Crackingthe code

CRACKING THE CODE
2012
A Citizen’s Guide to the
Alaska Natural Gas Pipeline Discussion
Many Alaskans regard the gasline as one of the most important
projects of our generation. We are faced with urgent technical
and fiscal issues. Our understanding of the discussion and active
participation will make the difference for us and our families who want
to continue to call Alaska home.

This glossary began when Alaska
launched into the Alaska Gasline
Inducement Act in 2007. It was extremely
challenging to follow the discussion and
understand the options presented to us.

This glossary is a quick reference, not
a textbook. It is structured to give basic
definitions of frequently-used terms
with additional depth and discussion
in the BACKGROUND section. As it
will be available on the Internet, it is
also designed as a student and writer’s
tool with extractable and ready-to-use
information.

Cindy Roberts
Author/Editor

With thanks to the many individuals who reviewed the nearly-endless
drafts of this document. If you have additional terms or want to
further clarify those terms already included, please contact me at
cindy.roberts@gci.net. We all appreciate your help.

Cindy Roberts is a private citizen who has been a member of Backbone II, a
nonpartisan group of Alaskans who advocate for the use of Alaska’s resources
for the maximum benefit of current and future Alaskans. Roberts served as a
Special Assistant in the offices of the Commissioners of the Department of Natural
Resources and Department of Commerce (1991-1994) and was the liaison to the
Denali Commission from the Department of Commerce, Community and Economic
Development (2003-2006). She also served as the Director of Public Works for the
City of Wasilla in 1997-98.

CRACKING THE CODE
2012

Compiled by

Cindy Roberts

SEARCHERS
PRESS
Anchorage

CRACKING THE CODE
2012

Published by Searchers Press
2001 Churchill Drive, Anchorage, Alaska 99517 USA

Other publications by Searchers Press:
The Wit and Wisdom of Wally Hickel, edited by Malcolm B. Roberts 1994

Copyright © 2011 by Cindy Roberts
Excerpts from this book may be duplicated in any length with the written
permission of the author.
First Printing 2008 with Alaska Business Monthly magazine.
Second Printing 2012, revised

Printed by Color Art Printing, Anchorage, Alaska
Cataloging-in-Publication Data
Roberts, Cindy
CRACKING THE CODE 2012:

ISBN 978-1-4675-0494-2 $10.00 soft cover

Keywords
1. Glossary of Natural Gas terms
2. Alaska Natural Gas Pipeline
3. All-Alaska Natural Gas Pipeline
4. Alaska Gas Pipeline Route Options
5. Liquefied Natural Gas (LNG)
6. Alberta, Canada Gas Market
7. Fracking or Hydraulic Fracturing

Cover design by Candy Johnson, Alaska Business Monthly
Author’s photograph by Chris Arend Photography
Maps by MAPMAKERS ALASKA, AGPA, ANGDA, and U.S. EIA

CRACKING THE CODE is also available on the Alaska Business Monthly
website www.akbizmag.com. Please contact cindy.roberts@gci.net c/o
Searchers Press to arrange additional website listings.

ii

HOW DID WE GET HERE?

When oil was discovered on state lands at Prudhoe Bay in
1968, everyone knew that someday Alaska would have vast
amounts of natural gas to export. Until recently, 35 trillion cubic
feet of natural gas was considered “stranded” at the North
Slope with no way to get it to energy-hungry markets.

In June 2007, the Alaska Gasline Inducement Act (AGIA) was
signed into law. Five proposals were received that December
to study routes and prepare for federal approval to construct a
major gas pipeline. In January 2008, the State determined that
only the proposal submitted by TransCanada was complete.

In August of that year, the legislature voted to award the AGIA
license to TransCanada Alaska Company, LLC and Foothills
Pipe Lines Ltd (both subsidiaries of TransCanada Corporation).
The official title of the gasline under AGIA is the Alaska
Pipeline Project (APP).

Since then, there have been four major developments:
• New technology to develop “shale gas” in the Lower 48 has
identified vast, new reserves estimated to be in excess of
100 years of future U.S. demand without Alaska’s gas.
• ExxonMobil bought an undisclosed minority interest in the
Alaska Pipeline Project in June 2009 under the name of
ExxonMobil Alaska Midstream Gas Investments, LLC and
is “jointly advancing” APP with TransCanada.
• With its controversial “Citizens United” decision in January
2011, the U.S. Supreme Court removed limitations on
corporate and union spending for political purposes. This
will most likely heat up public relations and lobbying efforts
to determine how and when North Slope natural gas will
get to market.
• On 10/27/2011, Governor Sean Parnell stated that the
Alaska Pipeline Project’s focus on the Alberta market
appears to be “stalled.” He is now supporting the State’s
options for a large-diameter, natural gas pipeline to
“tidewater” to facilitate LNG export.

iii

Contributing to the Governor’s decision may have been the
fact that TransCanada held Alaska and Canada Open Seasons
with route options to either the western border of Alberta,
Canada or to tidewater at the terminus of the TransAlaska
Pipeline System in Valdez. As of this publication’s press
deadline, the results of that Open Season have not been
announced.

In 2008, ConocoPhilips and BP started a second pipeline
proposal, outside of AGIA called Denali – The Alaska Gas
Pipeline Project. It focused strictly on shipping gas from
Prudhoe Bay to Alberta, Canada. However, since the Denali
concept began, shale gas technology advanced to create a
huge supply of domestic U. S. gas and the market prices in
both Canada and the Lower 48 declined significantly. In May
2011 ConocoPhillips and BP determined that Denali was
“uneconomic” and the project was terminated.

In determining the best option for Alaska, it is important to
understand that if our State-owned gas enters the Canadian
pipeline system at over-supplied and minimal prices, Alaska
may receive far less revenue than if our gas is exported to the
lucrative Asian markets.

It is the responsibility of all Alaskans
to understand these issues
and to pursue the mandate in our
Constitution’s Article VIII to obtain
“maximum benefit” from our commonly-
owned resources for current
and future Alaskans.

iv

WHERE TO BEGIN…
Learning about Alaska Natural Gas

Where does it come from? Oil, natural gas and coal come
from similar sedimentary geologic formations.

Where is it located in Alaska? Oil, gas and coal formations
exist in many areas in Alaska. The two main oil and gas
production areas so far are the Alaska North Slope and Cook
Inlet in Southcentral Alaska. The AGIA legislation focused
on North Slope natural gas development and how to get it to
market.

The alphabet soup of gas includes…
LNG Liquefied Natural Gas has been an Alaska export from
Nikiski to Japan since 1969. That contract has not been
renewed, due to diminished gas supplies from Cook Inlet.
Asian markets are strong and expanding and LNG export
remains an option for North Slope gas.

CNG Compressed Natural Gas is trucked from Cook Inlet north
to Fairbanks and used to generate electricity.

v

NGLs Natural Gas Liquids are high-value hydrocarbons and
the feedstock of the petrochemical industry. One of those
liquids, propane, can be distributed via roads and river
systems and provide much-needed fuel for rural Alaska.

CBM Coalbed Methane is a form of natural gas that is present in
many Alaska coal formations.

What are the major types of natural gas?
Methane CH4 1,012 Btu/cf “dry gas” used to for
power generation, home
heating, and cooking.

}
Ethane C2H6 1,773 Btu/cf gas liquids used as
Propane C3H8 2,500 Btu/cf feedstock for petro-
Butane C4H10 3,260 Btu/cf chemical manufacturing
and fuels.

Why is a Natural Gas Pipeline important to Alaskans?
Natural gas is a clean fuel that can help provide abundant
energy for Alaskans and other users worldwide. Our
government revenues from natural gas development and sales
will make Alaska’s future much stronger for future generations.

What route will it take? While there are three proposed gas
pipelines that will begin at Prudhoe Bay, there are major route
alternatives to move our gas to market. The option originally
favored under AGIA was a 1,715-mile pipeline from Prudhoe
Bay south to the Alcan Highway, then across the Yukon
Territory and British Columbia to the western border of Alberta,
Canada. In 2007 when AGIA began, the price of natural gas
in Chicago made this route a promising market. However,
Governor Parnell recently stated that option seems “stalled”
and he favors going to the Asian market. TransCanada is still
actively pursuing the Alberta option.

vi

The other route option under AGIA follows the trans-Alaska oil
pipeline right-of-way and connects Prudhoe Bay and Valdez
to supply gas to Alaskans in five off-take sites and to export
LNG to global markets. Valdez is also promoted by the Alaska
Gas Pipeline Authority which targets much more active in-state
access to gas for Alaska communities in Southcentral as well
as on the road and river systems.

The third option proposed by the Alaska Gasline Development
Corporation connects Prudhoe Bay to the existing gas
distribution system beginning near Big Lake and eventually
going to Anchorage and the Kenai Peninsula. This route would
require a separate spur line to Fairbanks.

Alaska Natural Gas Development Authority is focused on spur
lines off the main pipelines (AGIA and AGPA proposals) to
energize Southcentral and the river and coastal communities.

Are there other benefits for Alaska from the in-state
options? Alaska and the U.S. will have all the construction
jobs along the 800-mile route, all the permanent pipeline
operation jobs, and value-added industry jobs. Through spur
lines and off-takes, Alaska’s rural and urban communities will
gain a major new source of clean energy for power generation
and residential use. If the gas is taken to Valdez, the per unit
cost for the Alaska consumer may be less as large volumes of
LNG will be exported to lucrative world markets.

We have an oil pipeline from Prudhoe Bay to Valdez.
Do we need another one for gas? Yes! Even though some
types of gas liquids may be transported in the oil pipeline, gas
pipelines require totally different high-pressure engineering
than oil pipelines.

vii

What is the status of the AGIA project? TransCanada
Alaska LLC and Foothills Pipe Lines Ltd have a State license
under AGIA to do preliminary research on two pipeline options.
ExxonMobil has a significant “minority” interest in the effort.
These corporations have not yet announced the results of
the 2010 Open Season when they invited gas producers to
establish contracts to transport their gas via a pipeline to either
Alberta or Valdez.

The terms of AGIA do not actually require TransCanada
to build a gas pipeline. Alaskans are wondering why the
Governor and the Legislature aren’t demanding that the
companies reveal the results of the Open Season. If the AGIA/
TransCanada process is stalled as Governor Parnell stated,
perhaps we need to chart a new course.

viii

CRACKING THE CODE 2012

There are two sections in this glossary:
The ALPHA section has 199 definitions and indicates related
terms by using the following cue: (See: ). The BACKGROUND
section provides more detail and historical context for 33 of the
terms. (See: Term in bold) Items of special interest to Alaska are
indicated with the Ω symbol. Dedicated readers may notice the
repetition used throughout the glossary. The intent is to help
the reader track the terms as they relate to each other.

ALPHA

A
ACES Alaska’s Clear and Equitable Share 2007 The intent
of Alaska Statute 43.55 is to capture for Alaska’s government
and people (the owners of Prudhoe Bay and its resources)
a greater share of Alaska North Slope oil and gas profits
while encouraging new industrial investment and increased
production. (See: ACES, PPT, Tax: Production)

AECO [AY-co] The Alberta Gas Reference Price. Canada
has a natural gas storage and transportation system that
moves Alberta’s gas into TransCanada’s Mainline and the
Foothills / Northern Border Pipeline. It functions like the U.S.
Henry Hub by defining the spot market price for Alberta gas.
(See: Henry Hub, LNG, Routes, Spot Market)

AGIA Alaska Gasline Inducement Act 2007
[a-GEE-a] Alaska Statute 43.90 created a competitive
process for a company to obtain a license to pursue permits,
customers, finances, and authority to allow construction of a
gas pipeline to transport Alaska North Slope natural gas to
market. (See: AGIA, Bcf, Incentives, Open Season)

When reference term is BOLD, go to BACKGROUND discussion. 1

AGPA Alaska Gasline Port Authority [AG-pa] A tax
exempt, quasi-governmental entity created in 1999 by the
voters of the North Slope Borough, the Fairbanks North
Star Borough, and the City of Valdez. The latter two actively
continue to support AGPA’s objective “to build, or cause to
be built, a natural gas pipeline from Prudhoe Bay to Valdez.”
(See: AGPA, COS, Routes, Tariff)

Alaska Mainline The in-state 745 miles of the proposed
Alaska Pipeline Project. Under the AGIA license, TransCanada
makes regular reports to the Federal Energy Regulation
Commission (FERC). Their 8/1/2011 report extended
the Project’s Alaska Mainline with the 58-mile, 32-inch
Point Thomson Pipeline to connect Point Thomson and
the planned Gas Treatment Plant (GTP) at Prudhoe Bay.
(See: APP, AGIA, FERC)

ANCSA Alaska Native Claims Settlement Act 1971
[ANC-sa] Federal legislation that addressed the land claims
of Alaska’s indigenous people. The settlement included
$962,500,000 plus fee simple title to 44 million acres
within Alaska to be owned and managed by 12 Regional
Native Corporations and numerous village corporations.
When the gasline is constructed, all proposed routes
will cross Native lands and terms will be negotiated.
(See: ANCSA, Right-of-Way, Off-takes)

ANGDA Alaska Natural Gas Development Authority 2002
[ANG-da] A public corporation (much like the Permanent Fund
or Alaska Railroad) created by a 62% favorable, statewide vote
(138,353). Generated by the “Prop 2” General Election Ballot
Initiative of 2002, Alaska Statute 41.41 (2003) established the
Authority to facilitate the planning, design and construction of
a natural gas pipeline from Prudhoe Bay to Cook Inlet or to
Prince William Sound with a spur line to the Southcentral gas
distribution system.

2 When reference term is BOLD, go to BACKGROUND discussion.

ANGDA has focused its efforts on getting North Slope natural
gas to Alaska communities as well as identifying feasible LNG
export options. ANGDA operates within the Alaska Department
of Revenue. (See: Routes)

ANGPA Alaska Natural Gas Pipeline Act 2004
[ANG-pa] Federal legislation that authorized $18 billion in loan
guarantees (up to 80% of the total capital cost of an Alaska
natural gas pipeline) to facilitate delivery of gas to domestic
U.S. markets. This loan guarantee applies to either a cross-
Canada or an All-Alaska pipeline project.

