alaska at http://bit.ly/9KurPWabout a Floridian who won an award for adevice he wants to use on abandonedCook Inlet oil platforms. Basically, thedevice produces power from the move-ment of water. In the comments sectionthat followed the article, Al Hastings andArlen Ehm both expressed concernsabout the structural integrity of using the old platforms, butHastings suggested ConocoPhillips give Scott Anderson a

Gas storage bill passesAlaska House votes 38-0 for act to encourage Cook Inlet gas storage, exploration

By WESLEY LOYFor Petroleum News

The Alaska House of Representativeson March 24 passed the Cook Inlet

Recovery Act, which provides tax creditsfor construction of natural gas storage proj-ects plus incentives for gas explorers.

The legislation, House Bill 280, couldemerge as one as one of the stateLegislature’s top energy initiatives for thesession, which ends April 18.

The bill addresses a major and increasingly popu-lar concern — a looming shortage of Cook Inlet gas,long the primary fuel for heating homes and busi-nesses and for generating electricity for the state’smain population center including Anchorage.

The vote in favor of HB 280 was a resounding 38-

0 with two House members absent. Theprime sponsor was Rep. Mike Hawker, R-Anchorage.

The bill now moves to the Senate, wheresimilar legislation is pending, Senate Bill203. Its sponsor is Anchorage DemocratSen. Hollis French, who is part of theSenate’s bipartisan majority.

The bill’s main featuresThe 18-page HB 280 has two major

components, one providing tax credits and otherincentives for development of gas storage capacityand another offering incentives to explorers.

The bill also contains important provisions per-taining to the Regulatory Commission of Alaska,

MIKE HAWKER

see STORAGE BILL page 20

Cook Inlet needs $2.8BStudy assesses investment in new CI wells to maintain adequate Southcentral gas

By ALAN BAILEYPetroleum News

Anew study into Southcentral Alaskautility natural gas supplies from the

gas fields of the Cook Inlet basin hasconcluded that gas producers will likelyhave to sink up to $2.8 billion into newgas wells, just to ensure that annual sup-ply volumes can meet annual utilitydemand through 2020.

The study, conducted by PetrotechnicalResources of Alaska for utilities Enstar NaturalGas Co., Chugach Electric Association andMunicipal Light & Power, also found that obsta-cles to drilling sufficient new wells in the near

future are likely to result in a need toimport LNG into Southcentral, to plug apending gas supply gap, Tom Walsh,managing partner of PRA, told a meetingof the Resource Development CouncilMarch 19.

Declining gas supplies from the CookInlet’s aging gas fields has been causingincreasing angst in Southcentral, wherenatural gas forms the primary fuel forelectricity generation and for the heating

of homes and business premises. Most of the gascomes from just five established gas fields: theBeluga River, Trading Bay, North Cook Inlet,Kenai and Ninilchik fields, Walsh said.

TOM WALSH

see CI STUDY page 19

Mac has ‘4 more years’Imperial Oil NEB filing says first quarter of 2018 earliest possible startup

By GARY PARKFor Petroleum News

Proponents of the Mackenzie Gas Project haveextended the earliest possible startup date by

another four years to 2018, largely because of reg-ulatory delays and the Canadian government’s fail-ure to negotiate a fiscal agreement.

In addition, lead partner Imperial Oil said in afiling with the National Energy Board, the revisedlaunch reflects the need to restaff the project andfactor in seasonal constraints before the MGP cango ahead, even if the necessary approvals areobtained from the NEB and the federal govern-ment.

“Timely actions by all parties, including theproponents, governments and regulators, will be

essential” to achieve the 2018 target, the Imperialletter stated.

The filing coincided with an Arctic gas sympo-sium, where Mike Peters, manager of northernCanada operations with the Canadian Associationof Petroleum Producers, said investment inCanada’s Arctic gas sector is suffering because ofthe regulatory process.

He said the list of obstacles also includes: avery challenging commodity price, high invento-ries, currency exchange rate volatility and finan-cial market uncertainty.

But he argued that the Arctic resource potentialjustifies a much greater level of activity and invest-ment than is currently directed at the region,

see MAC LINE page 18

see NEW PLAYER page 20

MAC ACKERS

see MAC ACKERS page 17

http://www.PetroleumNews.com/

http://www.greeningofoil.com/

http://www.greeningofoil.com/

http://www.greeningofoil.com/buzz.aspx#Buzzpage-LatestfromMacAckers

http://www.miningnewsnorth.com

2 PETROLEUM NEWS • WEEK OF MARCH 28, 2010

contents Petroleum News North America’s source for oil and gas news

FINANCE & ECONOMY8 Johansen to head ConocoPhillips Alaska 7 Enbridge eyes Marcellus option

LAND & LEASING

PIPELINES & DOWNSTREAM

OUR ARCTIC NEIGHBORS

NATURAL GAS

GOVERNMENT

UTILITIES

4 TransCanada: Dempster Lateral dead issue

Responses to FERC queries on open season plan include information on Canadian pipeline open season

9 FERC: RCA has in-state gas jurisdiction

Staff response says if in-state line only for in-state use, state would regulate; commission would have to decide if gas exported

6 Revised GRETC bill gets House hearing

A more flexible approach brought the utilities to the table, but lawmakers want someconcerns addressed before they sign off

7 Northern Gateway under siege

Enbridge, on verge of filing to open Asian markets for oil sands crude, faces resistance fromenvironmentalists, First Nations

3 Legislature working in-state gas issue

House, Senate bills alternately set up in-state gas team in governor’s office under AFHC, move in-state line to Alaska Railroad

EXPLORATION & PRODUCTION5 Alberta oil sands get a break

Ontario, Quebec shelve opposition, send delegations to buying-selling forum; EU backs down; industry leaders make stewardship case

13 Energy legislation must address AK issues

13 MMS director names science advisor

18 Loranger named to head Kenai refuge

10 Greenpeace calls for Arctic moratorium

10 Sakhalin sets example for Arctic projects

Oil and gas development on the island in Russia’s Far East has benefited local communities in many ways, Shell executive says

11 Radar to spot icebergs is working again

Out of service since last September, the system atinfamous Bligh Reef helps with tanker safety

14 Parnell’s elevation request rejected

Corps of Engineers, Obama administration officials hear from North Slope officials, communities on rejection of permit for CD-5

12 Alaska village fights gas exploration

Sleetmute files opposition papers in Anchorage SuperiorCourt; appeal holds up DNR license for Holitna Energy

Another Aussie indie enters inlet; Buccaneer acquires Stellar acreage

Greening of Oil: Latest from Mac Ackers

ON THE COVERGas storage bill passes

Alaska House votes 38-0 for act to encourageCook Inlet gas storage, exploration

Cook Inlet needs $2.8B

Study assesses investment in new CI wells to maintain adequate Southcentral gas

Mac has ‘4 more years’

Imperial Oil NEB filing says first quarter of 2018 earliest possible startup

http://www.petroak.com/

By KRISTEN NELSONPetroleum News

W ith supplies of natural gas tight-ening in Southcentral Alaska —

and Fairbanks in need of a more reason-ably priced fuel than diesel — concernhas been growing about how long it islikely to take a major North Slope gaspipeline project to materialize, andwhether the state shouldn’t be doingsomething on its own to get gas toAlaskans.

In the summer of 2008 the AlaskaNatural Gas Development Authority wastasked by former Gov. Sarah Palin withdeveloping a standalone line from CookInlet to Fairbanks which would encourageadditional drilling in Cook Inlet byexpanding the market and also providenatural gas to Fairbanks. Once a main linewas in place from the North Slope, thestandalone line could be reversed to carryNorth Slope natural gas to Southcentral.

That project was in addition toANGDA’s work designing a spur line intoSouthcentral, investigation into a bulletline, working with electric utilities inpreparation for an open season on themain gas pipeline and a plan for apropane facility on the North Slope sothat fuel would be available for Alaskacommunities which will not be reachedby a gas pipeline.

In early 2009, then-Gov. Palin estab-lished an in-state gas pipeline project inthe governor’s office, naming Harry Noahas project manager. The governor’s goalwas to supply the Railbelt with naturalgas within 5 years.

Multiple projectsThe Alaska Legislature has been wor-

rying about management of multiple in-state gas pipeline projects, especiallysince last year when Noah, then the out-going in-state gas pipeline project manag-er, told legislators there were too manyplans in play.

“We are pulling this way and we’repulling that way,” and while good peopleare involved on the different projects,“one side just wants to kill the other side,”he told a mid-December meeting ofHouse Resources.

There’s a lot of energy, Noah said, “butwe’re not actually moving forward.”

His most telling point probably camewhen he said: “And quite honestly, theLegislature’s funding most of these.”

Two bills are now moving in theAlaska Legislature — one passed theHouse March 24 and the other is inSenate Finance — which would consoli-date in-state gas pipeline efforts.

Both initially targeted the AlaskaRailroad to head up the effort, but afterthe railroad’s president and CEO, PatGamble, was named to head theUniversity of Alaska system, the Housebill was changed. It still includes theAlaska Railroad on the in-state gaspipeline team, but the team will now beheaded by the Alaska Housing FinanceCorp.

The Senate bill moves the entire stand-alone or bullet line project to the AlaskaRailroad.

HB 369 team in governor’s officeWork on in-state and spur gas

pipelines is currently housed in the gover-nor’s office (the in-state gas team) and inthe Department of Revenue (ANGDA).

House Bill 369, whose prime sponsoris House Speaker Mike Chenault, R-Nikiski, establishes a joint in-state gaspipeline team in the governor’s officeconsisting of the Department ofTransportation and Public Facilities; the

Alaska Railroad Corp.; the AlaskaNatural Gas Development authority; thein-state gas line project manager; and theAlaska Housing Finance Corp.

The CEO of AHFC is the chair of thedevelopment team, which “may hire staff,enter into contracts, and exercise otherpowers necessary to carry out its func-tions.”

Chenault said in a sponsor’s statementthat the goal of the bill is “to expedite theprocess for an in-state natural gaspipeline” and to combine the two entitiescurrently working on the project,ANGDA and the in-state gas pipelinecoordinator.

The team is to present the Legislaturewith a development plan for an in-stategas pipeline by July 1, 2011, specifyingand documenting how an in-state gaspipeline can be “designed, financed, con-structed, and made operational” by Dec.31, 2015.

A written monthly report to all legisla-tors is required, including contracts withscope and amount; accounting of allfunds spent; and a schedule of work tocomplete the in-state gas pipeline projectplan.

The proposal calls for the plans, rightsof way and permits to be turned over to aprivate entity.

$10.65 millionThe price tag on HB 369 is $10.65

million, with $6.81 million, an increasefrom $6.5 million in the current operating

budget request “to include commercialanalysis of downstream industrial oppor-tunities,” public outreach and informationand office space for seven staff during thefirst year.

Among the agencies funded is theDepartment of Revenue, where a $1 mil-lion item presumably covers ANGDA’swork, itemized as:

• Identify opportunities for deliveringNorth Slope gas to rural and maritimeAlaska;

• Identify and negotiate with potentialgas suppliers and potential gas con-sumers;

• Develop pro-forma financials for theproject;

• Develop a partnering agreement witha pipeline company;

• Provide a design, construction sched-ule and cost estimate for a liquefied natu-ral gas plant; and

• Develop and execute a public infor-mation and outreach plan.

Other department breakouts includethe Department of EnvironmentalConservation, the Department ofTransportation and Public Facilities, withfunds included for the Department ofNatural Resources State PipelineCoordinators Office for costs associatedwith the right-of-way permitting processand work by the commissioner’s office.

$34.22 million to railroad

PETROLEUM NEWS • WEEK OF MARCH 28, 2010 3


Legislature working in-state gas issueHouse, Senate bills alternately set up in-state gas team in governor’s office under AFHC, move in-state line to Alaska Railroad

see IN-STATE GAS page 15

MIKE CHENAULT LESIL MCGUIRE

http://www.udelhoven.com/

http://www.aksales.com/

http://www.tomco.ca


Kay Cashman PUBLISHER & EXECUTIVE EDITOR

Mary Mack CHIEF FINANCIAL OFFICER

Kristen Nelson EDITOR-IN-CHIEF

Clint Lasley GM & CIRCULATION DIRECTOR

Susan Crane ADVERTISING DIRECTOR

Bonnie Yonker AK / NATL ADVERTISING SPECIALIST

Heather Yates BOOKKEEPER

Shane Lasley IT CHIEF

Marti Reeve SPECIAL PUBLICATIONS DIRECTOR

Steven Merritt PRODUCTION DIRECTOR

Alan Bailey SENIOR STAFF WRITER

Wesley Loy CONTRIBUTING WRITER

Gary Park CONTRIBUTING WRITER (CANADA)

Rose Ragsdale CONTRIBUTING WRITER

Ray Tyson CONTRIBUTING WRITER

John Lasley STAFF WRITER

Allen Baker CONTRIBUTING WRITER

Sarah Hurst CONTRIBUTING WRITER

Judy Patrick Photography CONTRACT PHOTOGRAPHER

Mapmakers Alaska CARTOGRAPHY

Forrest Crane CONTRACT PHOTOGRAPHER

Tom Kearney ADVERTISING DESIGN MANAGER

Amy Spittler MARKETING CONSULTANT

Dee Cashman CIRCULATION REPRESENTATIVE

Petroleum News and its supple-ment, Petroleum Directory, are

owned by Petroleum Newspapersof Alaska LLC. The newspaper ispublished weekly. Several of theindividuals listed above work forindependent companies that con-

tract services to PetroleumNewspapers of Alaska LLC or are

freelance writers.