Under ANGPA, the U.S. Federal Energy Regulatory
Commission (FERC) is the lead environmental and regulatory
agency for an Alaska gas pipeline project. It has the authority
to mandate that the pipeline be expanded to accommodate the
transmission of additional gas discovered after the project is
first designed and constructed. (See: FERC)

ANGTA Alaska Natural Gas Transportation Act 1976
[ANG-ta] Federal legislation that led to a treaty between the
U.S. and Canada which is valid until 2012. It requires that if
Alaska North Slope gas is transported across Canada, the
gasline must follow the Highway Route. There are several
Canadian companies involved in these agreements that own
and operate the “Pre-Built” Western Leg pipeline section that
connects Alberta to San Francisco and the Northern Border
Pipeline System linking Alberta to Chicago. (See: Routes: Highway)


ANILCA Alaska National Interest Lands Conservation Act
1980 [a-NIL-ca] Legislation that greatly enlarged the federal
conservation system units in Alaska including national parks
and wildlife refuges. Alaska now holds 70% of all national
park lands in America and 85% of all wildlife refuge acreage
for a total of 131 million acres (nearly 30% larger than the
state of California). ANILCA legally guarantees access across
these conservation units, but contains severe restrictions
to transportation and utility systems such as gaslines. The
proposed Bullet Line (or ASAP: Alaska Stand Alone Pipeline
Project 2010) will be required to resolve these restrictions
on the Parks Highway, in proximity to Denali National Park.
(See: ASAP, Routes)

ANS Alaska North Slope A flat, treeless plain that
encompasses 88,000 square miles from the foothills of the
Brooks Range north to the Arctic Ocean. The ANS acronym
is often used in connection with oil and gas that is produced
in, or shipped from, north of Alaska’s Brooks Range and
north of 68˚ (degrees) North Latitude. (See: ANS, ANWR,
NPR-A, Point Thomson, Prudhoe Bay, TAPS, Barrow Arch, Beaufort Sea,
Brooks Range)

Chukchi Sea Barrow
Alaska North Slope (ANS)
Beaufort Sea
Wainwright Pt Thomson
Prudhoe
Bay Kaktovik
Nuiqsut
National Petroleum 1002 Area

Reserve - Alaska
(NPR-A) Umiat
Arctic National
Point Hope Wildlife Refuge
CANAD

State & Native (ANWR)
Corporation
Lands
A

Trans Alaska Pipeline System (TAPS)
Miles
0 30 60 120 180 240


ANWR Arctic National Wildlife Refuge [AN-war] The
federal ANILCA legislation of 1980 enlarged the Arctic
National Wildlife Range from 8.9 million to 19 million acres
and reclassified the area as a “Refuge.” Eight million acres of
ANWR were designated as Wilderness where no development
can occur. However, 1.5 million acres along the Arctic Coastal
Plain in the 1002 (“ten-O-two”) Area was specifically identified
as containing high oil and gas potential and designated for oil
and gas evaluation. Its western border is adjacent to the Point
Thomson field and less than 60 miles from the Prudhoe Bay
facilities. (See: ANWR, ANILCA, ANS, Point Thomson)

AOGA Alaska Oil and Gas Association [A-O-ga] The
trade association of 16 oil and gas companies involved in
exploration, production, transportation, refining, and marketing
petroleum in Alaska.

AOGCC Alaska Oil and Gas Conservation Commission
Provides oversight and surveillance to prevent waste of oil
and gas resources to protect the rights of the resource owner
(State of Alaska) and maximize recovery of oil and gas for the
benefit of Alaska’s citizens. The AOGCC has determined that
the current allowable gas off-take for the Prudhoe Bay Unit
(PBU) is 2.7 billion cubic feet per day (Bcf/d). This is a major
issue because TransCanada’s Alaska Pipeline Proposal is
engineered to ship 4.5 to 5.9 (Bcf/d) to Alberta. Ω

APP Alaska Pipeline Project The name chosen by
TransCanada for the State-licensed gas pipeline study under
the 2008 Alaska Gasline Inducement Act (AGIA). TransCanada
Alaska Company, LLC in cooperation with Foothills Pipelines,
Ltd. hold the license and have a minority partner, ExxonMobil
Alaska Midstream Gas Investments, LLC.


Two APP route options begin at Point Thomson (58 miles east
of Prudhoe Bay). One proposed option crosses Alaska to the
Yukon Territory border and extends to the British Columbia-
Alberta border for a total of 1768 miles. The in-state option
from Point Thomson and Prudhoe Bay to tidewater at Valdez
spans 858 miles. (See: APP, Routes: APP)

Article VIII The Constitution of the State of Alaska mandates
in Article VIII, Section 2 that, “The legislature shall provide for
the utilization, development, and conservation of all natural
resources belonging to the State, including land and waters,
for the maximum benefit of its people.” (See: Article VIII)

ASAP Alaska Stand Alone Pipeline Project 2010 (also
the Bullet Line) The Legislature created the Alaska Gasline
Development Corporation (AGDC) a subsidiary of the Alaska
Housing Finance Corporation (AHFC) with Alaska Statute
1856.086. On 7/1/2011, AGDC announced the details of the
Alaska Stand Alone Pipeline Project (ASAP) proposal, a 737-
mile, 24-inch diameter pipeline. Its goal is to connect Prudhoe
Bay natural gas to over half the state population in Fairbanks,
Anchorage, MatSu, and the Kenai Peninsula. The target
volume is less than 0.5 billion cubic feet per day (limited by
the terms of AGIA). It proposes to connect with existing gas
delivery systems from its southern terminal near Big Lake. A
gas liquids extraction plant is planned near Point Mackenzie on
the west side of Cook Inlet. ASAP’s target operational date is
2018 and the estimated cost is $7.2 billion. (See: ASAP)

Asian Cocktail also called “JCC” or “Japan Crude Cocktail”
or “Japan Customs-Cleared Crude” A statistical average of
the top 20 long-term, crude oil contracts (based on volume)
in the Japanese market. JCC price quotes are a similar price
index to spot market prices at Henry Hub in the U.S. and
AECO in Canada.


LNG pricing in the Asian markets is based on the energy
equivalency of crude oil (BOE) and is generally purchased with
20 or 30-year contracts. Historically, the price has been two
to three times higher than North American prices established
at Henry Hub and AECO which reflect short-term supply and
demand. The Japanese tsunami (3/11/2011) and the closure
of damaged nuclear plants have brought short-term, spot
market LNG sales into this pricing system. (See: AECO, BOE,
Henry Hub, LNG)

B
Backbone Founded in 1999, a non-partisan, citizen
organization of Alaskans who “believe in the use of state oil
and gas resources for the maximum benefit of current and
future generations of Alaskans.” (See: Backbone)

Barrel BBL A barrel of oil contains 42 U.S. gallons and is the
U.S. standard unit of measurement of petroleum products. The
term originally referred to the barrels used to transport oil on
the decks of ships. The measurement of the number of barrels
of oil produced in 24 hours is barrels per day or BLD. (See: BOE)

Barrow Arch The geologic “fold” that has created the
series of oil and gas traps or reservoirs that have been
discovered at Prudhoe Bay, Kuparuk, Point Thomson and
other locations on the Alaska North Slope. Oil and gas is
believed to have migrated north over millions of years from
the Brooks Range through sedimentary geologic formations.
(See: ANS, Prudhoe Bay)


Bcf billion cubic feet There are two systems for quantifying
natural gas:
1) a cubic foot (cf) of volume under standard
atmospheric pressure. Mcf indicates volume per 1,000 cubic
feet. Bcf indicates volume per billion cubic feet. The Alaska
Pipeline Project targets gas throughput of 4.5 billion cubic feet
per day (Bcf/d). 8.4 Bcf of gas currently comes to the surface
with Prudhoe Bay crude oil every 24 hours. 1 Bcf/d is used to
power operations at Prudhoe Bay and other North Slope fields.
7.4 Bcf/d is re-injected into the oil-bearing geologic formations
to help maintain subsurface pressure and extract crude oil. 1
Bcf/d equals 7.82 million metric tons per annum (MMTA) – the
measurement for LNG shipment contracts.
2) British thermal unit (Btu) is the other measurement
used. 1 million Btu (MMBtu) of energy is generally contained in
1 Mcf of gas, depending on the gas liquids content. (See: Btu)

Beaufort Sea The Arctic Ocean east of Barrow and directly
north of Alaska and northwestern Canada. West of Barrow, it
is called the Chukchi Sea. State of Alaska jurisdiction extends
offshore 3 miles after which waters are owned and managed
by the federal government. There is debate over the exact
location of the maritime U.S.-Canada boundary. Ω The area
has significant oil and gas resources as well as migratory
whale and caribou populations. (See: ANS, Prudhoe Bay)

Big 3 The major leaseholder/producers in the North Slope
oil fields are: ConocoPhillips Alaska Inc, BP Exploration
(Alaska), Inc. (owned by BP p.l.c.), and ExxonMobil. These three
corporations also have controlling interest in the Alyeska
Pipeline Service Company which owns and manages
the TransAlaska Pipeline System (TAPS) oil pipeline.
(See: TAPS, Producers)


Bitumen [Bi’ tu min] The oil sands of Alberta contain a
heavy, tar-like substance that is extracted through two main
techniques: 1) A thermal recovery process dominated by a
technology of steam-assisted, gravity drainage. Natural gas
is used to convert water to steam that is injected into the
bitumen-rich sands at depths exceeding 250 feet. The bitumen
is converted to a liquid and is drained into pipes below the
strata and pumped to the surface. The hydrocarbons are then
processed into synthetic crude oil. 2) Surface strip mining
is also used to remove the sand which is transported to a
processing plant for separation of oil materials that are moved
on for refining. (See: GHG, in situ, Tar Sands)

BOE Barrels of Oil Equivalent The Asian market establishes
gas prices based on BOE that equates a barrel of oil to 600
million British thermal units (MMBtu) of energy. The energy in
natural gas varies depending on the content of liquids such as
ethane, propane and butane. (See: Natural Gas, MMBtu, Oil Parity)

Brooks Range Stretches west to east 700 miles across
northern Alaska and into Canada’s Yukon Territory and
approximately 150 miles north-south at roughly 68˚North
Latitude. It is considered an extension of the Rocky Mountains
with its highest peaks exceeding 9,000 feet. It is believed to
be approximately 126 million years old and is geologically-
related to the oil and gas formations of the North Slope.
(See: ANS, ANWR, Prudhoe Bay, NPR-A)

Btu British Thermal Unit A standard energy measurement
equal to the amount of heat required to raise the temperature
of one pound of water one degree (58.5˚ to 59.5˚) Fahrenheit
under standard conditions of pressure. One cubic foot of
methane equals approximately 1,000 Btu of energy value.
(See: Btu, BOE, Mcf)


Buried Line Unlike the TransAlaska Pipeline System (TAPS),
the gas pipeline will be buried. Natural gas is cold and will not
melt the underlying permafrost. This will significantly reduce
construction costs compared to the TAPS. River crossings will
be buried or bridged based on local geography and the width
of the river.

Butane C4H10 A low-boiling paraffin hydrocarbon used for
small scale (cigarette lighter) fuel as well as major fuels and
petrochemical products. It is generally obtained by processing
natural gas and refining petroleum. It is stored in liquefied form
and used for fuel in a gaseous form. Its energy content (3,260
Btu/cf) is more than three times the energy of methane. Ω
Butane is a component of North Slope crude oil and is suited
for transmission via TAPS. Its added energy value explains
why Alyeska Pipeline Service Company records Barrels
of Oil Equivalency or BOE rather than only barrel volume.
(See: Natural Gas, BOE, Btu)

C
Canada Market Canada is especially interested in Alaska’s
North Slope natural gas because of its high content of gas
liquids (ethane, propane and butane). This rich mixture
has higher energy value than methane and is the essential
feedstock for the petrochemical industry based in Alberta. Gas
liquids from the (recently-approved) Mackenzie Gas Project
as well as the shale gas plays in Alberta, British Columbia
and Saskatchewan may be insufficient to supply enough
liquids for 100% petrochemical industry production capacity.
(See: Shale Gas, Feedstock, NGLs)

Capacity (Firm Transportation Capacity Contracts) Persons
or organizations with gas to sell were invited to purchase
capacity in the AGIA Alaska Pipeline Project (APP) during the
2010 Open Seasons in Alaska and the Canadian provinces.
Under AGIA, individuals who do not own or control gas may


purchase vouchers to guarantee reservation of capacity. As of
12/1/2011, the results of the First Binding Open Season have
not been made public. (See: Open Season, FT, Vouchers)

Carbon Dioxide CO2 A key element in photo-synthesis and
green plant production of oxygen. At Prudhoe Bay, CO2 comes
to the surface with crude oil and is re-injected into the ground
to pressurize the geologic formation and increase crude oil
extraction. CO2 is a normal component in natural gas and will
be removed at a Gas Treatment Plant prior to compression of
methane and transport via the gas pipeline. CO2 also results
from the hydrocarbon combustion process when carbon and
oxygen unite. It is a major greenhouse gas that contributes to
global climate change. (See: GHG, Hydrocarbon)

Certainty or Fiscal Certainty If and when oil and gas
producers and the State of Alaska (the resource owner) agree
to a locked-in tax rate over a specific time period, it will be
known as Fiscal Certainty. One element of Fiscal Certainty
is in place, but can be changed; under AGIA, gas producers
that committed to buy transportation capacity (and thereby,
committed their gas to the pipeline) during the 2010 Open
Season will benefit from stable production tax rates for that
amount of gas for the first ten years of the pipeline’s operation.
(See: SGDA, Inducements)

Certificate of Public Convenience and Necessity One
of the major objectives of the 2007 AGIA legislation was to
obtain this document from the Federal Energy Regulatory
Commission. It will provide the go-ahead for construction of
an interstate pipeline that crosses Canadian provinces (and
is assumed to reach the Mid-America market). If the market-
requested and preferred route is the All-Alaska pipeline
(intrastate), the Regulatory Commission of Alaska will issue
the Certificate. (See: AGIA, FERC, Licensee, RCA)


Coalbed Methane CBM Natural gas derived from coal
formations. (See: Natural Gas)

Common Carrier A pipeline system that provides
transportation service for a fee. The TransAlaska Pipeline
System (TAPS) is not a common carrier as it is owned and
controlled by ANS producer corporations. TAPS currently has
significant unused capacity and non-owner producers can
sell their crude oil to Alyeska Pipeline Service Company for
transport via the pipeline. (See: TAPS, Gasline, Open Access Pipeline)

Commons A new way to express an old idea – that some
forms of wealth belong to all of us, and that these community
resources must be actively protected and managed for the
good of all. The Alaska Commons refers to both the State and
Federal lands within Alaska.

Compact or Statehood Compact The Alaska Statehood Act
of 1958 was an agreement between the people of Alaska and
the U.S. government that established the terms under which
Alaska became the 49th state. These terms cannot be changed
or altered without the consent of both parties. Under the
Compact, 90% of resource revenues generated on federal land
belong to the State. Other key provisions include surface and
subsurface title to 103 million acres; ownership of all navigable
waters and submerged lands; and state management of fish
and wildlife resources. (See: Article VIII)

Competing Project AGIA limits state-funded, competing
gasline projects to a maximum throughput of 0.5 Bcf per
day. As the proposed Alaska Stand Alone Pipeline Project
(ASAP) would be state-funded, it has this volume limitation.
(See: Competing Project)


Compressed Natural Gas CNG A fuel alternative to diesel,
propane or petrol (gasoline). CNG is mostly composed of
methane and compressed to 1/ 200 of its volume at standard
pressure. While it is mainly used for fleets of short-range
vehicles, the State of Utah has created special service
stations to encourage use of this fuel and provide greater
distance options for natural gas-powered private vehicles.
(See: Natural Gas)

Compression The capacity of natural gas pipelines can
be enhanced to accommodate “new gas” by increasing the
pressure in the line. This is accomplished by adding a series
of compressor plants until the maximum pressure rating of the
pipeline system is reached. (See: New Gas)

Condensate Any liquid hydrocarbon that was originally
in a gaseous state underground and becomes liquid at
the surface, or a liquid hydrocarbon that is processed or
“separated” from the gas stream at the surface. Condensate
is generally composed of propane, butane, pentane and
“heavier hydrocarbon fractions.” The Point Thomson field has a
condensate production goal of 10,000 barrels per day.

Conditions Precedent CPs Terms that may be negotiated
between the prospective shippers, the pipeline owners, and
the state or provincial government prior to, during, and after
the close of the Open Season.


Conventional (and Unconventional) Reservoirs Oil and
gas have been traditionally discovered and produced in
conventional subsurface reservoirs where geologic formations
trap hydrocarbon substances from further migration through
porous rocks. Conventional reservoirs can be economic to
develop and extract hydrocarbons when the flow rates reflect
high enough pressure to make the unit cost of the produced
oil or gas affordable. The newly-improved fracking technology
used in shale formations has revolutionized drilling in
unconventional locations where widely-dispersed oil and gas
hydrocarbons can be produced economically. (See: Natural Gas,
Fracking, Coalbed Methane, Unconventional)

Cook Inlet The major marine feature of Southcentral Alaska.
It stretches 180 miles from Homer on the south end of the
Kenai Peninsula to beyond Anchorage near the most northern
area of the Inlet. Anchorage is 61˚ North Latitude and is
bracketed by Knik Arm to the northwest and Turnagain Arm
to the east. Cook Inlet is designated state land as a “historic
bay and inlet” even though it is wide enough to be federal land
outside the three-mile limit. Along with significant crude oil,
7.8 Trillion cubic feet (Tcf) of natural gas has already been
extracted from Cook Inlet formations.


Cook Inlet and Southcentral Alaska “undiscovered gas
reserves” have been estimated (6/2011) by the U.S. Geological
Survey (USGS) between 5 Tcf and 39 Tcf. That creates a
statistical average or mean gas estimate of 19 Tcf. During the
2011 drilling season, exploration companies announced very
optimistic discoveries in Cook Inlet. On the west side of Cook
Inlet, near Beluga, Cook Inlet Region, Inc. (CIRI) is developing
a syngas project, using underground coal gasification
technology.

Cook Inlet, Alaska Willow

Wasilla

Knik

Beluga
Anchorage
Tyonek

Nikiski
Kenai
Soldotna

Kasilof
t
Inle

Clam Gulch
ok
Co

Seward
Ninilchik

Anchor Point

Homer Miles
0 5 10 20 30 40


Coordinators (also Pipeline Coordinators) In 2004, Congress
enacted the Alaska Natural Gas Pipeline Act (ANGPA) which
established the Office of the Federal Coordinator – Alaska
Natural Gas Transportation Projects to expedite federal agency
permitting and regulatory work on a gasline. In 2007, AGIA
established a state coordinator position. The assignment of
that office is to streamline the process for the licensee to
acquire the Certificate of Public Convenience and Necessity
and expedite other permits required to construct a gasline.
(See: ANGPA, Inducements)

Cost Over-runs Unanticipated costs that occur during
permitting and construction. (See: Cost Over-runs, Netback,
Rolled-In Rates, TAPS, Buried Lines)

Cost of Service COS The tariff to move gas through the
pipeline system. The Federal Energy Regulatory Commission
(FERC) limits the allowable profit for pipeline corporations to
12%. A publicly-owned utility, such as the Alaska Gasline Port
Authority (AGPA), may choose a significantly lower COS as
their financial risk can be reduced through the issuance of
tax-free bonds. (See: AGPA, FERC, Tariff)

Crude Oil A fluid made up of various hydrocarbon
components including natural gas liquids and gases
and distinguished from refined petroleum products.
(See: NGLs, Petroleum, Synthetic Crude)

Cubic Foot Gas volume is measured at standard pressure
and temperature (60˚Fahrenheit) in units of one thousand
cubic feet (1Mcf). 1 Mcf of methane represents approximately
1,000,000 Btu of energy. Some industries use “scf” as a
measurement, meaning standard atmospheric pressure per
cubic foot. (See: Natural Gas, Btu)


D
Dehydration The removal of water from a substance. The
substance may be crude oil, natural gas, or natural gas liquids
(NGLs). This process is required to prevent corrosion and free-
water accumulation in the low points of a pipeline.

Delivery Points TransCanada Alaska Company, LLC, the
AGIA licensee, is required to design a minimum of five delivery
points, or off-takes, within Alaska to provide local access to
the gas. In addition, TransCanada’s AGIA proposal (12/2007)
indicated 16 points along the 965 miles of the Canadian
section of the gasline if the route goes to Alberta. The 800-mile
All-Alaska route proposed by the Alaska Gasline Port Authority
(AGPA) puts more emphasis on the possible number of Alaska
off-takes to allow for additional local utilization of propane and
other gas forms. (See: AGPA, Off-takes, Plants: Straddle, Propane)

Denali – The Alaska Pipeline Project Led by ConocoPhillips
and BP, Denali was designated as a Competing Project
with TransCanada’s Alaska Pipeline Project (APP). Denali’s
original goal was to export Alaska North Slope gas to Alberta
and presumably on to the Mid-America market. It began in
2008. However, the corporations announced that they were
disbanding it on 5/17/2011 as a result of the depressed gas
prices in the Lower 48 due to shale gas technology and
increased gas supplies.

Downstream The refining and marketing sectors of the oil
and gas industry that include the petrochemical industry and
the local distributing companies that sell gas to power plants
and residential users. (See: Midstream, Upstream)

Dry Gas 1) Less than 15% of the gas content is liquids. Cook
Inlet gas is very dry as it is nearly 100% methane. 2) Liquids
and non-hydrocarbon gases (like CO2) have been processed
and removed. (See: Wet Gas)


Duty to Produce Alaska’s leases include an implied “duty
to produce” oil and gas when there is an economic means of
transport to market. If there is a willing buyer and the producer
refuses to sell, the State has the authority to cancel leases and
offer them to new bidders. An economic transportation system
such as a pipeline is essential for the State to enforce this
requirement. (See: Point Thomson)

E
EIA Energy Information Administration A division of the
U.S. Department of Energy that estimates future domestic
energy supply and demand and publishes an Annual Energy
Outlook. EIA reported that U.S. natural gas production in
2011 will average 65.39 Bcf/d – up nearly 6% from the 2010
average. (published 7/15/2011) (See: Shale Gas)

Ethane C2H6 A valuable component of the known gas
reserves at the North Slope. Ethane is the dominant liquid
feedstock from which many petrochemicals including plastics
are manufactured. North Slope gas reserves contain higher-
than-average amounts of ethane relative to other natural gas
liquids. Ethane energy value is 1,773 Btu/cf, 70% higher than
methane (1,012 Btu/cf). While the major producers at the
North Slope seem to favor exporting ANS ethane to existing
petrochemical plants in Alberta, Canada and elsewhere Ω,
many Alaskans want the State to retain control of this resource
for value-added processing in Alaska. (See: Natural Gas, Btu,
Butane, Methane, NGLs, Propane, Wet Gas)

Exclusive Agreement Alaska Governor Frank Murkowski
(2002-2006) proposed an exclusive agreement (under the
Stranded Gas Development Act) with the North Slope producers
granting control of the construction and timing of the gasline as
well as locked-in tax rates. Not wanting to violate Article IX of
the State Constitution by surrendering future taxing authority,


the legislature refused to vote on this proposed contract.
(See: Stranded Gas Development Act, Producers)

Expansion After initial gasline construction, AGIA requires
that “new gas” be allowed access to the pipeline every two
years. (See: Compression, Looping, Open Access Pipeline)

Explorers Companies that engage in active exploration for
new resources. Alaska’s Big 3 corporations all began in Alaska
with oil exploration activities. Currently, they are focused
primarily on harvesting ANS crude oil, rather than oil and gas
exploration. (See: ANS, Big 3, Producers)

Export License In order to sell natural gas to a non-domestic
or global market, an export license must be obtained from
the U.S. Department of Energy. (See: Export License, LNG,
Yukon Pacific Corporation)

F
Feedstock Crude oil and gas liquids are the building blocks of
the petrochemical industry used to create a myriad of valuable
products from vitamins to contact lenses. Agrium, the recently
closed plant at Nikiski on the Kenai Peninsula, used Cook Inlet
gas to produce fertilizer for farmers worldwide.

FERC The Federal Energy Regulatory Commission is
the lead agency to permit and regulate interstate natural gas
pipelines. FERC will be the agency to issue the Certificate of
Public Convenience and Necessity, approve interstate tariff
rates, and regulate and permit a gas liquefaction plant. If the
gasline goes to Alberta, the National Energy Board of Canada
(NEB) will have similar responsibilities for more than 50% of
the line. If the gas pipeline remains entirely within Alaska,
the Certificate will be issued by the Regulatory Commission
of Alaska. (See: FERC, AGIA, Certificate of Public Convenience and
Necessity, ANGPA, NEB, RCA, Tariffs)


Fiscal Certainty (See: Certainty, Inducements)

Fracking or Fraccing [FRa-king] In 2003, hydraulic fracturing
technology was developed for deep, horizontal drilling to tap
geologic formations where hydrocarbons (both oil and natural
gas) are widely dispersed and not in conventional pools
or traps. There are 22 shale gas “plays” in 20 states under
exploration and development. The result has been a dramatic
recalculation of U.S. natural gas reserves to more than 100
years of domestic supply. (See: Fracking, Shale Gas)

Free Market The 2010 Open Seasons in Alaska, Yukon
Territory and British Columbia for the AGIA Alaska Pipeline
Project were an attempt to use the free market approach to
give the gas producers and potential shippers the opportunity
to purchase capacity in a gasline to reach markets either
in Alberta or globally via LNG shipment from Valdez. Under
AGIA, the private sector controls the route decision and timing.

As these decisions will seriously impact the future of the state,
many Alaskans maintain that Alaska’s government, as the
resource owner, should determine routes and timing of pipeline
construction. Ω (See: Article VIII, LNG, Open Season, Routes, Shippers)

FT Firm Transportation Commitment A binding financial
commitment or contract between a gas owner/producer and
a pipeline owner to purchase a specific capacity (space) in
the pipeline to transport gas at a certain cost for a set time
period. These contracts are generally for 20 to 30 years and
lead to sanctioning or securing the financing for construction
of the pipeline. (See: Open Season, Capacity, Precedent Agreements,
Sanctioning, Take or Pay Contracts)


G
Gas Hydrates A substance that forms by combining gas and
water within the pore space of sedimentary strata at specific
pressure and temperatures. These conditions occur within
and beneath permafrost in onshore areas and beneath the
seafloor in offshore regions of Alaska. Enormous deposits
of gas hydrates have been identified at the North Slope, but
production technology is still at the research stage.

Gasline An Alaska natural gas pipeline bringing North
Slope resources to market. A gas pipeline will differ from the
TransAlaska Pipeline System (TAPS) in several ways:
• TAPS carries hot crude oil (beginning at 112˚
Fahrenheit and ending in Valdez at approximately
58˚). Over half of its route is elevated on “stanchions”
to avoid destabilizing the permafrost soil conditions.
In contrast, natural gas is cold and the gasline will
be buried.
• TAPS transports crude through pump stations. The
gasline will move gas through compressors in high-
pressure pipe systems, designed at 2,500 pounds per
square inch (psi). Maximum design pressure for TAPS
is 1200 psi with current operations at approximately
700 psi.
• TAPS can move butane and ethane as gas liquids, but
not methane or propane.
• AGIA specifies that the gasline (APP) will be a common
carrier with open access to serve all gas producers.
• AGIA also requires that “new gas” be accommodated,
if needed, through additional compression or “looping”
every two years after gasline start-up.