ADDRESSP.O. Box 231647Anchorage, AK 99523-1647

NEWS [email protected]

CIRCULATION 907.522.9469 [email protected]

ADVERTISING Susan Crane • [email protected]

Bonnie Yonker • [email protected]

FAX FOR ALL DEPARTMENTS907.522.9583

OWNER: Petroleum Newspapers of Alaska LLC (PNA)Petroleum News (ISSN 1544-3612) • Vol. 15, No. 13 • Week of March 28, 2010

Published weekly. Address: 5441 Old Seward, #3, Anchorage, AK 99518(Please mail ALL correspondence to:

P.O. Box 231647 Anchorage, AK 99523-1647)Subscription prices in U.S. — $98.00 1 year, $176.00 2 years, $249.00 3 years

Canada — $185.95 1 year, $334.95 2 years, $473.95 3 years Overseas (sent air mail) — $220.00 1 year, $396.00 2 years, $561.00 3 years

“Periodicals postage paid at Anchorage, AK 99502-9986.”POSTMASTER: Send address changes to Petroleum News, P.O. Box 231647 Anchorage, AK 99523-1647.

www.PetroleumNews.com


TransCanada:Dempster Laterala dead issueResponses to FERC queries on open season plan includeinformation on Canadian pipeline open season


The Federal Energy RegulatoryCommission had just a few questions

for TransCanada Alaska on its AlaskaPipeline Project open season plan, two ofthem concerning the meaning of “agrees”in the precedent agreement.

On more general issues, FERC askedabout the process for capacity allocationon the Canadian pipeline and about poten-tial impacts of any Dempster Lateral proj-ect on shippers in the proposed Canadiansection of the project.

On the process for capacity allocationin the project’s Canadian line,TransCanada said: “The Canadian openseason process will be conducted in amanner similar to, and consistent with, theU.S. process,” running from April 30through to July 30, and with “the sameschedule, deadlines and requirements asthe U.S. open season.”

Canadian precedent agreements andthe Canadian tariff “will be aligned withthe comparable U.S. documents wherepossible,” TransCanada said.

The company said the coordinatedopen season process would allow potentialshippers interested in transportation toAlberta to nominate capacity on theCanadian portion of the line.

“Capacity will be allocated on theCanadian Pipeline using the same processutilized in the U.S.,” TransCanada said.

FERC’s open season process for theAlaska portion of the gas pipeline requirespublic disclosure of the open season plan,but this is not the case in Canada.

TransCanada said “Canadian open sea-son documents will be made available topotential shippers on a confidential basis,”while open season marketing material andcertain non-confidential literature will beprovided to interested parties.

TransCanada also said data roomsbeing set up for the open season in theU.S. and Canada will contain detailedinformation on both the U.S. andCanadian portions of the project.

The company said the contacts for theCanadian open season are the same asthose shown on the Jan. 29 proposed openseason notice for the Alaska PipelineProject.

Dempster LateralFERC asked TransCanada to “explain

your understanding about any potentialDempster Lateral pipeline project that

could ultimately be constructed, the rela-tive uncertainties regarding its potentialconstruction, and the likelihood that anyDempster Lateral costs could be chargedto shippers using your pipeline’sCanadian Pipeline.”

TransCanada said the DempsterLateral was proposed by the NationalEnergy Board in its 1977 reasons fordecisions for recommending certificationof the Foothills Pipe Lines (Yukon) Ltd.project for moving Alaska gas throughCanada.

The Dempster Lateral was proposed asa way of combining volumes of Alaskaand Mackenzie Valley gas, and if certifi-cated the Dempster Lateral would con-nect Mackenzie gas to the proposedAlaska line near Whitehorse, Yukon.

TransCanada said there “was insuffi-cient evidence of the need for theDempster Lateral” in 1977, and, unlikeother zones of the Canadian Pipeline“deemed to have been certified pursuantto Section 21 of the Northern Pipeline Actin accordance with the NEB Reasons forDecision, the Dempster Lateral zone wasnot deemed to have been certificated” and“was specifically excluded” from certifi-cation.

“This distinction is important,”TransCanada said. “The need for theDempster Lateral has yet to be estab-lished.”

Based on recommendations in the1977 reasons for decisions, TransCanadasaid, Foothills, the Alberta Gas TrunkLine and the Canadian governmententered into the 1978 Dempster LinkAgreement, which “created an obligationupon Foothills to apply to the NEB for acertificate to construct and operate theDempster Lateral.”

Foothills made that application,TransCanada said, but there was no sup-port for proceeding with the applicationand “the application eventually lapsed,without any decision or recommendationbeing made by the National EnergyBoard.”

“The Dempster Link Agreementexpired in 2005,” TransCanada said.“Foothills has no further outstanding obli-gations or liabilities with respect to pur-suing a Dempster Lateral.”

Foothills is a subsidiary of TransCanadaand is the entity which will build theCanadian portion of the project. �

Contact Kristen Nelson at [email protected]

http://www.gdiving.com/


The Canadian provinces of Ontarioand Quebec are rethinking their

public attacks on the Alberta oil sandsand the European Union has bowed toCanadian pressure by agreeing not toerect trade barriers to oil sands-relatedproducts.

All good news in a week when indus-try decision-makers held an unparalleledReuters-sponsored oil sands summit inCalgary.

The most important breakthroughoccurred when the Ontario and Quebecgovernments sent delegations and urgedbusiness leaders to participate in an eco-nomic mission to Edmonton for aNational Buyer/Seller Forum linked to oilsands investment.

This apparent change of heart comesafter an intense period of attacks on theoil sands by Quebec Premier Jean Charestand Ontario Environment Minister JohnGerretsen.

Alberta’s Premier Ed Stelmach andEnergy Minister Ron Liepert said theyhope this signals an acceptance byCanada’s two largest provinces that oilsands development creates thousands ofjobs in their regions and billions of dol-lars in tax revenues.

“We’ve got to keep getting the mes-sage out to Canadians and investorsaround the world,” Stelmach said.

He told the forum that environmentalattacks on the oil sands have been “wild-ly exaggerated by people and groups whohave their own agenda.”

Ontario sent 35 companies and sixregional economic development organi-zations to Edmonton; Quebec sent at least17 companies, many from the clean tech-nology sector.

Separately, a draft European Unionpaper on fuel standards drops all refer-ences to Canadian oil sands or tar sands,unlike drafts from last year, whichassigned a greenhouse gas value to the oilsands of 107 grams per megajoule, muchhigher than any other road fuel exceptthose extracted from coal.

That appeared to signal success forCanadian lobbying efforts, including awarning by Canadian Ambassador RossHornsby that draft EU standards to pro-mote greener fuels are too unwieldy and

would harm the market for oil sands pro-duction.

He cited research showing the oilsands’ carbon footprint was only 5 to 15percent higher than most crude importsconsumed in the United States.

“A separate category for oil sands …would amount to unjustifiable discrimi-nation against the oil sands,” he wrote toKarl Falkenberg, head of the EuropeanCommission’s environment department.

Oil sands commentsMeanwhile, the gathering of the oil

sands’ most powerful executives inCalgary yielded the following comments:

• Rick George, chief executive officerof Suncor Energy: “We’ve got to do a bet-ter job of telling our side of the story. Ourenvironmental footprint in the same as theheavy oil produced in southernCalifornia. You deal with the facts and notfiction and not political rhetoric. If we aregoing to a carbon tax I am not necessari-ly opposed, but you must tax equally. Thebiggest emitter of CO2 is coal. You can’tjust exempt coal.”

• Brian Ferguson, chief executive offi-cer of Cenovus Energy: “We’re tryingseveral different technologies (to reducegreenhouse gas emissions). One is toapply butane solvent into the steam toreduce the amount of steam that isrequired. The technology is proven intoday’s price environment. But there’s(further possible opportunities) to usetechnological advances to drive downcosts and drive down carbon dioxideemissions. The big thing that I’m focus-ing on right now is getting a really goodunderstanding of (our) resource that wehave at hand and how to move that for-ward in terms of net present value (byachieving 10 to 15 percent annual pro-duction growth).”

• Bruce March, chief executive officerof Imperial Oil: “We don’t have to makethe choice between energy developmentof the oil sands and the environment. Ifwe continue with the long track record ofimprovement … we can develop the oilsands responsibly, so we do not have tomake that choice.” He said current costestimates look acceptable for Imperial’s

planned C$8 billion Kearl project, tellingthe summit they have dropped as much as20 percent below pre-recessions levels.

• Chris Seasons, president of DevonCanada: “There’s a little bit of the potcalling the kettle black if California istalking about (imposing limits on oilsands production) without even looking atthe oil derived from their own state.Getting off oil is not going to happen forsome time. If you accept that you aregoing to have to have a good source ofsupply … I think Canada is a pretty darngood place to source your crude.” He saidDevon sees as many as five projects pro-ducing 170,000 bpd from its newlyacquired Kirby leases, but peak produc-tion from the first phase is still six yearsaway.

• Lars Christian Bacher, president ofStatoil Canada: “We see that some (capi-tal) costs are dropping. We have also seenover the past year that it’s easier to hireemployees and also keep them.” His com-pany has pledged to cut CO2 emissions


� E X P L O R A T I O N & P R O D U C T I O N

Alberta oil sands get a breakOntario, Quebec shelve opposition, send delegations to buying-selling forum; EU backs down; industry leaders make stewardship case

see OIL SANDS page 6

http://www.lounsburyinc.com/

By ERIC LIDJIFor Petroleum News

A fter a year to clear its throat, anattempt to unite the Alaska Railbelt

utilities is back before lawmakers in amore flexible package, creating both ben-efits and concerns.

A pair of bills before the Legislature— HB 182 and SB 143 — would form aprivate corporation tentatively named theGreater Railbelt Energy and TransmissionCo. under the assumption that the wholeis greater than the sum of its parts forRailbelt electricity.

GRETC, as it’s being called, wouldprovide wholesale power to public utili-ties in the Railbelt region stretching fromHomer to Delta Junction. It would buy orbuild new generation and transmissionassets, buy fuel supplies and developoperating standards.

The six Railbelt utilities are regulatedmonopolies in an interconnected grid,most with their own generation facilitiesand all with their own independent distri-bution lines.

The idea is to create economies of

scale that bring down the cost of powerfor consumers, while also easing the pathtoward building massive energy projectsin the future.

Changes for a unique systemThe unique utility structure in Alaska

grew out of necessity. To electrify isolat-ed and relatively under-populated cornersof pre-statehood Alaska, the member-owned cooperatives that sprung up inFairbanks, Anchorage and the Mat-Suregion needed to be vertically integrated,owning generation, transmission and dis-tribution facilities.

Now, 50 years into statehood, somequestion whether that system should berestructured to more closely resemble theLower 48, where local distribution com-panies buy power from generation facili-ties that serve broad regions, often cross-ing state lines. Alaska can’t connect to theNorth American grid, but it can unite itspopulation center in the Railbelt.

This idea has gained traction over thepast three years.

A 2008 study commissioned by theAlaska Energy Authority aimed to make a

business case for combining generationand transmission assets in the Railbeltinto one entity.

In late 2009, another AEA reportcalled the Regional Integrated ResourcePlan prioritized power generation projectsunder consideration, looking at variousfactors like fuel type, cost and complexi-ty to guide policymakers looking to doleout limited funds in the future.

The report concluded that any majorpower projects, like the long-proposedSusitna Dam or a hydroelectric project atLake Chakachamna, depended on utilitycooperation because the current debtcapacity of the utilities individually is,even in the best-case scenario, several bil-lion dollars shy of the infrastructureinvestment needed over the next 30 years.

A Commonwealth North report onRailbelt energy released March 24 calledthe GRETC concept “worth pursuing inorder to ensure Alaska’s long term energystability.”

“Success will ultimately come fromcommunity support, equal representationon the Board of Directors, and an atmos-phere of trust that allows the six Railbeltutilities to join and work together for thecommon benefit of the people of Alaska,”the report said.

Then-Gov. Sarah Palin proposedGRETC in early 2009, but too late in thelegislative session for lawmakers to con-sider the bill until this year. In the inter-vening months, the utilities and the stateformed a task force to air concerns andrevise the bill to their liking.

The revised bill is now getting its firsthearings before legislative committees.

Utilities ask for some freedomThe biggest change to the bill is flexibil-

ity. Membership in the proposed corpora-

tion is now entirely voluntary, and while thebill encourages cooperation by making thecorporation the primary recipient of stateenergy dollars, it also allows member utili-ties to pursue projects independently if theywant.

That flexibility extends into oversight aswell, viewing the current regulatory struc-ture governing Alaska utilities as one thecorporation would ideally outgrow instages.

Under the bill, Regulatory Commissionof Alaska oversight of GRETC would sun-set after five years unless lawmakers votedto extend it and GRETC would undergocomprehensive management audits everythree years for its first 10 years of existence.

If all goes well, oversight then becomeseven looser, relying on transparency guide-lines, dispute resolution, an appeals processand the ability of consumers to protest deci-sions.

“The goal is to build this, put it onautopilot and expect it to work right, butwe’ve built in oversights and we’ve built inrequirements for public processes that thecompany must undertake in its day-to-daybusinesses,” Jim Strandberg with the AlaskaEnergy Authority told members of theHouse Special Committee on Energy onMarch 18.

…but freedom is not freeThe wiggle room is making some law-

makers cautious, though.Rep. Chris Tuck noted that the voluntary

participation makes it possible for one utili-ty member to take on a project that com-petes against existing GRETC efforts. Theconcern is amplified in the case of potentialnonvoting members like Doyon Utilities, aNative-owned private contractor that man-ages power plants at military bases acrossAlaska.

Rep. Charisse Millett, co-chair of thecommittee, brought up the disparitybetween residential and industrial cus-tomers. GRETC would establish a set


The thick, heterogenic Khuff carbonate formation is difficult to stimulate uniformly. An operator in Qatar used the MaxCO3 Acid* system to achieve superior diversion and uniform zone stimulation.

During the initial campaign, 11 treatments were performed in the North field. The MaxCO3 Acid system significantly improved the efficiency of the operation. Treatment volumes were reduced by up to 50%, and rig time and operational time were reduced by 30%.

The MaxCO3 Acid system incorporates dissolvable fiber and nondamaging acid. It stimulates the car-bonate formation, then uses an interlocking fiber network to block and divert fluid. The fibers dissolve completely with time, allowing poststimulated production contribution from diverted areas.

www.slb.com/CarboSTIM

Global Expertise | Innovative Technology | Measurable Impact

*Mar

k of

Sch

lum

berg

er.

© 2

010

Schl

umbe

rger

. 1

0-ST

-005

9

DEGRADABLE DIVERSION ACID SYSTEM

MaxC03 Acid

Dissolvable fiber, better diversion

from the oil sands by 25 percent over thenext decade and by 40 percent in 15years.