Current production of North Slope crude oil brings to the
surface 8.4 billion cubic feet of gas daily. (Bcf/d) Approximately
1 Bcf/d is used to fuel operations at Prudhoe Bay and other
ANS fields. A 150-mile, 10-inch gas pipeline distributes fuel
for this use. The remainder is re-injected into the oil-producing
rock strata to help pressurize the oil extraction process. The re-
injected gas is also considered stored for future development.
(See: ANS, Common Carrier, Routes, psi, TAPS)

Gas types This glossary defines various processed gas
forms: CNG, GTL, LNG, LPG, and NGL and associated
chemistries: butane, ethane, and propane, wet gas and dry
gas. (See: Natural Gas)

Greenhouse Gas GHG Heavy concentrations of a range of
compounds including water vapor, carbon dioxide, methane,
nitrous oxide, and ozone in the earth’s lower atmosphere
can trap solar radiation near the earth’s surface. One result
is warmer air temperatures. The processing of oil sands has
contributed significantly to GHG levels in western Canada and
has become controversial.

GTL Gas-to-Liquids Using the Fischer-Tropsch process
developed in Germany in the 1930s, coal and natural gas
can be used as a feedstock for products such as 95-octane
gasoline, diesel and aviation fuels.

H
Heavy Crude Oil with high viscosity or resistance to flow.
In addition to chemical characteristics that make this crude
dense and thick, North Slope permafrost can extend to
depths of 2,000 feet, adding to the difficulty of bringing these
hydrocarbons to the surface. However, heavy crude is a vast
potential resource at the North Slope and research continues
on how to produce it economically.


Henry Hub Located in Erath, Louisiana, Henry Hub is the
pricing point for U.S. natural gas futures traded on the New
York Mercantile Exchange. Prices are quoted as dollars per
million British thermal units (MMBtu) or per thousand cubic feet
(Mcf). Located in Alberta, AECO is a similar pricing point for
natural gas in Canada. (See: Henry Hub, AECO, BOE, Btu, Mcf, WTI)

Hydrates (See: Gas Hydrates)

Hydrocarbon A naturally occurring organic compound
comprised of hydrogen and carbon. Hydrocarbon generally
refers to oil and gas, but not to coal. Many hydrocarbons are
highly complex molecules and can occur as gases, liquids
or solids. These molecules can have the shape of chains,
branching chains, rings or other structures.

I
Inducements Under AGIA, the State offered major
inducements to the licensee, TransCanada Alaska Company
LLC and Foothills Pipe Lines Ltd:
• p to $500 million spent by the licensee on qualified
U
expenditures to obtain the Certificate of Public
Convenience and Necessity from FERC or RCA will be
refunded by the State of Alaska. This is a 50% match. If
and when the licensee obtains the Certificate, there will
be an on-going match up to 90% until the $500 million
maximum is reached.
• The State’s production tax will be held constant for the
first ten years of gasline operation. This provision is
limited to the amount of gas that was committed to the
gasline by the producers during the 2010 (first) Open
Season. This assists the licensee to sell capacity in
the gasline as this cost of business will be stable for
shippers.


In return for these inducements, if the pipeline fails to go
forward, the State will own all engineering studies, designs,
and permits developed by the licensee. AGIA does not ensure
construction of the gasline.

Infrastructure State-owned infrastructure has played a major
role in creating the economy of Alaska. Primary examples
include: the Alaska Railroad (critical to the export of coal as
well as in-state transport), the Alaska Marine Highway System
(essential to nearly everything in Southeast Alaska), twelve
Alaska Highway System units including the DeLong Mountain
Transportation System (the toll road essential for the Red Dog
Mine), as well as airports and harbors. State ownership, in
part or total, of the gas pipeline is regarded by many Alaskans
as an excellent investment and a vital piece of our future
economic infrastructure.

in situ (literally means “in place”) Refers to the process of
oil and gas development below ground. In the case of the
Alberta oil sands, gas-fired steam-heat is used to liquefy
synthetic crude oil within the bitumen more than 250 feet
below the ground’s surface. Another in situ technology
is underground coal gasification (UCG) which produces
syngas. (See: UCG, Syngas)

In-take Liquefied natural gas (LNG) requires regasification
after it has been shipped and before it can enter gas pipeline
transmission systems. Sempra Energy operates the only West
Coast LNG in-take facility (in Costa Azul, Baja California,
Mexico) and moves gas to San Diego and throughout much
of the U.S. There are currently four LNG intake or receiving
terminals on the U.S. East Coast and several offshore LNG
terminals in the Gulf Coast. In-take facilities in Texas and
Louisiana have recently converted their design and are
becoming licensed to export LNG due to the over-supply of
gas from Lower 48 shale plays.


Interstate Refers to a pipeline that crosses into one or more
additional states. Regulations and tariff approval for interstate
pipelines are handled by the Federal Energy Regulation
Commission (FERC) which also issues the Certificate of
Public Convenience and Necessity to authorize interstate
construction.

Intrastate The proposed 800-mile All-Alaska gasline is an
example of an intrastate pipeline. The Regulatory Commission
of Alaska (RCA) has authority and will issue the Certificate of
Public Convenience and Necessity to authorize construction if
an intrastate route is chosen.

J
Jones Act Officially the Merchant Marine Act of 1920, the
Jones Act mandates that all goods shipped between U.S. ports
must be transported in U.S. built, U.S. owned and U.S. manned
ships.

K
Kitimat, British Columbia A west coast, Canadian ice-free
port at 54˚north Latitude. LNG facilities are under development
to export gas resources to the Asian market from BC as well
as the Yukon territory and Alberta. Shipping times from Kitimat
to Japan, North Korea and northern China are shorter than
from Australia to these markets. However, Kitimat is nearly 700
air miles further east from Japan than Valdez. (See: Kitimat)

L
Land Ownership in Alaska Alaska has a total of 365 million
acres, equal to 1/5 of the continental U.S. Land ownership
includes land, waters, and legal interests therein.


• Federal 218 million acres of Alaska are owned by the
U.S. government, roughly two thirds of the state. Before
statehood, 99% of Alaska was under federal ownership
and control.
• OCS Outer Continental Shelf Federal jurisdiction
exists in oceans and submerged lands from 3 nautical
miles offshore to a maximum of 350 nautical miles at a
maximum depth of 2,500 meters.
• State 103 million acres of Alaska are owned by the
State with both surface and subsurface development
rights. Through the Statehood Compact, Alaska also
has ownership of “navigable waters” and coastal zones
within three miles – designated as offshore. In addition,
State title to “historic bays and inlets” was established
at Statehood and includes the oil and gas geologic
structures of Cook Inlet. NOTE: Alaska’s coastline is longer
than the total of the rest of the U.S.
• Regional and Village Native Corporations 1971
Alaska Native Claims Settlement Act (ANCSA)
designated that the Regional and Village Native
Corporations could select up to 44 million acres of
federal land in Alaska. The Regional corporations
have both surface and subsurface development rights.
The village corporations have surface rights only. In
addition, individuals may hold surface land title through
Native Allotments granted by the federal government
prior to ANCSA.
• Private Other than Native lands, less than 1% of
Alaska has fee-simple ownership.

In total size, Alaska has
560,347 square miles and is
more than twice the size of Texas.


Lease (oil and gas) A contract establishing the conditions
under which exploration can occur on State land. In keeping
with the Alaska Statehood Act of 1958, the State cannot
sell its land or subsurface estate for resource development.
However, it can lease its lands for resource exploration and
production. Ω Alaska’s oil and gas leases include an implied
obligation to produce a discovered resource, if there is an
economic means to get it to market and a “reasonable” rate
of return is anticipated. Unproduced, but economic, leases
can be discontinued by the State, requiring forfeiture for non-
compliance. (See: Point Thomson)

Lessee A person or organization that holds an oil or gas
lease.

License The contract between the State and the successful
applicant under AGIA (TransCanada) to pursue authorization
to build an Alaska natural gas pipeline by obtaining the
Certificate of Public Convenience and Necessity from FERC or
the Regulatory Commission of Alaska.

Licensee The licensee has the exclusive right to the
AGIA inducements. The AGIA applicant selected by the
Commissioners of Natural Resources and Revenue and
approved by the legislature on 8/3/2008 was TransCanada.
The final license was granted 12/5/2008.

In spite of assurances that AGIA would prevent the Big 3
producer corporations from controlling the gasline, ExxonMobil
Alaska Midstream Gas Investments LLC purchased interest
in the gas pipeline project shortly after TransCanada received
the AGIA license. The details of this agreement remain
undisclosed by the State and the corporations.


Lifting Cost One of the major advantages of Alaska North
Slope gas over Lower 48 shale gas is the cost to bring it
to the surface. ANS is conventional gas associated with
extraction of crude oil. 8.4 billion cubic feet per day are
brought to the surface with current operations at Prudhoe
Bay at a cost of only 26 cents per thousand cubic feet (Mcf).
(Source: Wood MacKenzie study 8/17/2011).

LNG Liquefied Natural Gas Natural gas can be transported
long distances when compressed to 1/600th of the density of
natural gas under normal temperature and pressure conditions
and chilled to minus 256˚ Fahrenheit. In this liquid form, it
is carried by specialized marine tankers or “cryogenic sea
vessels” to global markets. At the port of entry, LNG is re-
gasified and transported through gas pipeline distribution
systems. The heating value of LNG is 635 Btu per cubic
foot. Shipping of LNG is measured by million metric tons per
annum (MMTPA). 1 Bcf = 7.82 MMT. LNG has 70% the energy
value of gasoline and 60% the energy density of propane and
ethanol. LNG has been exported to Japan from Nikiski on the
Kenai Peninsula since 1969. If the gas pipeline goes to Valdez,
the liquefaction plant will be located in Anderson Bay, close to
the terminus of TAPS (See: Natural Gas, Asian Cocktail, TAPS)

Valdez Area
Richardson
Valdez Highway

Alyeska Terminal
Anderson Bay

TAPS

Valdez
Arm

Miles
0 3 6 12


Looping Once the maximum capacity of a gas pipe-line has
been reached through compression of the gas, “looping” can
be utilized to increase capacity by installing a duplicate pipe
system in the same right-of-way.

LPG Liquid Petroleum Gas A gas containing certain specific
hydrocarbons (typically ethane, propane, butane, isobutene
or pentane) which can be liquefied under normal temperature
(60˚ F) and moderate pressure (14.73 psi) and has a higher
energy value than methane and is sold as a feedstock for
petrochemical processes. (See: Natural Gas, psi)

M
Mackenzie River Gas Pipeline was authorized for
construction by the National Energy Board of Canada (NEB)
as of 5/2011. It will be a 758-mile, 1 billion cubic feet per day
(Bcf/d) system connecting the Mackenzie River Delta with the
Alberta gas industry facilities. The 2007 estimated cost was
$16.2 billion. (See: Mackenzie River Gas Pipeline, NEB)

Mcf Thousand Cubic Feet One Mcf is 1,000 cubic feet and is
a standard measurement of natural gas quantities and market
prices. MMcf is one million cubic feet. Bcf is one billion cubic
feet. Tcf is one trillion cubic feet and is used to estimate gas
reserves, e.g. Prudhoe Bay’s proven gas reserves are 35 Tcf.
(See: Btu)

MDQ Maximum Daily Quantity The amount of gas to be
shipped under a specific contract, exclusive of fuel required for
operation of the pipeline system. This term is used in bidding
for capacity shipping contracts by the gasline users.


Methane CH4 or “C-4” The lightest and most abundant
of the hydrocarbon gases and the principal component of
natural gas. Methane is a colorless, odorless gas that is stable
under a wide range of pressure and temperature conditions.
This portion of the natural gas stream is used mainly for
power generation and residential heat and light. The average
methane content of ANS natural gas is just above 80%.
Methane heating value is 1012 Btu/cf. (See: Btu)

Midstream Industry activities that occur between exploration
and production (upstream) and refining and marketing
(downstream). The term is most often applied to pipeline and
marine transportation. (See: Upstream, Downstream)

Mineral Leasing Act 1920 (MLA) Federal legislation enacted
to stop abuses of natural resource development on federal
lands in the early 20th Century. Alaska’s Statehood Act applies
MLA’s requirements to Alaska’s state land. Subsurface
resources such as oil, gas, coal, hard rock minerals, sand and
gravel cannot be sold or given away by the State or ownership
will revert to the federal government. Development rights and
requirements are established through State leases.

N
Native Regional Corporations Alaska Native Claims
Settlement Act of 1971 created 12 in-state regional, profit-
based corporations that mirror historic ethnic and geographic
areas of Alaska’s indigenous people. The corporations have
become major centers of economic and cultural activity. They
have title to both surface and subsurface resources of their
acreage and subsurface title to village corporation lands in
their respective regions. A 13th Regional Corporation based
in Seattle provided an option for Alaskans of Native heritage
living outside the state when ANCSA became law. (See: ANCSA)


Natural Gas A naturally occurring mixture of hydrocarbon
and non-hydrocarbon gases found in porous rock formations
beneath the earth’s surface, often in association with
petroleum. (See: Natural Gas)

NEB National Energy Board of Canada If the AGIA license
results in a cross-Canada project, the NEB will have a similar
role to FERC in issuing permits. NEB will also approve tariff
rates and regulate 966 miles of the gasline that crosses
the Yukon Territory and British Columbia, concluding near
Boundary Lake, Alberta. If Alaska gas reaches Alberta and
is stored before it can be sold to U.S. markets, it will need
a Canadian export license. With approval of the Governor
General of Canada (indicating the approval of the Queen of
England), NEB will issue the permit to “import, export, or flow”
U.S. natural gas. (See: NEB, FERC, Export License)

Netback The price of natural gas and of crude oil established
by subtracting midstream transportation and processing costs
from the sales price at the final market. The netback price
determines the royalties and revenues received by the State in
return for its gas and oil resources. If the producer corporations
also own the pipeline (like TAPS), the term wellhead price is
used. (See: Tax: Royalty)

Net Present Value The value of a resource in the present as
contrasted to the value of the same resource available at some
future point in time. Inflation and the interest paid on borrowed
funds are two factors in the calculation.