• Jean-Michel Gires, chief executiveofficer of Total Canada: “We call it oilsands, not tar sands. Tar is a manufac-tured product, derived from coal. (Carboncapture and storage) is an interestingoption, but it’s just another option. It’s notthe solution. Interesting technologicalsolutions are starting to exist, but they arestill too expensive.” He said justifying amultibillion dollar price tag for an oilsands mine and upgrader needs oil pricesabove US$80 per barrel.

• Russ Girling, chief operating officerof TransCanada: “If you impose fuelstandards that restrict (oil sands) imports,the cost of gasoline will go through theroof. The U.S. wants and needs(Canadian) crude oil for a long time.” �

continued from page 5

OIL SANDS

Contact Gary Park through [email protected]

� U T I L I T I E S

Revised GRETC bill gets House hearingA more flexible approach brought the utilities to the table, but lawmakers want some concerns addressed before they sign off

see GRETC BILL page 8

http://www.slb.com/CarboSTIM


No matter which way pipeline com-pany Enbridge turns it is encoun-

tering resistance to the first large-scaleplan to export crude oil from the NorthAmerican continent.

First Nations, environmentalists andrival plans for tanker shipments fromBritish Columbia are besieging theNorthern Gateway project just weeksbefore Enbridge is expected to file anapplication with Canada’s NationalEnergy Board.

And all this comes around the 21stanniversary of the Exxon Valdez disaster,which is being held up as a key reason forregulators and governments to blockEnbridge’s hopes of exporting 525,000barrels per day of oil sands-derived crudeand import 193,000 bpd of condensatethrough the deepwater port at Kitimat.

Enbridge commercial manager SteveElliot had no sooner told an energy semi-nar in Tokyo that his company was on theverge of submitting a formal applicationto the NEB than the proposal wasswamped with doubts and negatives.

First Nations from British Columbia toAlberta warned that wildlife along theBritish Columbia coast would be devas-tated by an oil spill; the Union of BritishColumbia Indian Chiefs, representingabout 40 percent of the province’s aborig-inal population, has unanimouslyopposed Northern Gateway; Alberta abo-riginals are rallying to show their opposi-tion; and environmentalists and landown-ers have already indicated they will chal-lenge the plans at regulatory hearings.

Problems are also surfacing at thedelivery end of the Asian-bound exports,with Japanese refiners and traders indi-cating they see greater benefits in import-ing crude from Russia’s Far East whichoffers higher yields of middle distillatesand lower freight costs compared withMiddle Eastern crudes.

Kinder Morgan: price the issueCompounding those challenges,

Kinder Morgan — which has developedpreliminary plans to either expand itsexport pipeline from Alberta toVancouver or build a separate rivalpipeline to Kitimat — has warned thatcrude pricing could stand in the way of

Canadian crude reaching Asia.Kinder Morgan senior business devel-

opment manager Norm Rinne toldreporters in Tokyo said there has been noevidence of deals between Canadian sell-ers and Asian buyers to support hopes of

shipments exceeding 300,000 bpd after2017, giving Canadian producers a com-petitive outlet to its sole export market inthe United States.

Rinne said Kinder Morgan plans toadd two more Canadian pipelines — onecarrying 80,000 bpd and the other320,000 bpd to the B.C. coast by 2017.

He said initially Kinder Morganexpects Asian demand will be less than100,000 bpd by 2015, before tripling overthe next two years.

Kinder Morgan is currently workingon engineering and design for a secondberth at its Vancouver terminal, buildingon its trial shipments of crude to Asia,which claimed a share of the average75,000 bpd exported from Vancouver in2009 (peaking at 134,000 bpd in March2009).

He said his company believes that“nothing except prices is holding backCanadian crude oil from going into Asia,”once sellers and buyers can bridge the gapbetween Dubai and WTI pricing.

Domestic resistanceHowever, the domestic resistance to

Northern Gateway is rapidly gatheringmomentum.

Coastal First Nations, a coalition ofBritish Columbia aboriginal communitiesstretching from Vancouver Island to theB.C.-Alaska border, said March 23 it isready to battle Enbridge.

Coalition Executive Director ArtSterritt said there is too great a risk of anoil tanker repeating the grounding of the


� P I P E L I N E S & D O W N S T R E A M

Northern Gateway under siegeEnbridge, on verge of filing to open Asian markets for oil sands crude, faces resistance from environmentalists, First Nations

Enbridge eyes Marcellus optionCanadian pipeline company Enbridge hopes to corner its share of the North

American natural gas liquids shipping business by testing producer interest inlinking the Marcellus Shale in Pennsylvania with Chicago’s industrial region.

The Calgary-based company wants to fill the available liquids capacity at itsAux Sable processing facility near Chicago that currently feeds off liquids deliv-ered by the Alliance pipeline from northern British Columbia. It might also extendthe line to serve Ontario’s petrochemicals feedstock market.

The proposed line would cover about 500 miles and capacity will depend onthe results of an open season scheduled for the second quarter.

A company spokesman said there are estimates of 100,000 barrels per day ofMarcellus liquids by 2013.

Enbridge Vice President Stephen Letwin said in a statement that his companyhas “extensive knowledge and expertise in the areas of NGL fractionation, trans-portation and marketing. Within this proposed pipeline, we are uniquely posi-tioned to help Marcellus producers obtain greater value for their future NGL pro-duction.”

The Marcellus formation is one of several giant shale plays evolving in NorthAmerica.

Enbridge is going head-to-head with TransCanada and Spectra Energy’s UnionGas which held a recent open season seeking preliminary commitments fromMarcellus producers to ship gas from New York state into Ontario. No results havebeen announced.

Buckeye Partners is also testing interest in a liquids pipeline from theMarcellus to Ontario.

Enbridge believes that accessing the Chicago market with Marcellus liquidswill need only a modest amount of pipe to take advantage of substantial markets.

UBS analyst Chad Friess said the pipeline would likely have only a smallfinancial impact on Enbridge, which is flush with cash and looking for opportu-nities to divert that surplus.

—GARY PARK

see NORTHERN GATEWAY page 8

http://www.nascoinc.com/

http://www.hawkpros.com/

Exxon Valdez as it navigated “the pristinewaters within our traditional territories.”

“If we had a tanker accident on thecoast of British Columbia it would literal-ly wipe out all of our cultures, all of oursalmon, all of our groundfish,” he said.

Sterritt said Coastal First Nations weretold by Enbridge a year ago, and the com-pany reiterated the pledge at its annualgeneral meeting in 2009, that “if all thecommunities within this geographicregion didn’t support the pipeline thatthey would stop the project. We’re here totell you today that all of the communitiesare opposed to Enbridge.”

He said the Northern Gateway pipeline“is a threat to the very existence of ourculture and our way of life.”

A five-year study released byRaincoast Conservation Foundation con-cluded that whales, wolves, bears andbirds would be devastated by an oil spillin the area.

Environmentalists Vicky Husband,who has been recognized for her work bythe British Columbia and Canadian gov-ernments, said Canada’s conservationcommunity is united in its opposition tothe pipeline and tanker traffic.

“Why are we here to shift dirty tarsands oil to China or India?” she asked.“So we can (develop) more tar sands, sowe can export more climate change anddestroy our Earth? We have to change ourcourse now.”

Earliest in-service late 2016Elliot told the Tokyo seminar the earliest

in-service date for the pipeline is the finalquarter of 2016.

Enbridge has estimated that NorthernGateway would create more than 4,000construction jobs and generate tax revenuesfor both British Columbia and Alberta.

It argues that ships have safely carriedpetrochemicals out of the Kitimat port for25 years.

Elliott said the startup date depends onmany factors, including detailed engineer-ing, a regulatory decision, timing of com-mercial sanctioning and constructionprogress.

He said a filing for the 720-milepipeline will be part of an ongoing regula-tory Joint Review Panel process by theNEB and the Canadian EnvironmentalAssessment Agency.

Elliott said Enbridge has secured C$100million from four Canadian oil sands pro-ducers and three Asian-based market par-ticipants to finance the regulatory applica-tion.

Without naming the backers, he said:“We have got a diversified variety level ofsupport from both the supply side and mar-ket side.”

Each of the participants is entitled tobenefits, such as an option to ship crude ata discount on crude export and condensateimport lines.

Enbridge is not prepared to get drawninto a public debate when it is so close to aregulatory filing, but has said it “welcomesand encourages public input.”

British Columbia Premier GordonCampbell told reporters March 23 thatwhile the project would be reviewed, henoted the jobs it would create.

“There’s literally hundreds and hun-dreds of jobs that will be available to FirstNations people across the northern part ofour province.”I think our job is to try andfind ways we can get First Nations peopleengaged with paychecks, building the kindof economic future that they need in a waythat meets our environmental standards,which are among the most rigorous any-where in the world.” �


Looking for a new job in Alaska’s most valuable industry? Now is a great time to start.

Search oil and gas jobs using ALEXsys, Alaska’s virtual career center.One-third of all jobs in Alaska are connected in some way to the petroleum industry. Use ALEXsys to search

for career, job training and apprenticeship opportunities in this exciting, ever-changing industry. Using

a new feature in ALEXsys you can now enter your licenses, certificates and diplomas so employers can

find you by your credentials. What’s more, ALEXsys is the only online job bank that gives preference

to Alaskans. Get started at ALEXsys.alaska.gov.

“postage stamp” rate for all residential con-sumers in the Railbelt, but would give utili-ties first right of refusal to negotiate con-tracts with major industrial customers.These bid users can greatly impact cost ofservice. For instance, Golden ValleyElectric Association in Fairbanks oftentouts that its contracts with two nearby goldmines temper residential electricity rates.

Millett and Rep. Kyle Johansen bothwanted a better sense of the financial well-being of the six utilities before forming acorporation to unite them. Millet said herconstituents have suggested some hard-uputilities may see membership as a “lifeline.”Strandberg said the 13-member GRETCboard of directors would lead to votingblocks that naturally prevent one memberfrom trying to get “bailed out” at theexpense of the corporation.

The 22-page bill also contains manysmall, but curious provisions, like one thatsuggests GRETC could become a fuel pro-ducer in the future. Strandberg did notexplain the genesis of that idea, but said theParnell administration may ask to drop itfrom the bill.

Like the restructuring of the utility mar-ket in the Lower 48, GRETC would mostlikely evolve in phases, Strandberg said.“We look at this as a first cooperative stepwith the utilities to move towards a moretightly integrated network over the longrun,” he said.

The House and Senate continue toexamine the revised bills in committee. �


GRETC BILL

Contact Eric Lidji at [email protected]

FINANCE & ECONOMYJohansen to head ConocoPhillips Alaska

ConocoPhillips has named Trond-Erik Johansen as president of its Alaskaoperations.

Johansen, currently president of ConocoPhillips’ Southeast Asia Explorationand Production organization, replaces long-time ConocoPhillips Alaska PresidentJim Bowles, who died while snowmachining on the KenaiPeninsula Feb. 13.

Johansen, a native of Norway, has held a variety of petro-leum engineering, project engineering and operations lead-ership positions in Stavanger, Aberdeen, New Orleans,Houston and Jakarta.

He joined the company in Stavanger, Norway, in 1986with a master’s degree in petroleum engineering from theNorwegian Institute of Technology.

He earned an MBA at the Sloan Fellows program atMassachusetts Institute of Technology in 2001 and aftergraduation he moved to Aberdeen to become general man-ager for drilling and production, supply chain, HSE and the Britannia field asset.

In 2002, Johansen moved to Norway to become operations manager for theEkofisk field and later general manager for the greater Ekofisk area. In 2005, hebecame managing director for ConocoPhillips in Norway.

Johansen moved to Jakarta in early 2007 where he led the Indonesian businessunit until April 2008 when he was named president, Asia Pacific, Exploration andProduction, based in Singapore.

The appointment as president of ConocoPhillips Alaska is effective April 1. —PETROLEUM NEWS

TROND-ERIK JOHANSEN


NORTHERN GATEWAY


http://www.universalwelding.net

http://ALEXsys.alaska.gov


If Alaska North Slope natural gas wastransported in an in-state gas pipeline

and sold for use entirely within Alaska, noFERC authorization would be needed forconstruction and operation of the line,Federal Energy Regulatory Commissionstaff said in a recent analysis.

But the commission would have to con-sider the circumstances in scenarios wheresome of the gas was exported to foreignmarkets as liquefied natural gas, or wheresome was exported as LNG and some soldinto Lower 48 markets.

That was the response from FERC staffto a request for regulatory clarification onthe three scenarios from Bob Swenson,Alaska’s in-state natural gas pipeline projectmanager.

In a March 15 cover letter accompanyingthe staff analysis, FERC Chairman JonWellinghoff told Swenson that while theanalysis by FERC staff “represents staff’sbest judgment, based on the scenarios pre-sented” in Swenson’s letter, and in an earli-er letter by former project manager HarryNoah, “if and when the Commission itselfis asked to rule formally on these or similarissues, the Commissioners will have toreach their own decisions on the matterspresented to them.”

In a Jan. 28 letter, Swenson said thatwhile the interstate gas pipeline is a top pri-ority of the Parnell administration, “Wewant to make sure that Alaskans do not fallshort in meeting their needs for natural gas,”and asked for confirmation and clarifica-tion of circumstances under which “FERC,as opposed to the Regulatory Commissionof Alaska, would have jurisdiction.”

It is important for the state in evaluatingalternatives to understand whether FERC orRCA would have jurisdiction, Swensonsaid, and described two possible routes fromthe North Slope to Cook Inlet, each paral-leling the Dalton Highway, with one routefollowing the Parks Highway and the otherthe Richardson and Glenn highways.

“In either case, the pipeline would com-mence at the outlet of a conditioning plantand end at or near tidewater in Cook Inletwhere it would interconnect with an exist-ing RCA-regulated intrastate pipeline in theAnchorage area,” he said.

Three scenariosIn the first scenario, with all gas sold to

end users who would consume the gasentirely within Alaska, FERC staff said itagreed with Swenson’s conclusion that noFERC authorization would be needed forconstruction or operation of the in-statepipeline.

In a second scenario, some of the NorthSlope gas would be sold to and consumedby end users in Alaska, but some, potential-ly a majority of the gas, would be sold andtransported to the Kenai liquefied naturalgas facility where it would be liquefied forexport to foreign markets.

Swenson said FERC determined in 1987that Yukon Pacific’s proposed in-statepipeline to feed a proposed LNG terminal atValdez for foreign export would not be sub-ject to commission jurisdiction. While theNatural Gas Act was amended in 2005,Swenson said, the logic of the 1987 decision“would still appear to apply to the scenarioswe describe here” because they would notinvolve the construction of a new LNGfacility and the in-state pipeline would notbe directly connected to the existing LNG

facility. FERC staff said the Yukon Pacific situa-

tion was “somewhat, but not entirely, simi-lar.”

In Yukon Pacific’s Trans-Alaska GasSystem proposal, all of the gas would havebeen liquefied for export “exclusively intoforeign commerce.” FERC declined to reg-ulate TAGS, the staff analysis said, “reason-ing that the project would have no econom-ic consequences to U.S. ratepayers” andFERC’s environmental review process asso-ciated with the LNG plant would providethe commission “ample opportunity to con-sider the environmental and safety aspectsof the pipeline.”

Energy Policy Act of 2005The Energy Policy Act of 2005 added a

new section to the National Gas Act andprovided FERC with “exclusive authority toapprove or deny an application for the sit-ing, construction, expansion, or operationof an LNG terminal.” The definition of an

LNG terminal added by the 2005 actincluded “all natural gas facilities locatedonshore or in State waters that are used toreceive, unload, load, store, transport, gasi-fy, liquefy, or process natural gas that isimported to the United States from a for-eign country, exported to a foreign countryfrom the United States, or transported ininterstate commerce by waterborne vessel.”

The staff analysis said that were FERCto consider a project like the Yukon Pacificproposal today, it would have to considerwhether the 800-mile-long pipeline wouldfit into the definition of natural gas facilities“used to … transport … natural gas …exported from the United States.”

“That same question is raised by the cir-cumstances presented in Scenario 2,” FERCstaff said.

Scenario 2 does not involve constructionof a new or expanded LNG facility and theproposed in-state gas pipeline would notdirectly connect to the LNG plant, butwould connect with existing gas pipelines

that in turn connect to the terminal, theanalysis said.

The circumstances are also differentbecause the impetus for the line would be toprovide gas for in-state use.

And similar to the Yukon Pacific situa-tion, “it appears that such a project wouldhave no economic consequences for anyU.S. ratepayers outside of the State ofAlaska.”

FERC staff concluded that the commis-sion would need to consider these issues “indeciding whether it would be required toassert jurisdiction over the proposedpipeline.”

Scenario 3In Scenario 3, in addition to gas for in-

state use and for foreign export as LNG,some gas would be sold as LNG to Lower48 markets.

“The fact that some of the gas in



FERC: RCA has in-state gas jurisdictionStaff response says if in-state line only for in-state use, state would regulate; commission would have to decide if gas exported

see RCA page 13

http://www.stoel.com/

By SARAH HURSTFor Petroleum News

Shell’s experience in the Russian FarEast with the Sakhalin II project pro-

vides valuable lessons that could be usedfarther north, RobertBlaauw, the compa-ny’s Arctic teamleader, told the ArcticFrontiers conferencein Tromso, Norway,Jan. 26. Shell hasworked with SakhalinIsland’s 3,500 indige-nous people and otherresidents to ensurethey benefit econom-ically and socially from oil and gas devel-opment, Blaauw said.

“The Sakhalin oil and gas projects arethe first world-scale industrial projects in

this remote island,” he said. “Naturally,much like Alaska the indigenous peoplewere concerned about the impact thesemassive projects could have on traditionallifestyles and how they could benefit.Finding the right way for sustainable coop-eration took time, but with a project life-time of some 50 years, investing time andeffort to find the best possible cooperationmodel is imperative.”

Shell has a 27.5 percent stake in theSakhalin Energy consortium that runs theSakhalin II project, with Russia’s Gazpromholding 50 percent plus one share, Mitsui12.5 percent and Mitsubishi 10 percent.Sakhalin II is considered one of the world’slargest integrated oil and gas projects, withits two fields containing an estimated 1,200million barrels of crude oil and 18 trillioncubic feet of natural gas.

Since production began in 1999, morethan 150 projects have been launched inSakhalin to address healthcare, education,preservation of languages and support fortribal enterprises and communities, Blaauw

Greenpeace calls for Arctic moratorium Oil and gas development cannot possibly benefit Arctic ecosystems or communi-

ties, and Greenpeace is calling for a moratorium on all industrial activities in the partof the Arctic Ocean which historically has been covered by sea ice.

That was the blunt message delivered by Mads Christensen, Nordic executivedirector for Greenpeace International, at the Arctic Frontiers conference in TromsoJan. 26. Subsistence activities shouldbe permitted, he said.

“We see this moratorium as animmediate measure to address the cur-rent governance gap in the ArcticOcean,” Christensen said. “Somethingthat would remain in place until a morepermanent and overarching treaty oragreement is established to protect thispart of the Arctic Ocean from addi-tional damage, similar to what is inplace for Antarctica. Nowhere on earthare animals more important to humanexistence than in the Arctic.”

The record low sea ice extent in the Arctic Ocean that occurred in 2007 wasn’tpredicted to take place until 2080, Christensen noted. Sea ice underpins the ArcticOcean’s ecosystems, he said, and is not only shrinking but also thinning, and seamammals won’t be able to adapt to a complete absence of summer ice. The acidityof the Arctic Ocean is also increasing due to global carbon dioxide emissions, he said.

Development not sustainableOil and gas development in the Arctic can never be called sustainable because of

the impacts of spills and the contribution these activities make to climate change,Christensen stressed.

“In the shorter term there may be economic development and jobs, but they do notcome with a guarantee that the ecosystems won’t be destroyed with it and in turn neg-atively affect the community itself,” he said. “So if we are to avoid catastrophic cli-mate change that is already hammering many Arctic communities and the ice-dependent species, then those oil and gas reserves must remain below the ArcticOcean seabed.”

The moratorium should continue until the whole world gets a chance to partici-pate in governance of the Arctic, not only the Arctic nations, Christensen said.

“We are at a crossroad. The path we take is an intelligence test,” he said. “Do wedrill and burn the fossil fuel reserves that are accessible only because climate changeis causing the ice to melt, or do we protect the Arctic and give it and the communi-ties living there a chance to adapt to the already serious changes taking place? ...From our perspective the part of the Arctic Ocean that has historically been coveredby sea ice is one of the world’s global commons. It should be preserved that way andmanaged accordingly,” Christensen said.

—SARAH HURST


URS is one of the world’s leading engineering firms. Our professional

staff work together to develop innovative and cost-effective solutions to

the challenges facing government and industry.

560 E. 34th Avenue, Suite 100 Tel: 907.562.3366

911 W. 8th Avenue, Suite 300 Tel: 907.279.0543

ENGINEERING

“From our perspective the part ofthe Arctic Ocean that has

historically been covered by seaice is one of the world’s global

commons. It should be preservedthat way and managed

accordingly.” —Mads Christensen, Nordicexecutive director for Greenpeace International

� O U R A R C T I C N E I G H B O R S

Sakhalin sets examplefor Arctic projectsOil and gas development on the island in Russia’s Far East hasbenefited local communities in many ways, Shell executive says

Robert Blaauw isShell’s Arctic teamleader.

Sakhalin Energy recruited Russian cartoonhero Senya to advise on what to do in emer-gency situations.

SHEL

L IN

TER

NA

TIO

NA

L

SAK

HA

LIN

EN

ERG

Y

see SAKHALIN page 11

http://www.colvilleinc.com/brooks.html


Transporting equipment, fuel and supplies through Alaska’s

Liner Shipping Worldwide Logistics Petroleum & Chemical Transportation Alaska Fuel Sales & Distribution Energy Support Project Management Ship Assist & Escort Ship ManagementOcean Towing & Transportation Salvage & Emergency Response

told the conference. The RussianAssociation of the Indigenous People ofthe North helped to make the projects asuccess, he said.

“The Sakhalin II project brought a seachange to local communities,” Blaauwsaid. “Once an outpost with a shrinkingpopulation, it saw jobs created, new hospi-tals and better roads built. Once the islandwas one of Russia’s worst regions forunemployment — now it has a jobless rateof 1 percent.” The harbor town ofKorsakov experienced years of stagnationuntil Sakhalin II developed the nearby vil-lages for oil and liquefied natural gasexports, and now it is thriving, Blaauwsaid.

“At the peak of construction, SakhalinEnergy transported goods and people oversome 6 million kilometers (3.7 millionmiles) every month,” Blaauw said. “In theearly days contractors and SakhalinEnergy employees ran a risk of beinginjured in traffic accidents. This was dueto bad weather, poor roads, but also due tobad driving habits, including not wearingseatbelts and drinking and driving. Therisk of dying in road accidents then wasaround 10 times higher than in the UK.”

After Sakhalin Energy launched a com-prehensive road safety program aimed atworkers and communities, including betterroad signs, improved roads and a TV adcampaign to encourage the use of seat-belts, the number of people using seatbeltsin Sakhalin rose to more than 80 percent in2008, Blaauw said.

“Now, what does this have to do withoil and gas developments?” he asked.“Well, nothing and everything, because weall want our neighbors and partners to dowell, and that starts with coming home toour friends and families safely and in onepiece.”

The conclusion to draw from Shell’sexperience in Sakhalin and also Alaska isthat stakeholder engagement should startat the very beginning of a project, he said.

“Working in the Arctic with its uniquechallenges requires inclusive and diverserelationships with key stakeholders at alllevels,” Blaauw said. “They all have a roleto play, including environmental NGOs(non-governmental organizations) andregulators.” �


SAKHALIN

� P I P E L I N E S & D O W N S T R E A M

Radar to spot icebergs is working againOut of service since last September, the system at infamous Bligh Reef helps with tanker safety in Alaska’s Prince William Sound


A radar system for spotting icebergs drifting across theshipping lanes in Prince William Sound is up and run-

ning again.The radar had been out of service since September due to

“integration problems” arising after the U.S. Coast Guardupgraded its own radar equipment at a shared station on ReefIsland, an oil industry watchdog group in Valdez said.

The ice radar resumed service on March 14 and is nowfeeding a display to the Valdez operations base for SERVS,the Ship Escort/Response Vessel System. SERVS, a unit ofAlyeska Pipeline Service Co., provides spill response andtug escorts for oil tankers hauling Alaska North Slope crudeoil out of Prince William Sound.

The watchdog group, Prince William Sound RegionalCitizens’ Advisory Council, praised Alyeska for its work tobring the ice radar back online.

“The company really came through,” said DonnaSchantz, the council’s acting executive director.

The radar system isn’t operating yet in the Coast Guard’sValdez vessel traffic center, which oversees tanker move-

ment in the Sound, but the Coast Guard is getting updatedsoftware to fix the problem, the council said in a March 23press release.

Iceberg dangerThe ice radar scans the waters from Reef Island west to

Columbia Bay, where the retreating Columbia Glacier calvesice chunks that can drift into the shipping lanes.

Reef Island overlooks Bligh Reef, an infamous naviga-tional hazard the tanker Exxon Valdez hit in 1989, causingan oil spill of about 11 million gallons. A factor in the disas-ter was that the tanker left the standard shipping lanes toavoid ice that other vessels had reported, the citizens’ coun-cil said.

In its report on the wreck, the National TransportationSafety Board recommended installing a radar system nearBligh Reef to spot icebergs and to help monitor vessel traf-fic, the council said.

“After the spill, evidence continued to mount about thethreat posed by icebergs,” the council added. “An emptytanker struck an iceberg in the Sound in 1994 and sufferedover $1 million in damage. And a technical study in the mid-1990s identified icebergs as one of the major remaining

threats to tankers in the Sound.”The council, the Coast Guard, Alyeska and other stake-

holders finally succeeded in installing the ice radar in 2002on Reef Island, where it operated fine until last September,the council said.

The radar service outage came to light after the tugboatPathfinder hit Bligh Reef on Dec. 23. The tug, part ofAlyeska’s tanker escort and docking fleet, had been out in theSound scouting for icebergs.

The Pathfinder incident, which caused a 6,410-gallondiesel spill but no injuries, remains under investigation.

Alyeska and Coast Guard spokesmen said tugs conducticeberg scouting runs routinely, regardless of whether the iceradar is working.

Still, all involved said they wanted to get the radar oper-ating again as an added tool for shipping safety.

“We look forward to having the system back in service atthe Coast Guard traffic center, as well as at Alyeska,”Schantz said. “We believe it can make a valuable contribu-tion to dealing with the iceberg threat in Prince WilliamSound.” �

Contact Wesley Loy at [email protected]

http://www.crowley.com/


An Interior Alaska village is challeng-ing a proposed natural gas exploration

license for the Holitna basin.A lawyer for the Native Village of

Sleetmute, a community of 72 people on theKuskokwim River about 10 miles northwestof the 26,791-acre license area, on Feb. 10filed papers in Superior Court in Anchorageopposing the license.

Sleetmute argues the Alaska Departmentof Natural Resources failed to give adequatenotice and opportunity for public commentprior to its Dec. 9 decision to award thelicense to Holitna Energy Co., based inEagle River.

Sleetmute also argues that DNR, inreversing its 2006 denial of the license,“failed to take a hard look at the salientissues raised when Holitna EnergyCompany substantially changed the scopeof the proposed license as part of its requestfor reconsideration to include only naturalgas exploration instead of coal bed methaneexploration.”

Sleetmute’s Anchorage lawyer, JohnStarkey, added: “DNR had no legally suffi-cient information or substantial evidence toreverse its previous finding that the licenselacked public support.”

Wildlife, pollution concernsResidents of Sleetmute and neighboring

villages have raised myriad concerns aboutproposed exploration activity in the licensearea, where no drilling has occurred thus far.

The villagers believe exploration coulddisturb moose and caribou important to res-idents as food, and could foul fresh watersupplies.