New Gas AGIA requires that the gasline be engineered to
accommodate additional supplies of gas that are discovered
and become available after the first (2010) Open Season.
If there is additional demand for capacity, the gasline must
be expanded every two years after operations begin. New
discoveries are highly likely as the 35 Tcf of known reserves
in Prudhoe Bay and Point Thomson have been located
through the exploration for oil, not gas. Ω With the prospect
of a gasline in the immediate future, numerous independent
companies have begun leasing and exploring State lands for
gas. (See: Natural Gas, Open Access Pipeline)

NGLs Natural Gas Liquids Ethane, propane, butane, and
pentane that are found in, and extracted from, the natural gas
stream. (See: Natural Gas, Pentane)

North Slope or Alaska North Slope The Arctic Coast of
Alaska, north of the Brooks Range. In 1/68, Atlantic Richfield
announced that it had the first commercial oil discovery at
Prudhoe Bay. Since 1977, over 16 billion barrels of ANS crude
oil have been transported from the North Slope to Valdez via
TAPS. In addition to Prudhoe Bay, numerous other oil provinces
have been discovered on the Slope as well as offshore in the
Beaufort Sea. (See: ANS, NPR-A, Point Thomson, TAPS)

NPR-A National Petroleum Reserve-Alaska (also known as
“Pet 4”) Established by federal law in 1923, as the 23-million
acre Naval Petroleum Reserve No. 4. Half of the Arctic coast
directly west of Prudhoe Bay was designated to provide
domestic oil supplies for the Navy. Early exploration and
drilling during World War II was positive, but not productive.
British Petroleum was an early explorer and in 1963 made the
first gas discovery in NPR-A. Recent U.S. Geological Survey
(USGS) estimates predict that there is 60 Tcf of recoverable
natural gas in NPR-A as well as 6 to 13 billion barrels of oil. In
1976, management transferred to the U.S. Department of the
Interior. (See: ANS)

O
OCS Outer Continental Shelf Marine areas more than 3
nautical miles from the coast are owned and managed by the
federal government. OCS extends from state territory (less
than 3 miles from the coast) to a maximum of 200 nautical
miles (or to 350 nautical miles if the water is less than 2,500
meters deep).

Offshore Territory from mean high tide (on the beach) to the
3-mile, state-federal boundary. Alaska has a total of 44,000
miles of coastline – more than all the rest of the U.S.

Off-takes Delivery or access points where natural gas and gas
liquids can be removed from the gasline, processed, and used
to meet local needs. AGIA required applicants to accommodate
at least five off-takes within Alaska to allow for in-state use
by cities and remote communities along the rivers and road
system. The TransCanada proposal also has designated 16
delivery points listed in the 965 miles of the Canadian section of
the Alaska Pipeline Project (APP) on the Alcan Highway route.

The map below illustrates potential off-take points within
the state.


Local access can be engineered into the pipeline system
during construction as “compressor station side-streams” or
as “stub gas delivery.” These connections can be activated
at a later date as local commercial agreements are finalized.
Capital costs per location for a stub delivery option are
estimated to be $150,000 to $200,000. (See: Delivery Points, Plants:
Straddle, Propane)

Oil Parity In some markets, natural gas is priced on
comparable energy value to crude oil rather than on gas
supply and demand. (See: Asian Cocktail, BOE)

Oil Sands Canadians prefer this term to tar sands. When
fully developed, Alberta’s oil sands territory will be the size
of the State of New York. Bitumen is mined by strip mines or
below-surface “in situ” procedures, and processed to produce
a synthetic crude oil for domestic use or export to the U.S.
Canadian corporations are also investigating the Asian market
and the possibility of exporting both synthetic crude oil and
LNG from Kitimat, British Columbia. (See: Bitumen, Synthetic Crude,
Tar Sands)

OPEC Organization of Petroleum Exporting Countries
A permanent, non-governmental organization established in
1960 in Baghdad, Iraq. Its objective is to coordinate and unify
petroleum policies among member countries and satisfy global
supply and demand issues. OPEC’s members are Algeria,
Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar,
Saudi Arabia, the United Arab Emirates and Venezuela. U.S.
crude oil imports are greatly affected by OPEC supply and
price controls. OPEC is carefully watching decreasing demand
for its members’ gas as a result of the current increase in U.S.
domestic natural gas supplies.


Open Access Pipeline Under AGIA, all producers of natural
gas can purchase capacity, or space, in the gasline to ship
their gas to market. Every two years after start-up, the gasline
operators must offer space for “new gas” and make necessary
engineering changes to accommodate the increase in volume.
This differs from most U.S. gas pipelines in which contracts
for capacity are established and locked-in prior to design and
construction. (See: Common Carrier, Compression, Vouchers)

Open Season also Binding Open Season In order to
guarantee the profitability of a pipeline system, pipeline
owners hold an “Open Season” when gas producers bid for
and purchase a certain amount of transportation capacity
(FT) in the pipeline at a specific price for a set time period.
These contracts demonstrate market need and impact pipeline
capacity, engineering and financing. Open Seasons were held
in Alaska, British Columbia and Yukon Territory from 4/30/2010
until 7/30/2010.

AGIA specified that the First Binding Open Season would be
concluded within 36 months after TransCanada received the
license. That deadline was 12/5/2011. Results have not been
announced as of 12/7/2011.

Unless AGIA is abandoned, the Open Season information will
reveal if the Alaska Pipeline Project will cross Canada to the
Alberta border or follow the TAPS right-of-way from Prudhoe
Bay to Valdez. (See: AGIA, FT, Sanction)

Owners of Alaska’s Oil and Gas The Alaska Statehood
Act of 1958 (the Statehood Compact), passed by Congress
and agreed to by an overwhelming vote of the Alaska people,
granted the State both surface and subsurface ownership of
103 million acres of the total 365 million acres of Alaska.


Oil and gas leaseholders are not the owners of Alaska’s
resources. They are the explorers and producers and have
the right and obligation to market the resources they discover.
Under the Statehood Compact, if Alaska yields control of its
resource lands, the federal government can reclaim ownership
of those lands. This has important implications regarding Point
Thomson and ExxonMobil’s annual work plan commitments.
(See: Compact)

P
Pentane C5H12 An organic compound similar to butane
used in some fuels and as a laboratory solvent. It is called a
“refinery feedstock” and is molecularly close to gasoline.

Permafrost Any rock or soil material that has remained frozen
for more than two years. The North Slope and over half of the
TAPS right-of-way are underlain by continuous permafrost
soils, ranging in depth from a few inches to more than
2,000 feet.

“Pet 4” National Petroleum Reserve No. 4
(See: NPR-A)

Petrochemical Applications “Value-added” processing and
global marketing of ANS gas promises to be highly lucrative
due to its high gas liquids content and the petrochemical
industry demand for feedstock. Petrochemical value-
added products include: plastics, nylon, bleach, adhesives,
moisturizers, food additives, and fertilizers. The recently-closed
Agrium fertilizer plant in Nikiski (on the Kenai Peninsula)
contributed greatly to the area’s economy due to the workers’
average annual salary that exceeded $80,000. Alberta has
Canada’s most developed petrochemical industry but is
challenged by excess production capacity and insufficient
feedstock. This is one reason why Alberta is interested in
Alaska’s North Slope gas. (See: Cook Inlet, Gas Liquids)


Petroleum Crude oil that is found in sedimentary rock
formations is a complex mixture of naturally occurring
hydrocarbon compounds that is refined into petroleum.
Petroleum remains the world’s most widely used energy
source. (See: Crude Oil)

Petroleum Profits Tax 2006 (PPT) This profits-based tax
replaced Alaska’s previous production tax system known
as the “Economic Limit Factor” or ELF. PPT was an attempt
to share the profits from high oil prices more equitably
with the State and the people of Alaska while at the same
time encouraging investment by the industry in additional
exploration and development. The PPT is a net profits tax with
many complex deductions.

FBI investigations of vote-buying during the 2006 passage
of PPT placed a cloud over the integrity of the statute. The
legislature replaced PPT with ACES in 2007. (See: ACES,
Taxes: Net Profits)

PLA Project Labor Agreement A comprehensive agreement
between the licensee and labor union representatives to
ensure expedited construction and jobs for qualified residents
of the state. Without a PLA, attempts to hire Alaska Natives
and other Alaska workers on a priority basis will be challenged
in court as discriminatory and unconstitutional. AGIA does not
include a PLA agreement.

Plants
• Gas Conditioning Plant The existing “Central Gas
Facility” at Prudhoe Bay separates natural gas from
crude oil. Carbon dioxide, water and other impurities
are removed from the gas prior to movement of
1 Bcf/d (through a 150-mile, 10-inch gas pipeline)
which fuels North Slope operations.


• Gas Treatment Plant GTP Before “pipeline quality
gas” is entered into a pipeline, it must have impurities
removed and be compressed to the appropriate
pressure (psi) for the pipeline system.
• Cracking Plant Refines crude oil and other
hydrocarbons by “cracking” complex molecules
(breaking them into smaller molecules) to produce
gasoline and other products.
• Gas Plant Separates propane or other natural gas
liquids from the natural gas stream. This process is
called “fractionization.”
• Liquefaction Plant Lowers the temperature
of natural gas to minus 256˚ Fahrenheit and
compresses it to 1/600th of its original density –
converting it to liquefied natural gas (LNG). An All-
Alaska gasline will require such a plant at tidewater in
Valdez or Cook Inlet. The liquefaction plant at Nikiski
has produced LNG for export to Japan since 1969.
• Petrochemical Plants These facilities will process
the gas liquids from the North Slope gas stream
into a spectrum of high-value products. It is yet to
be determined whether these plants and the jobs
they generate will be located in Alaska, Canada, or
elsewhere in the world.
• Regasification Plant Receives LNG and warms
and stores it prior to entrance into gas distribution
(pipeline) systems that move gas to final markets.


• Straddle Plant Connects to a major gas pipeline to
extract propane and other natural gas liquids (NGLs)
for local use or processing, or to repackage propane
as bottled gas for non-pipeline destinations and
small scale users. If propane is the desired goal of
the off-take operation, the remaining gas (methane)
is returned to the pipeline and sent to other markets.
“Stub gas delivery” and “compressor station side-
streams” have similar roles and can be incorporated
into the original construction of the pipeline.
• Train In a liquefaction plant, a train is a purification
and production unit that is replicated to increase the
capacity of the plant. A typical LNG train consists
of a compression area, propane condenser area,
methane and ethane areas in addition to a cooling or
cryogenic section.

Plays Refers to source rock geologic formations which can
be accessed for gas or oil through conventional drilling or
hydraulic fracturing. (See: Shale Gas, Fracking)

Point Thomson Alaska’s third largest oil and gas field after
Prudhoe Bay and Kuparuk and the largest undeveloped gas
field in North America. It is located east of Prudhoe Bay and
just west of the ANWR 1002 boundary. It contains at least
8.5 to 10.4 trillion cubic feet of gas, 490 million to 600 million
barrels of associated condensate, and 580 million to 950
million barrels of oil. (See: Point Thomson, ANS, ANWR, Prudhoe Bay,
Condensate, Reserves)


Power Cost Equalization PCE The State’s PCE program
provides economic assistance to residents in rural areas of
Alaska where the kilowatt-hour (kWh) charge for electricity
is three to five times higher than in urban areas. PCE pays a
portion of approximately 30% of all power sold by participating
utilities. Commercial customers are not eligible to receive PCE
credit. Participating utilities are required to reduce each eligible
customer’s bill by the amount that the State pays for PCE.

In calendar year 2010, the average residential rate for
Anchorage, Fairbanks and Juneau was $0.1342 per kWh. In
that same time period residential rates for PCE communities
ranged between $0.20 and $1.02 per kWh. The average cost
across all the communities reported by the PCE utilities in
December 2010 was $0.5559 per kWh. The share of the local
energy cost paid by PCE is based on the average price of
energy in Anchorage, Juneau and Fairbanks. Ω This program
illustrates why ANS natural gas is urgently needed by Alaska
rural communities as well as urban Alaska. (See: Routes:
Marine Propane option, Off-takes)

PPT (See: Petroleum Profits Tax of 2006)

Precedent Agreements “Conditioned” bids were submitted to
TransCanada by prospective shippers under the AGIA Alaska
Pipeline Project (APP) Open Season completed 7/30/2010.
Once negotiations are completed regarding contract specifics
and government issues (like regulation and taxation),
precedent agreements will be finalized and contracts will be
signed to create FTs or Firm Transportation Commitments.
The APP Open Season results have not been announced
to the Alaska legislature or the public as of 12/1/2011.
(See: Open Season, FT)


Producers Lease-holding companies that have the right
and responsibility to explore and produce the resources they
discover. The major producers on the North Slope are BP
Exploration (Alaska), Inc., ExxonMobil, and ConocoPhillips
Alaska, Inc. Alaska’s producers are not the resource
“owners.” In Alaska, the resource owners are the State,
Regional Native Corporations, and the federal government.
(See: Big 3, Prudhoe Bay, ANCSA)

Propane C3H8 Propane is a gas liquid in the natural gas
stream that can be processed for in-state use as bottled
gas for power generation as well as residential heating
and cooking. It can be tapped from a gas pipeline by using
“straddle plants,” then tanked and transported in a variety of
containers. (See: Propane, Natural Gas, Off-takes)

Prudhoe Bay is North America’s largest oil field and is located
on State-owned land on Alaska’s north coast on the Arctic
Ocean. In 1968, the first discovery well at Prudhoe Bay was
announced. In 1977, crude oil began moving through the
trans-Alaska pipeline 800 miles south to the ice-free port of
Valdez where it was loaded into tankers and shipped south to
out-of-state refineries.