In approaching DNR again for thelic\\ense, Holitna Energy made a majorchange to its plans, relinquishing its rightsto coalbed methane.

DNR Commissioner Tom Irwin agreedwith the company that forgoing coalbedmethane “significantly reduces the scope ofthe license application and avoids manypotential environmental effects in thelicense area,” DNR’s Dec. 9 license decisionsaid.

The commissioner and state Oil and Gas

Director Kevin Banks held that issuing anexploration license to Holitna Energy fornatural gas only “is in the state’s best inter-est.”

But DNR can’t issue the license untilSleetmute’s appeal runs its course, Bankstold Petroleum News on March 23.

Gas potential, marketsDNR uses exploration licensing as a way

to supplement the state’s conventional oiland gas leasing program.

Licensing spares companies the upfrontcost of bidding in a lease sale, and encour-ages exploration in areas far removed fromAlaska’s main petroleum provinces, theNorth Slope and Cook Inlet.

One recent study indicated “a poorpotential for commercial quantities of oil inthe Holitna Basin and poor to fair potentialfor commercial quantities of gas,” DNR’sDec. 9 license finding said.

“In the absence of well and seismic sub-surface data, the basin stratigraphy is poorlyunderstood and largely extrapolated fromsurrounding surface outcrops and otherTertiary basins in central Alaska,” the find-ing said.

A gas discovery potentially could servelocal users. Holitna gas also has been men-tioned as a potential fuel source for the pro-posed Donlin Creek gold mine northwest ofSleetmute. That project would require anaverage electricity load of 127 megawatts,or roughly the demand of the city ofFairbanks.

Donlin’s energy mix at this pointincludes on-site diesel generators plus awind farm, and any reliance on undiscov-ered Holitna gas is purely “speculative,”Donlin Creek spokeswoman Mary Sattlertold Petroleum News. �


� L A N D & L E A S I N G

Alaska village fightsgas explorationSleetmute files opposition papers in Anchorage Superior Court;appeal holds up DNR license for Holitna Energy Co.

GMU 21A

GMU 19D

GMU 19A

GMU 19B

RED DEVIL

SLEETMUTE

NAPAIMIUT

GEORGETOWN

STONY RIVER

LIME VILLAGE

CROOKED CREEK

Figure 3.4 Game Management Units

Best Interest FindingHolitna Basin

Source: ADF&G

-0 10 20

Miles

ADF&G Game Management Units

License Area

ALA

SKA

DEP

ART

MEN

T O

F FI

SH &

GA

ME

A lawyer for the Native Village of Sleetmute, a community of 72 people on the KuskokwimRiver about 10 miles northwest of the 26,791-acre license area, on Feb. 10 filed papers inSuperior Court in Anchorage opposing the license.


A gas discovery potentially couldserve local users. Holitna gas alsohas been mentioned as a potentialfuel source for the proposed Donlin

Creek gold mine northwest ofSleetmute.

http://www.guessrudd.com/

http://www.jackovich.com/


Scenario 3 might be transported in interstatecommerce … could result in the proposedin-state pipeline becoming fully subject tothe Commission’s NGA jurisdiction,”FERC staff said, citing a U.S. SupremeCourt determination that FERC jurisdictionover interstate transmission of natural gas“does not begin at the point at which gasfirst crosses a state line; rather, it begins atupstream points wherever NGA gatheringends.” However, FERC staff said, the com-mission might exercise limited jurisdictionover the interstate gas service in Scenario 3,but not over the facility itself, based on pro-visions in the Natural Gas Policy Act of1978, a section of which “provides that anintrastate pipeline can transport gas in inter-state commerce without its facilities andintrastate services becoming subject to theCommission’s NGA jurisdiction.”

NGPA provides that the purposes of thesection of the Natural Gas Act which setsout FERC’s jurisdiction over transportationof gas in interstate commerce do not applyto transportation in interstate commerce ifthat transportation is authorized by FERCunder the NGPA.

The staff analysis said FERC “has heldthat the NGPA’s definition of ‘intrastate

pipeline’ excludes newly constructedpipelines, since prior to operation theycould not qualify as ‘engaged in’ trans-portation,” and “have never found that acompany can qualify as an intrastatepipeline without having first established theintrastate character of existing operations inthe state where the pipeline is located.”

However, FERC staff said, the commis-sion “has also never ruled on how long anintrastate pipeline must have been in opera-tion as such in order to shield its status as anintrastate pipeline while also offering inter-state services under section 311 of theNGPA.” And the commission has neverruled that once an intrastate pipeline beginsoffering interstate service under section 311of the NGPA that “its continued intrastatepipeline status depends on its continuing toprovide some specified level or percentageof intrastate service.”

“Nevertheless, the Commission mighthave reason to question the jurisdictionalnature of a new pipeline company that pur-portedly commenced service as anintrastate pipeline, only to undertake theprovision of a substantial amount of servicein interstate commerce shortly thereafterunder section 311 of the NGPA.” �


RCA

Advertisers Wanted

In July, Petroleum News is publishing a history of ExxonMobil’s 80-plus yearhistory in Alaska. Are you interested in advertising in this full color, perfectbound magazine? We can offer early takers special placements, such as in sections dealing with the discovery of Granite, Prudhoe Bay and Point

Thomson. Or Point Thomson development. Get in touch.

Contact Susan Crane at 907-770-5592, [email protected] Bonnie Yonker at 425-483-9705, [email protected]


GOVERNMENTEnergy legislation must address AK issues

U.S. Sen. Mark Begich, D-Alaska, has sent a letter to the Senate Majority LeaderHarry Reid, urging more consideration of Alaska’s needs and priorities in energy leg-islation moving through Congress.

“With the Senate soon to turn its focus to an energy plan designed to reduce ournation’s dependence on foreign oil, foster development of new jobs and new busi-nesses and begin to slow the pace of climate change, I write to bring your attentionto the fact that none of the various proposals for economy-wide legislation suffi-ciently addresses Alaska’s unique situation,” Begich said. “It will benefit no Alaskanto slow the advance of climate change’s effects if they can’t afford to rebuild theireroding village, meet a payroll or heat their home.”

Referencing Alaska climate change impacts, such as eroding shorelines and thaw-ing permafrost, while also commenting on the exceptionally high energy costs inrural and Interior regions of the state, Begich pointed out that the viability of Alaska’sstatehood was predicated on the state’s ability to raise revenues from natural resourcedevelopment. Those natural resource-related revenues currently amount to more than85 percent of the state budget he said.

Alaska has four major priorities in any federal energy and climate-change legisla-tion, Begich said. Those priorities consist of:

• Expanded incentives for the delivery of Alaska natural gas to market;• A mechanism for the state sharing of revenues from offshore oil and gas devel-

opment;• Funding to help Alaska communities deal with climate change impacts such as

village relocations and infrastructure rebuilding, and with high energy costs; and• Increased funding for government agencies such as the National Oceanic and

Atmospheric Administration and the U.S. Coast Guard for Arctic and climateresearch, recognizing the strategic importance of Arctic assets and the need for inter-national leadership in the area.

—ALAN BAILEY

MMS director names science advisorThe Department of the Interior’s Minerals Management Service announced March

24 that Alan Thornhill has been named science advisor to MMS Director LizBirnbaum. MMS said Thornhill will assist Birnbaum in the review of scientific andtechnical data that will ensure the effective management of energy resources locatedon the nation’s outer continental shelf — including the development of offshorerenewable energy — and the environmentally safe exploration, development, and pro-duction of oil and natural gas.

“I’m delighted to have Alan Thornhill as my science advisor,” Birnbaum said in astatement. “Alan has proven himself to be a leader in his field and his expertise willbe sought often as we develop our offshore renewable energy program and continuethe environmentally safe development of our nation’s offshore natural resources.”

Thornhill comes to MMS from the Society for Conservation Biology where for thepast eight years he served as the executive director. In this capacity, Thornhill was thehead of the largest professional association of conservation professionals in the world.Previously, he served as the director of learning and communications for the ScienceDivision of the Nature Conservancy.

He has more than 15 years of experience conducting academic research, teachingand publishing at Rice University and Virginia Tech.

Thornhill is a graduate of the University of California, Irvine where he receivedboth his Bachelor’s and Doctorate Degrees in Ecology and Evolutionary Biology.

—PETROLEUM NEWS

http://www.nanaworleyparsons.com/


The district commander for the U.S.Army Corps of Engineers in Alaska

has denied a request from Alaska Gov.Sean Parnell to elevate the Corps’ rejec-tion of ConocoPhillips Alaska’s CD-5Alpine satellite permit application.

Col. Reinhard Koenig told Parnell in aMarch 12 letter that communicationsfrom the state do not meet federal regula-tory requirements necessary for the deci-sion to be forwarded to the division engi-neer for resolution.

Those regulations, quoted by the gov-ernor in his request for elevation of thedecision, require district engineers torefer a decision to issue to deny permitsto the division engineer for resolutionwhen “the recommended decision is con-trary to the written position of the

Governor of the state in which the workwould be performed.”

The state’s July 10, 2009, statement insupport of the permit was not from then-Gov. Sarah Palin, but from Commissionerof Natural Resources Tom Irwin, signedby Deputy Commissioner MartyRutherford.

ConocoPhillips appealingKoenig told Parnell that the regula-

tions provide specific appeals rights forConocoPhillips Alaska, which can appealthe decision through the division engineer

under the administrative appeal process. ConocoPhillips Alaska “has taken

steps to exercise its appeal rights,”Koenig said.

He told Parnell that the companyasked to review the Corps’ administrativerecord, a request Koenig said the Corps“promptly granted.”

Following that review, he said,ConocoPhillips requested a full copy ofthe record; Koenig said the Corps wasfinalizing the legal review requiredbefore release of the record and saidConocoPhillips would have the record

“this week.”

North Slope lettersLetters objecting to the Corps’ denial

of the permit for CD-5 and the Nigliqchannel bridge were addressed toSecretary of the Interior Ken Salazarfrom Mayor Edward Itta of the NorthSlope Borough; to Salazar, AdministratorLisa Jackson of the EnvironmentalProtection Agency and AssistantSecretary Jo-Ellen Darcy of the U.S.Army by Roberta Quintavell, presidentand CEO of the Arctic Slope RegionalCorp., Isaac Nukapigak, president ofKuukpik Corp., Bernice Kaigelak of theNative Village of Nuiqsut and ThomasNapageak Jr., mayor of the City ofNuiqsut.

Itta told Salazar that the North SlopeBorough “recognizes that the ColvilleRiver delta is a biologically productiveriver system” and said Title 19 of the NSBCode of Ordinances places a high priori-ty on protecting the subsistence lifestyle,culture and natural resources of NSB res-idents.

That, the mayor said, “is one of thereasons why the NSB was frustrated”with the Corps’ denial of ConocoPhillipsAlaska’s application for a Section 404permit for CD-5.

The ASRC letter called the Corps’decision “troublesome in three majorareas”: for ignoring broad support for theproject throughout Alaska; because thedecision “will have a material impact onour communities and people because thisdecision is counter to the intent of theAlaska Native Claims Settlement Act”;and because the Corps has “neglected thetechnical risk and environmental liabilityof a three-phase fluid in a HorizontalDirectional Drilling … conveyedpipeline.”

“ASRC is addressing you as alandowner established pursuant to theAlaska Native Claims Settlement Act,”Quintavell said in the ASRC letter. TheCD-5 expansion represents developmentof Native-owned lands which “serve as asignificant economic engine” for allAlaska Native corporations.

The CD-5 development “has thepotential to step outside the ColvilleRiver delta to Native lands, and eventual-ly into NPR-A,” she said. “However, as aresult of the USCOE decision, we arecaught in the paradoxical situation ofbeing unable to leave the delta in thename of saving the delta itself.”

HDD, horizontal directional drilling,“is not a practicable alternative” for theNigliq Channel because three-phase flu-ids (water, oil and natural gas) are morecorrosive than the processed (sales quali-ty) oil carried under the Colville Riverfrom the Alpine field, she said.

Because of the depth and angle of theHDD line proposed under the NigliqChannel “there is no known way to mon-itor corrosion or other problems with theunderground portion of the line,”Quintavell said. “We must question whyany agency would prefer a system thatcannot be monitored effectively over sur-face facilities, through a bridge-pipelineand road, which all parties can monitor ona regular basis.”

She said ASRC urges the Corps toreconsider the CD-5 proposal “and evalu-ate the true benefits of the CD-5 develop-


…using the most sophisticated techniques and skilled personnel.It’s what we do everyday across

Alaska and around the globe.

Phot

o by

Judy

Pat

rick

Pho

togr

aphy

� E X P L O R A T I O N & P R O D U C T I O N

Parnell’s elevation request rejectedCorps of Engineers, Obama administration officials hear from North Slope officials, communities on rejection of permit for CD-5

The “only apparent change” since the Corps pushed Nuiqsut andConocoPhillips to negotiate in 2007 “is that an internal Corps

reorganization in the summer of 2009 resulted in a new ProjectManager for the application, a new supervisor for that Project Manager,a new supervisor for that supervisor and a new Colonel in charge of the

Alaska District.” —letter from Nuiqsut organizations

see REQUEST page 15

http://www.nabors.com/

ment on the Native community of theNorth Slope and statewide further.”

Nuiqsut: impact of agency changesThe letter from Kuukpik Corp., the

Native Village of Nuiqsut and the City ofNuiqsut, “the tribal, municipal and eco-nomic/landowning entities representingthe community that will be most impact-ed by development” at CD-5, asked thatthe Corps “take a fresh look at the meritsof the application” for the Section 404permit.

“The circumstances here call for afresh look at CPAI’s application, ratherthan the deferential review standard ofappeal,” the letter said. TheConocoPhillips Alaska project reflects “acompromise reached after years of con-troversy, dating back to 2003 when CD-5was first proposed.”

The Nuiqsut organizations “vehement-ly opposed” ConocoPhillips’ first pro-posed bridge location, but in 2007, theorganizations said, the Corps “stronglyencouraged compromise discussions byannouncing that it was likely to find” apipeline-only bridge at a location towhich Nuiqsut objected to be the leastenvironmentally damaging practicablealternative.

In late 2008, negotiations reached acompromise — a bridge across the NigliqChannel near the existing CD-4 drillingpad.

“It is that permit application, for thelong-sought and hard-won mutuallyagreeable compromise design, that theCorps has just denied,” the Nuiqsut lettersaid.

The “only apparent change” since theCorps pushed Nuiqsut andConocoPhillips to negotiate in 2007 “isthat an internal Corps reorganization inthe summer of 2009 resulted in a newProject Manager for the application, a

new supervisor for that Project Manager,a new supervisor for that supervisor and anew Colonel in charge of the AlaskaDistrict.”

“In the space of a month or so, theindividuals holding the four positionsmost involved in a review process thathad been ongoing for five years, throughan Environmental Impact Statement andthree separate Section 404 applications,were replaced,” the Nuiqsut letter said.

“This is a stunning loss of institutionalknowledge, especially since none of thereplacements had any significant experi-ence with Arctic oil industry-related proj-ects, or with projects where subsistenceimpacts or Native sociocultural impactswere a significant part of the analysis.”

While the change in personnel may not

have been a factor in the Corps’ decision,“the level of candor of the discussionsthat we had with Corps personneldropped precipitously with the currentpersonnel over what had prevailed withthe several prior Project Managers andtheir supervisors. Rather, and significant-ly, it was very apparent that the new per-sonnel gave less weight to impacts on thecommunity of Nuiqsut than any of theirpredecessors had,” the Nuiqsut letter said.

The Nuiqsut letter asks that “the appli-cation be referred to a higher authority,preferably in Washington, D.C., but alter-natively in the Pacific Division for resolu-tion of CPAI’s application.” �


In deep exploration wells in southern Mexico, complex lithology often demands one or more sidetrack cement plugs. Placement usually takes multiple attempts and requires 8 to 10 days of rig time. PEMEX chose PlugAdvisor* cementing simulation software to improve plug-cementing operations.

Through use of this software—with plug placement tools that avoid cement contamination—first-run success rates in sidetracked wells increased to 100% from less than 50%.

PlugAdvisor cement plug placement optimization software quantifies contamination while slurry is pumped down the drillpipe and up the annulus. The software can simulate multiple fluids while considering annulus fill-up.

www.slb.com/PlugAdvisor

First-run success rate of 100%

CEMENTING SIMULATION SOFTWARE

PlugAdvisor

*Mar

k of

Sch

lum

berg

er.

© 2

010

Schl

umbe

rger

. 1

0-CE

-003

5

Anchorage Honolulu Los Angeles

PPEE

RRFFOO

RR

MMAANNCCEE UUNNDDEERR PPRREESS

SSUU

RREE

• Commercial Diving• Marine Construction Services• Platform Installation, Maintenance and Repair• Pipeline Installation, Maintenance and Repair• Underwater Certified Welding• NDT Services• Salvage Operations• Vessel Support and Operations

• Environmental Services• Oil-Spill Response, Containment and Clean-Up• Hazardous Wastes and Contaminated Site Clean-

Up and Remediation• Petroleum Vessel Services, e.g. Fuel Transfer• Bulk Fuel Oil Facility and Storage Tank

Maintenance, Management, and Operations

American MarineServices Group

6000 A Street, Anchorage, AK 99518

907-562-5420www.amarinecorp.com • www.penco.org

[email protected]


REQUEST


Senate Bill 287, which passed SenateResources and March 23 and is now inSenate Finance, moves the authority for astandalone pipeline project to the AlaskaRailroad, defining the project as a gaspipeline system to move natural gas fromPrudhoe Bay or Gubik to markets inAnchorage and Kenai and to customersalong the way. The route is described asalong the Dalton Highway corridor andfrom Fairbanks either down the ParksHighway into Southcentral or via theRichardson and Glenn highways.

SB 287 says this project “is compatiblebut not competitive with the projectdescribed in and authorized by AS 41.41 orthe project described in and authorized byAS 43.90. AS 41.41 is the ANGDA statute;AS 43.90 is the Alaska Gasline InducementAct, the state’s bid to get a North Slope tomarket main line moving.

SB 287 directs the railroad to establish asubsidiary for the pipeline work, providemonthly reports and — in addition to work-ing on the standalone pipeline project —“initiate a cost study for construction of agas-to-liquids facility.” Sen. Lesil McGuire,R-Anchorage, co-chair of SenateResources, the prime sponsor of the bill, hasa strong interest in GTL.

A $34.22 million fiscal note from theAlaska Railroad notes that the standalonepipeline project “is well outside ARRC’snorms, both in type and size.” The note saysthe $34.22 million would be the “fundingnecessary for ARRC to bring the projectthrough permitting and preliminary phases.Construction costs are not included at thisjunction. Also excluded from this analysisare estimated costs to be incurred by apipeline company or other entity that wouldpresumably complete design and build theproject.”

The railroad’s unique bonding abilityunder Internal Revenue Service statute is a

plus cited by legislators, since the tax-freebonds would reduce the cost, and hence thetariff, for a pipeline project.

The existing projectsGene Therriault, the governor’s senior

energy policy adviser, told the ANGDAboard March 19 that “the basic feeling inthe administration is that we are in theprocess of doing the work that we weretasked with in the appropriation that wasmade last year and the direction that wasgiven attached to that appropriation.”

“But if for whatever reason theLegislature feels like they need a differentsetup on the in-state work or the bullet line,we’re willing to enter into discussions withthem.”

Therriault said the fact that the in-stategas pipeline project was housed out of thegovernor’s office “is certainly a little bitunusual,” as a project in which the state par-ticipates is generally housed in one of thedepartments working on the effort — the

Department of Transportation for buildingroads or AHFC for gathering financing.

He said the governor has indicated to thesponsors of the various bills that he willwork with them as they shape their legisla-tion and “if a bill does pass the administra-tion would like it to have realistic dead-lines.”

Bob Swenson, named by Gov. SeanParnell to replace Harry Noah as head ofthe in-state gas line project in lateDecember, told the ANGDA board thatwhile he wants to work with ANGDA, hisbudget lapsed Feb. 28 and so he has no abil-ity to change existing contracts in favor ofcombining efforts on the permittingprocess.

Swenson will be walking the ANGDAboard through the status of the standaloneproject’s permitting at a March 26 work-shop. �


IN-STATE GAS


http://www.amarinecorp.com/

http://www.slb.com/PlugAdvisor


Oil Patch Bits

Companies involved in Alaska and northern Canada’s oil and gas industry

ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS ADVERTISER PAGE AD APPEARS

All of the companies listed above advertise on a regular basis with Petroleum News

AACB SolutionsAcuren USAAECOM EnvironmentAir LiquideAlaska Air CargoAlaska Analytical Laboratory . . . . . . . . . . . . . . . . . . . . . . . .17Alaska AnvilAlaska Computer BrokersAlaska CoverallAlaska Division of Oil and GasAlaska DreamsAlaska Frontier ConstructorsAlaska Interstate Construction (AIC)Alaska Marine LinesAlaska Railroad Corp.Alaska Rubber & Supply Alaska Sales & Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3Alaska Steel Co.Alaska Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Alaska Tent & TarpAlaska TextilesAlaska West ExpressAlliance, TheAlta Air LogisticsAmercable Inc.American Marine . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15Arctic ControlsArctic FoundationsArctic Slope Telephone Assoc. Co-op.Arctic Wire Rope & SupplyASRC Energy ServicesAvalon Development

B-FBadger ProductionsBald Mountain Air Service . . . . . . . . . . . . . . . . . . . . . . . . . .17Brooks Range Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Builders Choice Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20Calista Corp.Canadian Mat Systems (Alaska) . . . . . . . . . . . . . . . . . . . . .19Canrig Drilling TechnologiesCarlile Transportation ServicesCCICGGVeritas U.S. LandCH2M HILLChiulista Camp ServicesColville . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10ConocoPhillips AlaskaConstruction Machinery IndustrialCosco Fire ProtectionCrowley Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Cruz ConstructionDelta LeasingDelta P Pump and EquipmentDenali Industrial

Department of Labor & Workforce Development . . . . . . . .8Dowland-Bach Corp.Doyon DrillingDoyon LTDDoyon Universal ServicesEEIS Consulting EngineersEgli Air HaulEngineered Fire and SafetyEra AlaskaERA HelicoptersExxonMobilFlowline AlaskaFluorFriends of Pets

G-MGBR EquipmentGCI Industrial TelecomGES Inc.Global Land ServicesGlobal Offshore Divers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4GPS EnvironmentalGuess & Rudd, PC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Hawk Consultants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Ice Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Inspirations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Jackovich Industrial & Construction Supply . . . . . . . . . . . .12Judy Patrick PhotographyKenai AviationKenworth AlaskaKuukpik Arctic ServicesKuukpik - LCMFLaBodegaLast Frontier Air VenturesLister IndustriesLounsbury & Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5Lynden Air CargoLynden Air Freight Lynden Inc.Lynden InternationalLynden LogisticsLynden TransportMapmakers of AlaskaMAPPA TestlabMaritime HelicoptersMarketing SolutionsMayflower CateringM-I SwacoMRO Sales

N-PNabors Alaska Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14Nalco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17NANA WorleyParsons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13NASCO Industries Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7Natco Canada

Nature Conservancy, TheNEI Fluid TechnologyNMS Employee LeasingNordic CalistaNorth Slope Telecom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19Northern Air CargoNorthland Wood ProductsNorthrim BankNorthwest Technical ServicesOil & Gas Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Oilfield ImprovementsOpti Staffing GroupPacWest Drilling SupplyPDC Harris GroupPeak Civil TechnologiesPeak Oilfield Service Co.PencoPetroleum Equipment & ServicesPetrotechnical Resources of Alaska . . . . . . . . . . . . . . . . . . . .2PGS OnshorePolar SupplyPrice Gregory International

Q-ZQUADCORain for RentSafety OneSalt + Light CreativeSchlumberger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6,15Seekins FordSTEELFABStoel Rives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .93M AlaskaTA StructuresTaiga VenturesThe Local Pages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6Tire Distribution Systems (TDS)TOMCO Group of Companies . . . . . . . . . . . . . . . . . . . . . . . . .3Total Safety U.S. Inc.Totem Ocean Trailer ExpressTotem Equipment & SupplyTTT EnvironmentalTubular Solutions AlaskaUdelhoven Oilfield Systems Services . . . . . . . . . . . . . . . . . .3UmiaqUnique MachineUnivar USA Universal Welding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8URS Alaska . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10UsibelliWest-Mark Service CenterWeston SolutionsWestern TowboatXTO EnergyYenney & Associates

Sprague, new marketing leader for Alaska AirlinesAlaska Airlines said March 19 that it will be realigning its mar-

keting, sales and online commerce groups. Joe Sprague, a 10-yearveteran at Alaska Airlines, has been named vice president of mar-keting. Sprague will be responsible for the carrier’s overall market-ing strategy as he oversees marketing communications, sales, reser-vations, food and beverage, customer care, the Mileage Plan fre-quent flier program and Board Rooms. He will also retain responsi-bility for Alaska Air Cargo, a division he has led for the past twoyears. Sprague began his aviation career as a customer serviceagent at a commuter airline in Juneau, Alaska, and flew as a com-mercial pilot in the state. He joined Alaska Airlines in 2000 as aregional sales director, served as managing director of governmentaffairs in Washington, D.C., and led the public affairs and in-flight divisions before movingto cargo.

Railroad board congratulates Gamble on selectionThe Alaska Railroad Corp. said March 17 that on behalf of the Board of Directors, ARRC

Board Chairman John Binkley congratulated President and CEOPatrick Gamble on his selection as the new University of Alaskapresident. “He is deserving of the trust that the university regentshave placed in Pat’s leadership, management and familiarity withAlaskan issues,” said Binkley. “The Alaska Railroad has benefittedfrom Pat’s executive experience and superb leadership. His guidancehas been integral to the railroad’s steady growth and success. Hecontinued the momentum on an aggressive capital program, and infact oversaw the railroad’s first sale of revenue bonds as a meansto accelerate infrastructure improvements,” said Binkley. “We wouldlike to thank Pat Gamble for nine years of service,” said Binkley.“Pat will undoubtedly be an equally excellent asset to the universi-ty. We wish him well in his new position as he continues to serve the people of Alaska.”

Doyon board members elected at annual meetingDoyon Ltd said March 19 that at the annual meeting of shareholders four individuals

were selected to Doyon’s 13-member board of directors. Elected were Miranda Wright,

JOE SPRAGUE

PATRICK GAMBLE

see OIL PATCH BITS page 17


Alaska Analytical Laboratory is an environmental lab perfomingthe following services: soil analyses for Gasoline Range Organics(GRO), BTEX (Bezene, Toluene, Ethylbenzene, and Xylene); DieselRange Organics (DRO) and Residual Range Organics (RRO) following the SW-846 EPA/Alaska Methods.

1956 Richardson HighwayNorth Pole, Alaska 99705Phone: (907) 687-7394

Email: [email protected]

Teisha Simmons, Cheryl Northway-Silasand Josephine Malemute. Each seat is for athree-year term, ending in 2013. The newlyelected board members join existing boardmembers Gerald “Jerry” Carroll, AndrewJimmie, Georgianna Lincoln, VictorNicholas, Orie G. Williams, Walter “Willy”Carlo, Jennifer Fate, Michael R. Fleagle andChristopher Simon. All board members areDoyon shareholders. Following the annualmeeting, the board met and elected offi-cers. Elected as chair was Orie. G. Williams;

vice chair, Victor Nicholas; secretary,Michael R. Fleagle and treasurer, MirandaWright. In addition to the board election,shareholders at the annual meeting alsoheard reports from the current board andmanagement on Doyon’s FY 2009 perform-ance, current initiatives and corporategoals.

Editor’s note: All of these news items— some in expanded form — will appearin the next Arctic Oil & Gas Directory, afull color magazine that serves as a mar-keting tool for Petroleum News’ contract-ed advertisers. The next edition will bereleased in September.


OIL PATCH BITS

chance to see what he can do withConoco’s Cook Inlet platforms. Don’t beshy! Weigh in on the article in the com-ments section. The author, Eric Lidji, islooking at doing a follow-up. He wants tohear from you! If you’re shy, his emailaddress is [email protected].