Since then, more than 16 billion barrels of crude oil have
been transported from Prudhoe Bay to Valdez through the
TransAlaska Pipeline System (TAPS). The highest throughput
(amount shipped) was 2.1 million barrels per day (BLD) in
1988. (The 2010 average throughput was 619,655 BLD. As of
4/2011, the 2011 annual throughput estimate was expected to
be 594,147 BLD.)


The price per barrel has fluctuated dramatically depending on
the global petroleum market. In 1977, the average was $11
per barrel. In 1986, the average dropped to $3.50. The annual
average in 1989 was $17.13. The highest monthly average
price ever was $133.78 per barrel in 6/2008. The highest
monthly average price in 2011 has been $115.34 per barrel.
(See: Prudhoe Bay, ANS)

psi Pounds per Square Inch The strength of a pipeline
system and its throughput capacity are measured by psi.
Alaska Pipeline Project’s Alaska Mainline (750 miles from
Prudhoe Bay to the Alaska /Yukon territory border) will have
a maximum allowable operating pressure of 2,500 psi. Some
major gaslines in the Lower 48 are rated much lower at
1,000 psi. Geologic structures of the Point Thomson field are
measured at 10,000 psi and Prudhoe Bay is generally at 5,000
psi. The TransAlaska Pipeline System (TAPS) is designed to
operate at approximately 1,200 psi. The current average is
close to 700 psi. (See: Compression)

Pump or Push Gas pipelines and oil pipelines require
different engineering. Gasline contents are highly pressurized
and are “pushed” through multiple compressor stations. Oil
pipelines “pump” the fluids they transport. Some natural gas
liquids are currently moving through TAPS along with crude
oil. Consequently, the throughput is sometimes measured in
barrels of oil equivalency (BOE) to reflect the higher energy
content in the crude oil.


Q
Qatar [gut ter] is located on the west bank of the Persian
Gulf (25˚North 51˚East) and has the world’s second largest
gas field with 18,000 Tcf of gas and 50 billion barrels of
condensates. It is the location of the 4-train ExxonMobil and
ConocoPhillips gas liquefaction operations designed to export
LNG to the Asian and U.S. markets. The current largest LNG
ships serve Qatar and are called Q Max and Q Flex. They are
designed to yield the lowest possible transportation cost per
gas unit. (See: Plants: Trains)

R
Rates Pipeline transportation costs or tariffs.
(See: Tariffs, Expansion)

(Required) Rate of Return Oil and gas corporations,
like many other private enterprises, establish a minimum
percentage return that they expect to earn on their
investments. These targets impact their global decisions
regarding investment and timing. (See: Duty to Produce,
Net Present Value, Risks)

RCA Regulatory Commission of Alaska The State agency
that will issue the Certificate of Public Convenience and
Necessity and oversee the permitting and tariff structure of the
gasline if it is entirely intrastate, i.e. built within Alaska.

Re-injection At Prudhoe Bay, 8.4 billion cubic feet per
day (Bcf/d) of natural gas comes to the surface with the
crude oil. Approximately 1 Bcf/d is used to power Prudhoe
and associated field operations. With no pipeline system
to transport natural gas to market, the producers re-inject
the unused gas back into the oil-producing rock formations
thousands of feet below the surface. This helps maintain field
pressure and aids oil recovery and stores the gas until a
pipeline is built to take it to market.


Re-imbursement Fund Established under AGIA within the
State General Fund to match up to $500 million of the qualified
expenses of the licensee. (See: Inducements)

Reserves Discovered oil, gas and mineral resources that
are not yet in production. Reserves are generally defined as
“proven” or “estimated.” The Alaska Department of Natural
Resources lists proven reserves of natural gas on the North
Slope at 35 trillion cubic feet (Tcf) with roughly 25 to 26 Tcf
in the Prudhoe Bay unit “gas cap” and 10 to 11 Tcf in the
Point Thomson unit. The USGS has estimated North Slope
reserves (on and off shore and north of the Brooks Range) at
a staggering 250 Tcf.

Most observers anticipate that gas reserves will increase
dramatically when explorers specifically search for gas
instead of oil. Ω This will ramp up when a gas pipeline
gets the Certificate of Public Convenience and Necessity
and explorers are confident construction will take place.
(See: ANS, Certificate, FERC)

Revenue Eighty to ninety per cent of the State of Alaska’s
General Fund revenue in 2011 was generated by oil and gas
royalties and taxes. (Alaskans do not pay state income or state
sales taxes.)

Right-of-Way ROW The builder of the gasline will acquire
rights by lease or purchase to cross federal, State, Native
corporation, and private lands. As the gasline will be buried,
the width of the ROW will be reduced after construction. The
All-Alaska Gas Pipeline to Valdez will use the TAPS ROW.


Risks In applying for the AGIA license in 2007, proposals
evaluated the risks associated with building the gasline
including cost overruns, project delays, firm transportation
commitments, as well as political, taxation, and regulatory
issues. “Price risk” is also calculated to determine if over time,
the market price will cover costs and produce the targeted rate
of return on the original investment. (See: Take-or-Pay Contracts)

Routes The maps that follow illustrate the routes under
discussion by the prospective gasline builders. Ω From
Prudhoe Bay to Valdez is 800 miles; to the western border of
Alberta is 1715 miles; and to Chicago is 3,640 miles.
• he All-Alaska Route is a proposed 800-mile, 48-inch
T
diameter gas pipeline that will parallel TAPS from
Prudhoe Bay south to Valdez. In addition to providing
gas for in-state use, gas would be liquefied and
shipped to Hawaii and global markets via LNG tankers.
(See: AGPA)
• ASAP Alaska Stand Alone Pipeline Project
The proposed ASAP Mainline Pipeline is a 737-mile,
24-inch diameter system that begins at Prudhoe Bay
and follows the TransAlaska Pipeline System and
Dalton Highway corridors. Northwest of Fairbanks,
the route heads south, joining the Parks Highway
corridor. ASAP terminates at the Beluga Pipeline near
Big Lake (ENSTAR Beluga Distribution System). The
Fairbanks Lateral is a proposed 35-mile, 24-inch spur
line that would begin at milepost 458 and connect with
Fairbanks. (See: ASAP)


Beaufort Sea
Prudhoe Bay

Proposed Gasline Routes
All Alaska Route
AlCan (Highway) Route
Delta Spur Line Route
Parks Highway Route
ASAP/Bullet Line

CANA
ALASK
Fairbanks
DA
A

Delta Junction

Tok

Glennallen To Alberta

Valdez
Anchorage

Seward

Gulf of Alaska
Cook Homer
Inlet Miles
0 20 40 80 120 160

• The Spur Line or Delta Spur Line will connect the
major gasline at Delta Junction or Glennallen and
feed the MatSu transmission system to serve MatSu,
Anchorage and Cook Inlet. (See: ANGDA)


• The Hub Concept Under this proposal, the State of
Alaska would finance a 48-inch pipeline from Prudhoe
Bay to a hub in or near Fairbanks. The private sector
shippers would make long term commitments and
finance the rest of the route to their target markets. In
order to minimize the per unit cost for local use of the
gas, the State would underwrite shipping costs as if
full capacity were on contract. When needed by a new
shipper, capacity would be made available.
• The Highway Route also known as the Alcan Route
was used by the Denali – The Alaska Pipeline Project
and is being studied by the AGIA /Trans Canada Alaska
Pipeline Project (APP). The original Highway Route
extended south from Prudhoe Bay to Delta Junction,
then southeast across the Yukon Territory and British
Columbia to Alberta and on to Canadian and U.S
markets.
• The APP Highway Route begins at Point Thomson (58
miles east of Prudhoe Bay), follows the Alcan route and
terminates at Boundary Lake, Alberta. Total mileage of
the APP route is 1,768 miles with 803 miles in Alaska,
517 miles in the Yukon and 448 miles across the NE
corner of British Columbia. A second route option
called the APP Valdez LNG Case would also begin
at Point Thomson and use the TAPS right-of-way for
a total of 858 miles to Valdez to deliver gas to a third-
party LNG liquefaction plant.


Barrow

Alaska Pipeline Project
Beaufort Sea
Prudhoe Bay

NUNAVAT
CAN A
ADA
K
ALAS

Fairbanks

Delta Junction

Tok
Anchorage NORTHWEST TERRITORIES

Valdez YUKON TERRITORY

Gulf of Alaska
Whitehorse

Watson Lake

Juneau Fort Nelson

ALBERTA

Paciﬁc Ocean Boundary Lake

Alberta Case BRITISH COLUMBIA
Valdez LNG Case Kitimat

Miles
0 75 150 300 450 600


• The Over-the-Top route went east from Prudhoe
Bay either offshore or through ANWR to connect with
Canadian pipeline systems. The 2004 ANGPA federal
legislation prohibited the Over-the-Top alternative.
This route was preferred by Exxon to connect with
the proposed Mackenzie River Valley gasline from the
Arctic coast to Alberta for processing in the Canadian
petrochemical infrastructure. ExxonMobil wrote off its
investment in this route with the U.S. Securities and
Exchange Commission (6/07), declaring it uneconomic
and not yielding the company’s required rate of return.
The State of Alaska also prohibited its agencies
from issuing permits on this route. Note: As of 6/11/2009,
ExxonMobil joined TransCanada (the holder of the AGIA license)
and has a major role in evaluating the Highway Route to Alberta as
well as the route to Valdez.
• The Y-Line combines most of the other concepts. It
includes a Prudhoe Bay to Valdez gasline for LNG
production and distribution, and a hub at Delta Junction
so that additional pipeline systems can be constructed
to carry gas into and across Canada.

Royalty Leaseholders on State land pay the State a specified
percentage of oil and gas production, free of production
expenses. Most of Alaska’s oil and gas leases require a royalty
of 12.5% or 1/8 of the oil or gas produced. Payment can be
“in-kind” (gas for local use or sale) or “in-value” (cash). AGIA
stipulated specific procedures regarding the State’s ability to
shift from one type of royalty payment to the other.

Royalty Owner The State of Alaska owns the resources on
all State land, including Prudhoe Bay and Point Thomson. The
federal government has the potential to earn royalties from
resources developed on its Alaska lands as well as from the
Outer Continental Shelf more than three miles from shore.
(See: Land Ownership)


S
Sanction The Alaska Pipeline Project will be considered
“sanctioned” and financially solvent when the AGIA licensee
(TransCanada) obtains at least $1 billion of financial
commitments from gas producer/shippers who purchase
capacity in the gasline to transport gas. “Sanctioning” indicates
the final decision has been made to build a pipeline and the
financing is in place. (See: FT)

Shale Gas An “unconventional” resource where the
hydrocarbons are not contained in traps or pools but are
widely-dispersed in a geologic formation. Fracking or “hydraulic
fracturing” processes can collect and bring to the surface
hydrocarbons where they are not geologically concentrated.
(See: Shale Gas, ANS, Fracking, Natural Gas, Prudhoe Bay)

To see the detail of this map, go to http://www.eia.gov.

If shale gas plays exist
in 20 other states,
why not in Alaska?


Note: They do! In 2010, Great Bear Petroleum, LLC – a company with major
shale exploration experience in Texas and South Dakota – leased 500,000
acres of State land north of the Brooks Range and significantly south of
Prudhoe Bay. As a result, additional gas and oil may be generated in Alaska
from fracking technology.

Shipper A pipeline customer who holds a contract with the
pipeline owners for transportation service. This term also refers
to LNG transportation customers.

SOA State of Alaska State documents often use “SOA” to
indicate the Governor, the administration, and other State
agencies.

Spot Market A commodities or securities market in which
goods are sold and delivered immediately. Contracts bought
and sold on these markets are immediately effective. When
a power generation utility or petrochemical producer needs
additional gas supplies, it goes to the (short-term) “spot” or
futures market to purchase more gas. In the U.S., spot prices
are most often quoted from Henry Hub and in Canada from
AECO. (See: Henry Hub, AECO)

Statehood Act of 1958 When the U.S. Congress passed the
Alaska Statehood Act, it ratified the draft State constitution and
granted the State 103 million acres of potentially resource-rich
lands for the purpose of funding State government services
and creating a strong, local economy in Alaska. When Alaska’s
elected delegates wrote the Constitution two years earlier, they
included a Natural Resources section that is unique among
State constitutions. It mandated “the utilization, development,
and conservation of all natural resources belonging to the
State…for the maximum benefit of its people.” (See: Article VIII)


Stranded Gas Development Act 2000 SGDA
(AS 43.82) Alaska Governor Frank Murkowski and his
administration (2002-2006) focused on negotiating the terms
of a proposed gasline contract with the ANS oil producers as
per the SGDA. The lengthy contract included “fiscal certainty”
i.e. oil and gas tax regimes, unchangeable for 30 years (oil)
and 45 years (gas). The required legislative approval of the
contract was never obtained in spite of three special sessions
held after the regular 2006 session. Ω One reason this
contract failed was that the Alaska Constitution (Article IX
Section 1) mandates that “the power of taxation shall never be
surrendered.”