ANIMAL WITH SKIN LIKE A BEARD… That’s what omingmak means, theInupiaq Eskimo word for muskoxen.Sound cuddly? I’d forgotten about thesemellow beasts until I saw the most recentArctic Oil & Gas Directory cover at petro-leumnews.com. The photo, capturing theoh-so-common meshing of wildlife andindustry in Alaska, comes from JudyPatrick, a well-known photographer andclose friend of Sarah Palin. According tothe State of Alaska “the name muskox ismisleading because the animals have nomusky odor.” Ahem. Readers, I won’t lie toyou. I’ve been to the zoo in Anchorage andthey smell. Not good. Perhaps keepersmissed the section in the manual that sug-gested they be bathed regularly? But odorsaside, these animals get serious credit forfighting off evolution and remaining basi-

cally the same since the last ice age. Toread more on muskox and their shaky, butheartwarming history in Alaska, visit theAlaska Department of Fish and Game’sWeb site at http://bit.ly/cNG7W8.

NOT STRESSED ABOUT GLOBALWARMING … In a recent Gallup PollAmericans ranked global warming lastamong eight environmental issues to beworried about. The percentage of respon-dents who told Gallup they worry “a greatdeal” about global warming was 28 per-cent, down 5 percent from last year. Hereare the top seven environmental issuesAmericans are very worried about, per thepoll results, which were released March16: pollution of drinking water, 50 per-cent; pollution of rivers, lakes, and reser-voirs, 46 percent; maintenance of thenation’s supply of fresh water for house-hold needs, 45 percent; contamination ofsoil and water by toxic waste, 44 percent;air pollution, 38 percent; loss of tropicalrain forests, 33 percent; and extinction ofplant and animal species, 31 percent.Gallup’s take on the results? “Americansare now less worried about a series ofenvironmental problems than at any timein the past 20 years. That could be due inpart to Americans’ belief that environmen-tal conditions in the U.S. are improving. Italso may reflect greater public concernabout economic issues, which is usuallyassociated with a drop in environmentalconcern.”

CLIMATEGATE INQUIRY LED BYOIL BOSS … Per a March 22Telegraph.co.uk report by environmentalnews reporter Louise Gray, former non-executive chairman of Shell, LordOxburgh, will head up a team of leadingscientists looking at claims manmadeactivities, such as the burning of fossilfuels, cause global temperatures to rise.Gray says “other controversial names onthe panel” include Kerry Emanuel, profes-sor of meteorology at the MassachusettsInstitute of Technology, who “is best

known for a paper that suggested hurri-canes are getting fiercer with globalwarming, immediately causing skeptics onthe internet to start questioning theappointment.” The new inquiry will lookinto “mountains of research by theUniversity of East Anglia’s ClimaticResearch Unit,” which Gray says is theleading institution for climate changeresearch. Lord Oxburgh, former chief sci-entific adviser for the Ministry of Defenceand Rector of Imperial College and chair-man of the Lords Select Committee onScience and Technology, says, “The shad-ow hanging over climate change and sci-ence more generally at present makes it amatter of urgency that we get on with thisassessment. We will undertake this workand report as soon as possible.” His pastassociation with the oil industry “willmake environmentalists cautious, but hehas also shown an interest in the environ-ment and is currently president of theCarbon Capture and Storage Associationand Falck Renewables,” Gray reported.

THE TREASURE IMPULSE … Can wemanage our desire for resources whilesafeguarding the environment and alleviat-ing poverty? The answer to that question isexplored in “Treasures of the Earth: Need,Greed, and a Sustainable Future” bySaleem H. Ali, which was published inOctober by Yale University Press(Hardcover, ISBN: 978-0-300-14161-0,304 pages). Ali does not think we canresist our “treasure impulse,” arguing thatsimply disavowing consumption of theearth’s mined riches — oil, gems, precious

metals, and minerals — won’t help us planeffectively for a resource-scarce future. Iam told by people in the know, includingMuhammad Yunus, founder of GrameenBank and Nobel Peace Prize Laureate in2006, that it’s a great read. For more info,chat with Liz Pelton at 410-467-0989 [email protected].

GEEKS GOING GREEN … CompTIAtechnology has come out with the firstever specialized exam for green IT skills.The subject matter: green technologies,standards, policies and design-supporttechniques. The topics: proper disposal,power preservation best practices, how toaddress carbon footprint management,virtualization skills, and how to measurethe return on investment from green ITactivities. A 2009 survey showed that ITsolution providers were having to providemore and more green-related services.Forty percent provide energy audits, 26percent do carbon footprint measuringand monitoring and another 23 percentare planning to provide these services bythe end of 2011. You can learn moreabout the exam at www.comptia.org. Tolearn more about IT’s role in climatechange check out the Green:Net2010event in San Francisco at this linkhttp://bit.ly/84EdLm.

Contact me! I am Greening of Oil’ssocial networker. My weekly column isposted in both Petroleum News and onGreening of Oil’s Buzz and Latest newspages. My e-mail address [email protected].


MAC ACKERS

Oil & Gas DirectoryCovering Arctic oil and gas operations and the logistics,

construction and service firms that support them

A biannual supplement

Vol. 15, No.1March 2010

Arctic

http://www.baldmountainair.com/

http://www.alaska-analytical.com/

http://www.greeningofoil.com/buzz.aspx

http://www.PetroleumNews.com

despite an ultimate potential conventionalresource of 27.2 billion barrels of oilequivalent.

Northern Canada attracted only C$400million in capital spending in 2008 and anexpected C$500 million in each of 2009and 2010, compared with total oil and gasexpenditures across Canada of C$54 bil-

lion in 2008, C$34 billion in 2009 and anexpected C$40 billion in 2010.

Decision possible in late ’13 Imperial said in its filing that the part-

ners believe a decision is possible by late2013 on whether to proceed with the MGP,allowing site work to begin in mid-2014,setting the stage for commissioning andstartup in the first quarter of 2018.

That timetable assumed that by Sept. 1,2010, the NEB will have approved the prin-

cipal project, given that the board’s lastround of public hearings is scheduled forApril 12-14 in the Northwest Territories.

As well, there would have to be suffi-cient progress on an agreement with thegovernment covering fiscal terms, the com-pany said.

If all of those requirements are met, acorporate decision could be made thisSeptember to restaff the project team andrestart the activities leading up to a sanc-tioning decision.

The activities include securing permitsand collecting geotechnical field data, con-ducting regulatory reviews and obtainingapprovals for permit applications and envi-ronmental management plans, along withprogress on more detailed engineering andconstruction planning and developing adetailed cost estimate, which has not beenupdated since 2007 when the proponentsput a price tag of C$16.2 billion on theMGP.

Imperial told the NEB there have beenconfidential discussions between the feder-al government and the project proponentson fiscal terms for the MGP, although moreprogress is needed “to allow for restaffingof the project team and for resuming engi-neering, permitting and field work.”

Report improved understandingImperial said the release in December of

the final report from the Joint Review Panelof its recommendations relating to environ-mental and socioeconomic matters hasimproved its understanding of the regulato-ry review and approval process associatedwith the permits needed before constructionand operations activities can get under way.

Imperial also said benefits and accessagreements have been negotiated, ratifiedand executed with aboriginal groups in theNorthwest Territories and Alberta except forthe Deh Cho, where more negotiations areplanned.

Imperial told the NEB it has no fresh evi-dence to file for the proposed MackenzieValley pipeline relating to long-term gassupply, contractual commitments and proj-ect financing, although it did submit anupdated gas market demand and supplyanalysis for Canada and the U.S. Lower 48.

The study by Angevine EconomicConsulting determined that market condi-tions in the major North American marketswould allow gas from the Mackenzie Deltato be absorbed if the pipeline was in servicein 2018.

The study said northern gas would beneeded because gas consumption will con-tinue to grow because of increased demandfor power generation and industrial purpos-es, especially for the production andupgrading of oil sands bitumen in northernAlberta, along with the need to offset thedecline of conventional production from

existing mature gas fields.It said that since an application for the

MGP was initially filed in 2004 and updat-ed in 2007, “there have been significantchanges to the gas market in NorthAmerica. In particular, significant quanti-ties of shale gas have been discovered andare now likely developable, which haschanged the overall supply forecasts andprice for natural gas. This in turn may sig-nificantly affect the economic feasibility ofthe MGP and the demand for its gas.”

The Angevine study forecast that gasdemand in Canada and the Lower 48 willrise to 92.81 billion cubic feet per day in2030 from 73.73 bcf per day currently.

It projected the oil sands will consume2.01 bcf per day by 2030 compared with800 million cubic feet per day this year,while gas-fired power generation would risein Canada to 2.48 bcf per day.

The study conceded that the expansionof shale gas development in Canada and theUnited States would help meet total domes-tic requirements.

“However, even with the delivery of gasto the North American pipeline grid viapipelines from the Mackenzie Delta andAlaska, LNG imports will still be needed tobalance supply and demand,” the consultingfirm said.

‘Sticky’ cost structureImperial spokesman Pius Rolheiser told

reporters said the last attempt to set a start-up date for the MGP was three years ago,but that was considered uncertain at thetime “because of the regulatory process.”

Peters told the Arctic gas symposiumsponsored by the Canadian Institute that theindustry is faced with a “sticky” cost struc-ture as labor and material costs have notadjusted from the height of the recent boom,a changing public policy environment anddecreased drilling activity.

The spotlight of public attention is alsobeing directed at the industry’s environmen-tal performance, while public and regulato-ry expectations for the industry are under-going change, he said.

Peters said CAPP is concerned that someof the Joint Review Panel’s recommenda-tions, if adopted, would “discourage futureinvestment by placing these preconditionson future development.”

He urged a coordination of agencies,avoidance of regulatory overlap and dupli-cation, and the establishment of timelinesfor project review, along with establishingsurface rights legislation.

“Regulatory improvement is not aboutlowering the bar, but about creating effi-ciency. I’ve yet to see that a longerprocess is a better process,” Peters said. �


Alaska Telecom

GOVERNMENTLoranger named to head Kenai refuge

Andy Loranger has been selected as the new refuge manager for the U.S. Fishand Wildlife Service’s Kenai National Wildlife Refuge, headquartered inSoldotna. Loranger assumed his duties at the refuge March 14.

Geoffrey Haskett, Fish and Wildlife’s Alaska regional director, said in a state-ment that Loranger has been with Fish and Wildlife for more than 30 years,including stints at the Nowitna and Kenai refuges in the 1980s and 1990s.

“We’re fortunate to have someone with his experience and dedication takingthe reins at Alaska’s busiest refuge, and I’m happy to be able to welcome him backto our state.”

Loranger most recently was chief of the Division of Natural Resources andConservation Planning in the National Wildlife Refuge System’s Washington,D.C., headquarters, a position he was appointed to in 2008.

He began his career with Fish and Wildlife as a seasonal biological technicianon the Benson Wetland Management District in west-central Minnesota, and hasworked for the agency in Texas and Arizona as well as Alaska. He has an M.S. inNatural Resources Conservation from the University of Connecticut.

“I left Alaska in 1992,” Loranger said in a statement, “and I’ve been hoping tocome back ever since. Kenai National Wildlife Refuge is a wonderful place andvalued by the hundreds of thousands of people who visit it every year to fish, hunt,hike, canoe, and otherwise take advantage of its abundant beauty and naturalresources. I look forward to learning how the area has changed since I was lasthere, and to doing my part to make sure the Refuge maintains its place as one ofthe special jewels of the National Wildlife Refuge System.”

—PETROLEUM NEWS


MAC LINE


http://www.alaskatelecom.com/


Shrinking market“We have to recognize that the basin is

in decline, the market is shrinking,” Walshsaid, pointing out that the Agrium fertilizerplant, an erstwhile major industrial gasconsumer on the Kenai Peninsula, hasclosed its doors and that the export licensefor the Kenai Peninsula LNG plant ends in2011. “… It’s really all about the utilities atthis point and it’s going to require a fair bitof investment to keep our utility companiesgoing.”

The study focused on the adequacy ofgas supply volumes averaged over com-plete years, rather than a related but differ-ent issue regarding gas deliverability, themaximum rate at which gas can be deliv-ered to consumers during peak demand inthe cold winter months. A pending winterdeliverability shortfall is driving a need fornew Cook Inlet basin gas storage facilities,to store summer gas for winter use.

As the aging gas fields decline and asthe existing gas supply contracts betweenSouthcentral utilities and Cook Inlet gasproducers move toward the ends of theirterms, the Southcentral utilities face pend-ing supply shortages. Enstar Natural GasCo., the main gas utility of the region, hasadequate contacted supplies to meet itsneeds until the end of 2010 but faces apotential 25 percent shortfall in 2011,Walsh said. Chugach Electric Association,a major Anchorage electric utility, faces arapidly escalating shortage in contractedgas supplies after the spring of 2011,although Municipal Light & Power, theother major Anchorage electric utility, hassecured adequate gas supplies through to2015, he said.

And the shortage of future gas supplycontracts is also putting the dampers onnew gas field development.

“Contracts drive the (development)activity,” Walsh said. “So that lag in con-tracts … means that going forward we’renot motivating the activity in the basinthat’s required to create more gas sup-plies.”

Assess investment needsThe primary purposes of the new PRA

Cook Inlet gas study were to review thefindings of a 2009 Alaska Department ofNatural Resources analysis of potentialremaining Cook Inlet gas reserves and toassess the level of investment in new Cook

Inlet gas development, needed to assurecontinued, adequate gas supplies, Walshsaid. The DNR study had found a shortfallin annual gas supplies from existing CookInlet gas wells starting in 2013 and grow-ing thereafter unless the producers drillnew gas wells.

A PRA analysis of field-level produc-tion decline rates essentially confirmed theDNR findings, although PRA estimatednear-term production to be a little higherthan in the DNR estimates, with that earlysupply boost offset by a slightly lower pro-duction rate in later years.

“We don’t have enough gas from ourexisting well set to meet demand in theyear 2013,” Walsh said.

PRA analyzed individual well declinerates for wells drilled between 2001 and2009, to predict the likely performance ofany new wells drilled in the future, toassess the future needs for the drilling ofwells to maintain adequate gas suppliesand to gain insights into predicting a timeat which local Cook Inlet gas supplies willno longer meet local gas demand, despitenew drilling.