Strip Mining A technique used to remove large quantities of
dispersed oil or mineral resource material so that they can be
processed at a centralized site to extract valuable components.
In the Alberta oil sands, large quantities of bitumen are removed
from the surface of the ground and trucked to a processing plant
to create synthetic crude oil. (See: in situ, Tar Sands)

Surface – Subsurface Under the U.S. Mineral Leasing Act
of 1920 and the Alaska Statehood Act of 1958, the State
retains ownership of the natural resources in its 103 million
acres, but may issue leases for oil, gas and mineral exploration
and development. Likewise, Native Regional Corporations
have both subsurface and surface title to their lands and can
develop their resources whenever they determine it is in the
best interest of their shareholders. (See: Mineral Leasing Act)

Syngas SNG also Synthetic Natural Gas A product of
underground coal gasification that can be used directly for
electrical power generation or converted to synthetic natural
gas for local use or export. Syngas is also a feedstock to
produce gasoline, diesel, and jet fuel as well as petrochemical
products such as fertilizer and a range of plastics.
(See: Natural Gas, UCG)


Synthetic Crude Various hydrocarbons can be processed
into liquid fuel similar to crude oil. One type of synthetic crude
is the result of processing bitumen, a major component of the
Alberta oil sands. If approved, the proposed and controversial
Keystone XL Pipeline from Alberta to refineries in Texas will
transport synthetic crude. (See: Bitumen, Strip Mining)

T
Take or Pay Contracts During the Open Season, companies
can purchase capacity (space) in a gasline that they must
pay for whether or not they have gas to put in the line. Marine
transportation works on the same “take or pay” system.
As these contracts impact design and engineering of a
pipeline, they are generally written for 20 years or more.
(See: FT, Vouchers)

TAPS TransAlaska Pipeline System The 800-mile, 48-inch
diameter pipeline from Prudhoe Bay to Valdez that transports
Alaska North Slope (ANS) crude oil to tidewater. TAPS is
owned and operated by a consortium of oil producers under
the name of Alyeska Pipeline Service Company. Approximately
half of the 800 miles is underlain by permafrost, and the
pipeline is elevated with special structures to avoid melting and
destabilizing the soil. To date, more than 16 billion barrels of
ANS crude oil have been piped from Prudhoe Bay to Valdez
and shipped to refineries. (See: TAPS, ANS)

Tariff The fee that a pipeline owner charges to transport gas
or oil through a pipeline. Gas tariffs are generally measured
as dollars per million Btu to account for the variety of
energy values in the gas stream. (See: Tariff, Btu, FERC, NEB,
Open Season, RCA)


Tar Sands or Oil Sands Sedimentary formations that contain
a high content of “bitumen” [Bi-tu-min]. Alberta has the
second largest proven reserves of bitumen after Saudi Arabia.
These sedimentary formations are locally called “oil sands.”
Production of synthetic crude from these areas requires strip
mining and off-site processing or in situ processing which
uses natural gas-heated steam injected into the formation
to separate the sand and the hydrocarbons. Liquified
hydrocarbons are gravity-fed into pipes and pumped to the
surface. (See: Bitumen, Synthetic crude)

Taxes
• Net Profits Used in the Alaska Clear and Equitable
Share (ACES) 2007 legislation to capture for Alaska’s
government and people (the owners of Prudhoe Bay
and its resources) a greater share of Alaska North
Slope oil and gas profits while encouraging new
industrial investment and increased production. ACES
has a “progressivity” provision that increases 0.4% for
every dollar increase over $30 per barrel price of oil at
the wellhead. (See: ACES)
• Severance taxes Levied by the State and based on
the monetary value of oil, gas, or minerals extracted or
“severed” from state land.
• Production taxes A form of severance tax levied by
the State based on each unit of production i.e. a barrel
of oil or Mcf of natural gas. An AGIA “inducement”
mandates that the production tax remain constant for
the first ten years of gasline operation for the specific
amount of gas committed by companies at the first
Open Season.
• Property taxes Based on assessed value, payments
are made to local Borough and Municipal governments
by the owner of real or personal property. This includes
oil and gas production facilities and equipment.


Tcf Trillion Cubic Feet Proven gas reserves at Prudhoe Bay
are 24.5 Tcf and 9 Tcf at Point Thomson. In 2008, the U.S.
Geologic Survey estimated that over 200 Tcf of “undiscovered,
technically recoverable” natural gas resources exist in the
Alaska Arctic. (See: Reserves)

Tons of LNG Specialized marine tankers measure their LNG
capacity in tons. One million tons of LNG equals approximately
48 billion cubic feet of natural gas. The total amount shipped
under contract is measured in million metric tons per annum
(MMTA).

U
UCG Underground Coal Gasification An in situ processing
technology for deeply-buried, previously-stranded and
unmineable coal formations. Injection wells are drilled to deep
coal seams and oxygen, heat, water, and pressure are used
to gasify the coal. A second well brings the resulting synthetic
gas or “syngas” to the surface where it is cleaned and
processed for near-site use or transport. The end product can
be used for low-carbon energy production and petrochemical
manufacturing. Cook Inlet Region, Inc. (CIRI) has a UCG
project underway on the west side of Cook Inlet near Beluga.
(See: Syngas, Cook Inlet, in situ)

Unconventional Gas While conventional gas is obtained by
drilling a well into gas-rich geologic formations, unconventional
formations are generally “continuous” i.e. gas is dispersed over
large regions rather than concentrated in discrete traps. Shale
gas was considered an unconventional and non-developable
reserve until hydraulic fracturing technology was improved in
2007. Other unconventional gases are coalbed methane and
condensate. Conventional gas is generally associated with oil
fields and is extracted at significant and economic flow rates
at the same time as crude oil. (See: Natural Gas, Coal Bed Methane,
Condensate, Fracking, Shale Gas)


Unit Agreement A contract negotiated between the
leaseholders (usually two or more oil and gas exploration or
production companies) and the resource owners – the State
of Alaska on state land, Native Regional Corporations, or
the Federal government on federal land or beyond the State
off shore boundaries. The purpose of a unit agreement is to
create a single manager for resource development on leases
in close proximity to one another. (See: Point Thomson, Off Shore)

Upstream Oil and gas exploration and production operations
that bring a resource to the surface and prepare it to enter
a pipeline system. Example: North Slope operations prior
to when crude oil enters TAPS at Pump Station One.
(See: Midstream, Downstream)

V
Value-added Refining, high-tech processing, and
manufacturing of raw resources prior to export. This term is
often used in public policy debates to illustrate the difference
between a “colony” and a more advanced, self-sustaining
economy. The recently-closed Agrium fertilizer plant in Nikiski
was an example of value-added processing of Alaska’s natural
gas (Cook Inlet methane). In addition to employment of a
skilled workforce, value-added facilities build a tax base for
local government as well as a more stable community.

Voucher Under AGIA, persons or companies that do not hold
an oil and gas lease were given the opportunity to purchase
vouchers for transportation capacity in the gasline at the first
Open Season. Vouchers entitle the holder to benefit from
the AGIA inducement of stable production taxes for the first
ten years of gasline operation. Vouchers may be transferred
to a gas producer in the future. (See: AGIA, FT, Inducements,
Open Season)


W
Warehousing While the re-injection of gas has had a major
positive impact in prolonging the successful extraction of high-
value crude oil on the North Slope, the delay in marketing gas
via a gas pipeline has had some downsides.

Our gas competes with other global gas sources.
If corporations choose to delay production and “warehouse”
Alaska’s gas while they advance projects elsewhere in the
world, we are at a disadvantage. Some of Alaska’s early
leases did not have performance deadlines after which the
lease must be returned to the State (a standard practice
worldwide). However, if a company or the State builds a
pipeline to transport our gas to market, our leases require gas
shipment under the “duty to produce” clause.

Wellhead The point at which oil or gas, extracted from below-
surface reservoirs, enters a metering system before entering
a pipeline.

Wellhead Price When both the oil or gas and the
transportation system (like TAPS) are controlled by the same
companies, the wellhead price is used to determine the State’s
royalties and revenues based on the net value of a barrel
of oil or Mcf of natural gas. This price is established after
transportation costs, including the construction and operation
of pipelines and tankers, have been deducted from the sales
price in the market place. (See: Netback)

Wet Gas Natural gas that contains less methane (typically
less than 85 percent) and more gas liquids. The gas in
both Prudhoe Bay fields and Point Thomson contains this
additional value and can be processed and used for local
energy needs such as propane, or used in-state or exported
as petrochemical feedstock. (See: Dry Gas, Ethane, NGLs,
Propane, Condensate)


WTI West Texas Intermediate Crude serves as an oil price
index just as Henry Hub and AECO are gas price indexes.

Y
Yukon Pacific Corporation YPC Building on the successful
export of Cook Inlet gas as LNG to Japan since 1969, YPC
was launched by former Governors Wally Hickel and Bill Egan
and others in 1983 to expand Alaska’s exports to the Asian
Market. Teamed with investor CSX, YPC obtained nearly all
of the necessary permits, rights-of-way, the export license,
and contracted customers. Observers blame political factors
in Washington DC and Juneau for the company’s inability to
move the project to completion. The export license obtained
by YPC is still valid and held by Alaska Gasline Port Authority.
(See: Yukon Pacific Corporation)


BACKGROUND The following discussions build on
earlier definitions and add editorial opinion on issues that
face Alaska. Ω indicates special facts.

A
ACES Alaska’s Clear and Equitable Share (Alaska Statute
43.55) Alaska’s PPT or Petroleum Profits Tax of 2006 was
modified by ACES in 2007. The intent was to capture a greater
share of Alaska North Slope oil and gas profits for Alaska and
the Alaska people while encouraging new industrial investment
and production. Key elements include:
• The State net profits tax on the oil industry increased
from 22.5% to 25%.
• A “progressivity” provision increased the Net Profits Tax
by 0.4% for every dollar increase in the wellhead price
of a barrel of oil. This increase kicks in at approximately
$30 per barrel (called “production tax value”) at the
wellhead (which equates to roughly $56 per barrel
West Coast market price.
• The net profits tax drops to 5% for natural gas sold and
used in-state.

To determine the oil industry’s net profits, a variety of metric
systems are used including “effective tax rate,” “nominal
tax rate,” and “marginal tax rate.” These complex options to
establish net value illustrate why Alaska needs skilled, state-
employed accounting professionals.

While critics charge that this legislation made Alaska an
unstable place to do business, ACES was only the second
change in Alaska’s severance and production tax system in 17
years. The Economic Limit Factor, or ELF, was a gross profits
tax in use prior to the PPT.

59

AGIA Alaska Gasline Inducement Act 2007 (a-GEE-a)
Alaska Statute 43.90 created a competitive process for a
company to obtain a license to pursue permits, customers,
finances, and authority to build an Alaska natural gas pipeline.
The goal was to generate the infrastructure to transport Alaska
North Slope natural gas either to markets in Canada and the
U.S. or to Valdez for LNG export to global markets.

AGIA provided inducements for the licensed company to obtain
a Certificate of Public Necessity and Convenience either
from the Federal Energy Regulatory Commission (FERC) for
an interstate project or from the Regulatory Commission of
Alaska (RCA) for an intrastate project. Among the inducements
provided by the State was up to $500 million in refunds for
qualified expenditures. Governor Sarah Palin signed AGIA into
law on 6/7/2007.

Five proposals for the AGIA license were submitted:
TransCanada Corporation, Alaska Gasline Port Authority
(AGPA), Little Susitna Construction Company, Inc., Alaska
Natural Gasline Development Authority (ANGDA), and
AENERGIA.

The Commissioners of Revenue and Natural Resources
determined that TransCanada Corporation had submitted the
only complete proposal. Proposals for an All-Alaska route
from AGPA and from Little Susitna Construction Company,
Inc. were both declared to be incomplete and were not given a
revision option by the Commissioners who reviewed the AGIA
applications.

The Legislature approved the Commissioners’ Intent to Issue a
License to TransCanada 8/1/2008 and specified that in addition
to studying the Alcan Highway route into Canada “It is the
intent of the Legislature that an AGIA license will enable and
encourage an All Alaska gas line/liquefied natural gas (LNG)
project within the TransCanada project.” Ω
60

Governor Palin signed the AGIA license (8/27/08) awarding
it to TransCanada Alaska Company, LLC and Foothills Pipe
Lines, Ltd. – both subsidiaries of TransCanada Corporation.
It had an effective date of 12/5/2008. The stated goals of
Governor Palin were to award the AGIA license to a pipeline
company and not to a gas producer corporation, and to
conduct an open, transparent process in awarding the contract.

Unfortunately, this open and transparent design did not hold.
On 6/11/2009, TransCanada announced that ExxonMobil
Alaska Midstream Gas Investments, LLC had obtained a
minority, but significant, interest in the Alaska Pipeline Project
(APP). Ω The actual nature and percentage of the relationship
has not been disclosed. It is interesting that TransCanada did
not include Point Thomson in its original proposal, but a 58-
mile pipeline connection from Point Thomson to Prudhoe Bay
is now part of the APP.

If a 48-inch diameter pipeline is built from Prudhoe Bay to the
western border of Alberta it will span 1,715 miles. 965 miles
will be in Canada crossing the Yukon Territory (517 miles) and
the NE corner of British Columbia (448 miles). The expected
cost of this option is $32 to $41 billion U.S. dollars. Proposed
throughput is 4.5 billion cubic feet per day (Bcf/d) with a
possible expansion to 5.9 Bcf/d.

If the route to Valdez is chosen by shippers during the APP
Open Season, it will result in an (800-mile, 48-inch diameter)
All-Alaska system that markets gas to Hawaii as well as Asia
and the global LNG market. This route shares the right-of-
way with the TransAlaska Pipeline System (TAPS) and has an
estimated pipeline cost of $20 to $26 billion.

61

For many years, the route to Valdez has been strongly
supported by a majority of Alaskans. On 10/27/2011, Governor
Sean Parnell spoke to the Alaska Oil and Gas Association
conference in Anchorage about AGIA progress. He stated,
“…no commercial alignment exists among producers and
shippers to the Lower 48.” “…a better market for Alaska gas
could very well be in Pacific Rim countries.” “I let them know I
want them to move forward on a large-diameter, LNG pipeline
to tidewater in Alaska…” The only tidewater option allowed
under AGIA is Valdez.