But that last question — the timing ofan ultimate gas supply shortfall — isessentially an economic conundrum withno certain answer, Walsh said.

“It really is a chicken and egg. It’s aquestion of how much investment you arewilling to make,” Walsh said.

New wells decliningAnd, when it comes to the economics of

gas development, a key finding of the PRAanalysis turned out to be a multiyeardecline in the initial production rates fromnew wells, a decline that points to the need

to drill wells at an increasing frequency tomaintain gas production levels.

“We’re getting to leaner and leanerwells as we go forward,” Walsh said.

In the past couple of years Cook Inletdrilling has averaged out at 13.6 new gaswells per year, primarily in support ofexisting gas supply contracts, Walsh said.And plugging the results of the welldecline rate analysis into that average wellcount indicates that continuing the currentrate of field development drilling wouldmove the Cook Inlet utility gas supplyshortage from 2013 to 2018 while costingperhaps $2 billion, he said.

Extending adequate gas suppliesbeyond 2018 would require the drilling ofmore and more wells each year, with a totalof 185 new wells at an estimated total costof $1.9 billion to $2.8 billion required toextend the supplies to 2020, the PRA studyfound.

“We’re talking about a significantlylarger number of wells being drilled goingforward, with a market that’s contracting,”Walsh said. “… So it’s kind of a tall order.”

And the escalating cost of maintainingutility gas supplies for Southcentral Alaskawill push up the price of energy, he said.

“There’s no way around that,” Walshsaid. “No matter what we do, if we import,if we have an in-state (gas) line, that’s thedirection we’re heading.”

Import LNGIn the absence of a successful near-term

drilling program, utility gas supplies willstart to fall short in 2013. And, with supplyalternatives such as the building of a “bul-let” gas line from the North Slope beingimpractical to implement by then, a short-

term local gas supply shortfall willinevitably lead to the import of LNG intoSouthcentral Alaska from elsewhere,Walsh said.

“The bullet line will not be built by2016 or maybe 2017. It’s not an option forthe short term,” Walsh said. “So reallythere’s no way out besides investing in theCook Inlet basin to get us to that stage. …That’s the reality of it. We need … to takeimmediate action to make sure that wehave gas going forward.”

The utilities urgently need new gas sup-ply contracts sufficiently attractive to sup-port new development in the Cook Inletbasin, with predictable timelines and stan-dards for Regulatory Commission ofAlaska contract approval, he said.

“Although we’d all like to see very inex-pensive gas in the Cook Inlet basin, thingsare going to start to move in an upwarddirection,” Walsh said. “If we’re going tomotivate explorers and developers, it’s gotto be on good terms for them as well.”

Meantime utilities must secure accessto new gas storage facilities, both to enablethe management of peak winter gasdemand and to encourage new gas devel-opment by opening up the Cook Inlet gasmarket, he said.

Multiple actionsInitiatives to increase customer aware-

ness of the difficult gas supply situationand to encourage energy conservationmust continue; there needs to be streamlin-ing of the procedures for land access forexploration, field development andpipeline construction; and the commercialplaying field of the Cook Inlet basin, interms of issues such as gas supply contractterms and production taxes, needs to attractnew gas producers into the basin, Walshsaid.

There is a market in Cook Inlet for localgas, regardless of any plans to bring gas toSouthcentral Alaska from the North Slope,he said.

“If we can … actively explore anddevelop these resources and reserves thatare out there we can stave off the need forthe import of gas,” Walsh said. “… Localgas is still a good deal now. … The (gas)price will probably point to a local supplyrather than a bullet line or LNG imports.… I think there’s a very viable (gas) mar-ket here in the basin.” �

Contact Alan Bailey at [email protected]


CI STUDY

100

150

200

250

300

0

50

100

150

200

250

300

1995 2000 2005 2010 2015 2020 2025 2030 2035

Decline Curve Analysis Reserves (863 BCF basin-wide)

Material Balance Analysis Reserves (279 BCF increment, basin-wide)

Geologic Analysis, PAY Category Reserves (353 BCF increment, 4 fields)

Geologic Analysis, PAY + 50%-risked Potential_Pay Category (643 BCF increment, 4 fields)

Exploration Leads (~300 BCF, basin-wide)

Demand Profile (assumes 90 BCF flat)

Schematic Forecast (actual production from future resource wedges could begin in any year)

BC

F p

er Y

ear

Historical Production(~7.75 TCF through 1/1/2010)

003030

002525

002020raeY

00(~300 BCF, basin-w( 300 BCF basin-wrr ssLeadLeadnnooiittaarr

o

oollppxxEE

ksir-%05+YAAYPPAs, siylnaAc igo

o

leoG

RyrogetaCYAAYPPAs, siylnaAcigo

s

leoG

vereseRsiysr lnaAancelaBlair

n

etaM

(svereseRs siylnaAevruCen

m

ilceD

e (assumes 90 BCF a liforPdnameD

wide)wide)

e(643 BCF increment, 4 fieyoregott aCay_Plaitneto

e

Pde

(353 BCF increment, 4 fields)seev

BCF increment, basin

reseR

(279 BCF increment, basin-wide)s

F863 BCF basin-wide)

flat)

elds)

001515

001010

5991

05

0rep

FC

B

2 )

2500200025

0102T /1/1hguorhtFCTc

57.7~(noitci udorPlacirotsiH

020251020102

em rerutufmoS

rfnoitcudorplautca(amehcS

))

530203025202

b raeyynaninigebe dluocsegdeweF

cruostsaceroFcita

An Alaska Department of Natural Resources projection of Cook Inlet annual gas productionshows production from existing gas wells falling short of demand in 2013, with demand lev-eling out following the assumed 2011 closure of the Kenai Peninsula LNG plant. A new PRAstudy estimates that the drilling of the necessary new gas wells to maintain adequate gassupplies though to 2020 would cost $1.9 billion to $2.8 billion.

ALA

SKA

DEP

ART

MEN

T O

F N

ATU

RA

L R

ESO

UR

CES

http://www.nstiak.com/

http://www.matsystems.ca/


A sister company, Stellar Energy, foughtunsuccessful to buy the abandoned CookInlet assets of California independentPacific Energy, which filed for bankruptcyprotection.

Renaissance is in the process of transfer-ring its Cook Inlet acreage to Stellar. InOctober, Stellar told Petroleum News it wasseeking new funding for its exploration pro-gram.

Buccaneer estimates the acreage holdsbetween 53 million and 149 million barrelsof oil and 598 billion and 1.2 trillion cubicfeet of gas. The company said the leasescontained three “identified prospects” andtwo “significant leads,” but did not offer anydetails.

In May 2008, Renaissance began permit-ting four exploration wells on its offshoreleases in Cook Inlet, one at North MiddleGround Shoal in Trading Bay and three sur-rounding the ConocoPhillips-operatedNorth Cook Inlet unit east of the village ofTyonek.

Those latter three wells would have

delineated the Northern Lights prospect,which Renaissance eventually transferred toEscopeta Oil to form the Kitchen Lightsprospect.

In addition to the acreage, Buccaneersaid it is acquiring a six-man managementteam.

Buccaneer is the second Australian inde-pendent to enter Alaska this month. Earlierin March, Linc Energy (Alaska) Inc.acquired the Cook Inlet leases of GeoPetroResources.

Buccaneer attributed its interest inAlaska to tax credits and local natural gasprices.

It called the exploration credits in ACES,or Alaska’s Clear and Equitable Share, “asignificant incentive and substantiallyreduces the commercial discovery thresh-old.”

The company also noted that natural gasprices in the Cook Inlet “trade at around 40percent premium to the remainder of theUnited States due to declining productionand increasing demand.” Unlike the spotmarkets common in the Lower 48, Alaskaregulators approve Cook Inlet natural gasprices in long-term contracts. The localprice is an average of various contracts, and

has at time been lower than the Henry Hubprice.

Buccaneer called the Cook Inlet basin“significantly under explored” and pointedto “numerous studies” suggesting the poten-tial to “host additional world class reserves.”

While noting the offshore leases are“close to pipeline and platform infrastruc-ture,” Buccaneer also said “no technicalhurdles exist to drill and develop reserves.”

Seasonal ice packs, intense weather andenvironmental precautions are all standardin the sub-Arctic Cook Inlet basin. Plus,drilling in the relatively shallow watersrequires a specialty rig such as a jack-up,something independents like Renaissance,Pacific Energy and Escopeta Oil have spentyears unsuccessfully trying to contract andmove to Alaska.

That said, Buccaneer “expects to drill itsfirst prospect” this year.

A history of fast explorationThe company’s history suggests that

ambitious timeline may be more than justtalk.

Founded in 2006, Buccaneer raised $17million in an initial public offering in late2007, and began developing its first

prospect, the Pompano field off of the TexasGulf Coast, in early 2008. Using severalloans, the company now also operates theJaguar and Ruby prospects in offshoreLouisiana, and the onshore Lee Countyproject in southeast Texas.

On its Web site, Buccaneer describes itsstrategy as “acquiring low-cost, low-riskproperties left-behind or passed-over bylarge producers” and “Leveraging anincreasingly tight market for oil and gashardware and development resources.”

The former is a strategy shared by manyindependents in the Cook Inlet and on theNorth Slope. In fact, one Stellar executive,Mark Landt, oversaw operations in regionaround the leases when he worked as a landmanager for ARCO in the early to mid-1990s.

Exploration work over the years suggestthe waters of the upper Cook Inlet sit over ageologic trend sit along an anticline running30 miles from northeast to southwest thatinclude the prolific North Cook Inlet unitand the prospective Kitchen Lights unit.

—ERIC LIDJI

including language mandating that RCAregulate gas storage facilities. The RCA inJanuary said it was unsure of its authoritywith respect to storage.

Hawker and other proponents believegas storage is crucial for ensuring the regionhas enough supply during cold winters.Where Cook Inlet producers once had noproblem delivering enough gas to coverdemand, deliverability has become strainedin recent years.

“A critical and universally recognizedpart of the solution is large-scale gas stor-age, allowing utilities to purchase gas dur-ing lower demand periods; hold the gas instorage; then withdraw it when needed,”Hawker said in his sponsor statement forHB 280. “Establishing gas storage is cru-cial, and the state needs to promote the rapiddevelopment of storage facilities.”

With respect to storage incentives, thebill creates a new corporate income taxcredit of $1.50 per thousand cubic feet ofnew gas storage capacity opened during2011-15.

The maximum credit per facility wouldbe $15 million. To qualify for a credit, afacility would need a working storagecapacity of at least 500 million cubic feet ofgas, and a minimum daily delivery capabil-ity of 10 million cubic feet.

The bill also offers new storage opera-

tions a 10-year exemption from any stateland lease fees or rents.

As for exploration incentives, the billwould sweeten existing Cook Inlet tax cred-its by providing a straight 40 percent creditagainst production taxes for explorationexpenses. Under the current statute, thecredit is 30 to 40 percent, a bill summaryfrom Hawker’s office said.

The bill also allows explorers to use thefull value of their earned Cook Inlet creditsin other parts of the state, such as the NorthSlope. The current statute generally allowsthose credits to be used only against taxespaid on Cook Inlet production, Hawker’soffice said.

Finally, HB 280 allows Cook Inletexplorers to take their full production taxcredit in one year, rather than over two.

Hawker said his bill is structured so that“any financial incentives are required topass through the supply chain to utilitiesand, in turn, to their customers.”

Administration is waryWhile the administration of Gov. Sean

Parnell is supportive of developing CookInlet storage capacity and encouragingexploration, it has some misgivings aboutHB 280.

Of particular concern is a late amend-ment the House Finance Committee addedthat says state officials “may not deny anapplication for a lease or assignment of alease of state land for the development andoperation of a gas storage facility solely

because the gas storage facility would beused exclusively or primarily to store gasowned by the owner or operator of the gasstorage facility.”

Hawker said he offered the amendmentat the behest of oil and gas companies whowant to be able to hold gas for purposes ofmanaging their inventory and fulfilling sup-ply contracts.

Kevin Banks has a different perspective.As the state’s oil and gas director, he has thepower to approve or deny storage leases.

Banks believes a storage lease carries apublic service obligation, and so a storagefacility should be available to third partiessuch as new Cook Inlet explorers who don’thave any storage capacity of their own.

Typically, depleted gas reservoirs areused to store gas, and the established oil andgas producers control these.

“There isn’t an empty gas field out therewhose leases have been handed back to thestate that I could offer on a competitivebasis as a storage lease,” Banks toldPetroleum News on March 23.

During a House Finance Committeehearing on March 17, legislators discussedwho might take advantage of HB 280’sincentives for gas storage.

Hawker said a public utility might con-struct its own storage capacity, or contractwith a third-party storage provider.

But producers simply warehousing theirown produced gas for purposes of meetingdelivery contracts later wouldn’t qualify forthe storage development tax credits,

Hawker said.

Chevron’s about-faceChevron surprised state officials on

March 23 with a letter to Natural ResourcesCommissioner Tom Irwin saying the com-pany was withdrawing its application for astate lease to store natural gas in the IvanRiver unit on the west side of Cook Inlet.

The letter gave no reason for the applica-tion withdrawal, and Chevron wasn’t able toprovide more information to PetroleumNews before this story went to press.

Chevron already has considerable CookInlet gas storage capacity, holding a statelease in the Pretty Creek unit and a federallease in the Swanson River field.

The only other Cook Inlet gas storagelease belongs to Marathon, in the Kenai gasfield.

These three storage operations have acombined capacity of 32.8 billion cubicfeet.

By comparison, total Cook Inlet gas con-sumption annually exceeded 200 bcf overmost of the past decade.

A venture called Cook Inlet Natural GasStorage has proposed an 11 bcf storageproject in the Cannery Loop gas field on theKenai Peninsula. CINGS is a subsidiary ofpipeline company TransCanada. It has thesupport of Enstar Natural Gas Co., the maingas utility for Southcentral Alaska. �


STORAGE BILL


NEW PLAYER

Contact Eric Lidji at [email protected]


http://www.bcialaska.com/

gas storage bill passes

Documents