There is an abandonment provision in AGIA (43.90.240) if
the APP is determined to be uneconomic. On 5/17/2011,
a “Competing Project,” Denali – The Alaska Gas Pipeline
was abandoned by partners ConocoPhillips and BP, as
they determined that the Canada /Mid-America market was
uneconomic – given the high cost of the 1,715-mile pipeline
and the significantly lower price of gas in the Lower 48 due to
the dramatic increase in available shale gas.

AGPA Alaska Gasline Port Authority [AG-pa] Created in
1999 by the voters of the North Slope Borough, the Fairbanks
North Star Borough, and the City of Valdez, AGPA’s objective
is “to build, or cause to be built, a natural gas pipeline from
Prudhoe Bay to Valdez” resulting in the All-Alaska Gas
Pipeline. Its projected throughput is 2.7 Bcf/day.

AGPA is a tax-exempt, quasi-governmental entity and therefore
can provide cost-reducing benefits including tax-exempt bonds
for portions of the project. Reduction in project construction
costs will reduce the cost of service and tariff rates the pipeline
owner (AGPA) will charge gas producers to ship gas in
the pipeline.

AGPA submitted a proposal in the AGIA process and
was declared (1/2008) by the Palin Administration to be
“incomplete” and out of the license competition.
62

However, AGPA continues to promote its All-Alaska proposal
from Prudhoe Bay to Valdez with a liquefaction facility nearby
in Anderson Bay.

The AGPA proposal has the environmental benefit of sharing
the right-of-way with the TAPS oil pipeline, requiring no new
access across environmentally-sensitive lands. The AGPA
proposal also includes gas off-takes and propane generation
options that would be available to rural and urban communities
through 18 possible, in-state sites – going well beyond the five
sites required by AGIA.

AGPA envisions its major clients will be LNG export to Hawaii
and the Asian market. A recent study (by WoodMackenzie
7/28/2011) projected that a pipeline to Valdez and a liquefied
natural gas export project could generate revenues and
royalties to the State of $419 billion (in nominal or 2011
dollars) over the 30-year project life. This was based on the
“worst-case scenario” using Barrel of Oil Equivalent (energy
comparison of gas and oil) of $75/barrel oil. The highest
monthly average price per barrel in 2011 has been $115.34.

Currently, AGPA’s main partners are the Fairbanks North Star
Borough and the City of Valdez.

ANCSA Alaska Native Claims Settlement Act 1971
[ANC-sa] This federal legislation addressed the land claims
of Alaska’s indigenous people. In addition to a $962,500,000
cash settlement, ANCSA included fee simple title to 44
million acres in Alaska. By clarifying land ownership, the
passage of ANCSA helped move forward the construction
of the oil pipeline from Prudhoe Bay to Valdez. Both surface
and subsurface land title was granted to 12 Regional Native
Corporations and surface-only title to village corporations
and individuals.

63

Barrow

Prudhoe Bay

ARCTIC SLOPE
REGIONAL CORP Alaska Native
N.A.N.A.
REGIONAL CORP
Regional
BERING
STRAITS
Kotzebue
Corporations
NATIVE
CORP
Nome Fairbanks
DOYON LTD Delta Junction Proposed Gas Line Routes
Tok

Glennallen
AHTNA To Alberta
CALISTA CORP INC
Bethel Anchorage Valdez
COOK INLET
REGION INC CHUGACH
ALASKA CORP Juneau

Dillingham SEALASKA
BRISTOL BAY CORP
NATIVE CORP
Kodiak

THE ALEUT CORP
Port Moller
KONIAG INC

If the Alaska Pipeline Project goes to the Alberta border,
rights-of-way will need to be negotiated with Native landowners
in Alaska as well as with the Canadian First Nations, most
of whom have not yet resolved their land claims with the
Canadian government. If the project goes to Valdez, the
existing TransAlaska Pipeline System (TAPS) right-of-way will
be used.

ANS Alaska North Slope This acronym for the Alaska
North Slope is often used in connection with oil and gas that
is located at, or shipped from north of Alaska’s Brooks Range
and north of 68˚ North Latitude. Nearly 1,900 oil and gas
leases, both on- and offshore, are currently active on state and
federal land in the area. Peak employment in the oil and gas
industry at the Slope has been as high as 8,900 (February
2007), and the 2011-12 exploration season is expected to be
“one of the busiest” since 1969.

64

The North Slope Borough is the local political organization for
the area. Nine communities in the Borough have an estimated
year-round population of 6,600. ENS or Eastern North Slope
refers to territory to the east of Prudhoe Bay and directly west
of ANWR, including the resource-rich Point Thomson field.

Estimates of ANS natural gas resources range from 35 Tcf of
proven reserves (Alaska Dept. of Natural Resources) to 250
Tcf in estimated reserves (U.S. Geological Survey). In addition
to oil and gas, the western areas of the North Slope have
world class deposits of high-quality, low-sulfur coal.

ANWR Arctic National Wildlife Refuge [AN-war] The Arctic
National Wildlife Range was expanded by the Alaska National
Interest Lands Conservation Act of 1980 (ANILCA) from 8.9
million to 19 million acres and was reclassified from a Range
to a Refuge. Eight million acres of ANWR were designated
Wilderness where no development can occur. However,
1.5 million acres along the Arctic Coastal Plain in the 1002
(“ten-O-two”) Area were identified as containing high oil and
gas potential and suitable for geologic study.

The decision to “Open ANWR” rests with Congress and refers
to allowing oil and gas exploration to proceed in the 1002 Area
only. The western border of ANWR lies less than 60 miles
east of Prudhoe Bay and Pump Station One of TAPS. Ω The
U.S. Geologic Survey estimates that at least 8 billion barrels
of recoverable oil (and possibly 16 billion barrels) is in the
1002 area.

There is extreme interest and controversy over this
decision in Alaska and across the U.S. A large majority of
Alaskans support tapping the 1002 area as the gas could
greatly increase known reserves and extend the already-
acknowledged long life of a gasline project. Oil from the 1002
area would also extend the life of the TAPS infrastructure.

65

The Point Thomson unit on State land is adjacent to the
western 1002 boundary. To the east of ANWR is the Canadian
border and the Mackenzie River Delta – another oil and gas-
rich area at the head of the newly-approved Mackenzie River
Gasline to Alberta. With the latest technology, development
in the 1002 Area would affect less than 2000 acres of surface
area, less than the size of the Dulles International Airport near
Washington DC.

Alaska Pipeline Project APP The result of the 2008
Alaska Gasline Inducement Act (AGIA) license awarded to
TransCanada. The two route options under study begin at Point
Thomson:

1. The “Alaska-Canada Pipeline” combines four pipeline
segments:
• “Point Thomson Pipeline” from Point Thomson to the
gas treatment plant (GTP) near Prudhoe Bay (58-mile,
32-inch diameter)
• “Alaska Mainline” from the GTP to Fairbanks, to
Delta Junction and then to the Alaska-Canada border
in the vicinity of the towns of Border City, Alaska
and Boundary, Yukon Territory near Beaver Creek.
(745-miles, 48-inch diameter, 2,500 psi)
• “Yukon Pipeline” Officially known as the Foothills
South Yukon, this section of the APP will activate plans
to design, permit, construct and own a new 517-mile
pipeline which extends to Whitehorse and on to the
Yukon-British Columbia border near Watson Lake.

66

• “B.C. Pipeline” At the Yukon-B.C. border, the APP
will include a 448-mile section to Fort Nelson, B.C.
and to the Alberta border at Boundary Lake under
management of Foothills North B.C. At the Alberta
border, it will interconnect through facilities “to be
designed, engineered, permitted, and constructed”
by Foothills Pipelines (Alta.) Ltd. with delivery points
connected to the Alberta pipeline system owned and
operated by NOVA Gas Transmission Ltd., a wholly
owned subsidiary of TransCanada, TC Alberta.

The B.C. Pipeline and the Yukon Pipeline are
collectively referred to as the “Canadian Pipeline.” It
is being designed with eleven compressor stations and
a base-case capacity of 4.5 billion cubic feet per day
and expandable to 5.9 Bcf/d. Operation pressure on the
Canadian Pipeline segment will be 2,500 psi.

In 2005, Exxon stated that it would cost $25 billion US to
move North Slope gas to the Mid-America market. When
ExxonMobil announced joining TransCanada for the APP
(6/11/2009), the estimated cost of the project was $26 billion
US. The cost estimate currently used by the media regarding
the pipeline from Prudhoe Bay to the Alberta border exceeds
$40 billion (in 2009 US dollars). (Reuters 1/29/2010 $32 to $41 billion,
Juneau Empire 11/29/2011)

2. The “Valdez Pipeline” is the proposed second APP
route that begins at the outlet point of a future Point Thompson
plant and extends through points near Prudhoe Bay, Fairbanks,
and Delta Junction. Near Valdez, it would interconnect with
a third-party LNG terminal. (858 miles, 48-inch diameter,
2,500 psi)

67

Article VIII Natural Resources In 1955, the Territorial
Legislature passed the Constitutional Convention Act. That
led to a 75-day Convention in Fairbanks during the winter of
1955-56 when 55 elected delegates wrote and refined the
Constitution for the future 49th state. The only state constitution
to address natural resources, it mandates in Article VIII
Section 2, “The legislature shall provide for the utilization,
development, and conservation of all natural resources
belonging to the State, including land and waters, for the
maximum benefit of its people.”

ASAP Alaska Stand Alone Pipeline Project The proposed
ASAP Project is a $5.7 to $11.8 billion State-financed system
with support facilities. As it is restricted by provisions in AGIA,
it is limited to 0.5 billion cubic of feet of throughput per day or
500 million standard cubic feet per day (MMscfd). The Mainline
Pipeline (737-mile, 24-inch-diameter, 2,500 psi) begins at
Prudhoe Bay and follows the TransAlaska Pipeline System
and Dalton Highway corridors. Near Livengood (northwest of
Fairbanks), the route heads south, joining the Parks Highway
corridor. ASAP terminates at the Beluga Pipeline near Big
Lake (ENSTAR Beluga Distribution System). A few miles
north of Nenana, a spur line, the Fairbanks Lateral (35-mile,
12-inch diameter, 1,400 psi) connects the ASAP Mainline and
customers in Fairbanks.

If the route crosses any part of Denali National Park, ASAP
will require unanimous consent by all affected federal agencies
affirming that there is no alternative route that is economically
feasible. See Section 1104(g) of ANILCA, the Alaska National
Interest Lands Conservation Act of 1980. If any one agency
rules that the pipeline would adversely affect “the purposes for
which the Federal unit…was established,” the State can appeal
to the President. If he, or she, favors the appeal, Congress
must pass a joint resolution within 120 days that supports the
President’s decision or the application will be denied.

68

A Gas Conditioning Facility is proposed at a 70-acre site at
Prudhoe Bay to remove carbon dioxide, hydrogen sulfide,
and other impurities from the gas prior to entering the pipe.
Two Compressor Stations will power a 0.5 Bcf/day flow with
gas-turbine-driven centrifugal systems and gas-turbine-driven
electric power generators.

Other Permanent Facilities in the proposed system include:
• Cook Inlet natural gas liquid extraction facility at the
A
pipeline terminus near Big Lake.
• A Gas off-take facility near Dunbar.
• Custody-transfer gas-metering stations at Dunbar and
at the Big Lake terminus.
• Operation and maintenance centers in Wasilla,
Fairbanks, and Prudhoe Bay.

B
Backbone Founded and co-chaired by the late Governor
Walter J. Hickel and financial advisor and lifelong Alaskan,
David Gottstein, Backbone began in 1999 as a non-partisan,
citizen organization of Alaskans who “believe in the use
of state oil and gas resources for the maximum benefit of
current and future generations of Alaskans.” It was active in
the prevention of the purchase of ARCO, Alaska by British
Petroleum. The planned buyout would have resulted in one
corporation controlling more than 70 per cent of Prudhoe Bay
and the TransAlaska Pipeline System (TAPS).

Backbone members successfully convinced the U.S. Federal
Trade Commission (FTC) to intervene. BP chose to divest
itself of ARCO Alaska assets to Phillips Petroleum rather than
face the $1.2 billion anti-monopoly lawsuit filed by the FTC.
Subsequently, Phillips merged with Conoco and now operates
in Alaska as ConocoPhillips Alaska, Inc.

69

Backbone later helped de-rail the 2006 Alaska Stranded
Gas Development Act contract negotiated by the Murkowski
Administration and the North Slope producers. It supported
the AGIA legislation (2007) with some modifications, but took
issue with the AGIA proposal review process and granting the
license to TransCanada (2008). Hickel and Gottstein wrote a
critical letter to Governor Palin pointing out that the two All-
Alaska LNG proposals (Alaska Gasline Port Authority and
Little Susitna Construction Company, Inc.) were rejected with
no opportunity to clarify or expand their proposals.

Btu British Thermal Unit The price of energy in Asian
markets recognizes the option of using either crude oil
or gas products. Therefore, Btu measurements are often
priced as BOE or Barrels of Oil Equivalency. Natural
gas energy values fluctuate depending on the chemical
composition of the gas so BOE is used to calibrate
value. Methane = 1,012 Btu/cf, Ethane = 1,773 Btu/cf,
Propane = 2,500 Btu/cf, Butane = 3,260 Btu/cf. In 2009,
Alaska used approximately 1 million Btu of energy
per day for residential, commercial, industrial, and
transportation applications.

C
Competing Project While AGIA awarded inducements only
to the holder of the AGIA license, other companies, or groups
of companies, were not prohibited from pursuing a “competing
project.” In order to be considered a valid competing project, a
gasline was required to accommodate throughput of more than
500,000,000 cubic feet (0.5 Bcf) of gas per day from the North
Slope to market.

70

In 2008, ConocoPhillips and BP initiated Denali – The Alaska
Gas Pipeline Project that also intended to ship ANS gas to
Alberta. These corporations were not interested in either the
benefits or requirements of the AGIA legislation. On 5/17/2011,
however, the corporations discontinued the project explaining
that the price of gas entering the Mid-American (Canada and
the U.S.) market had “changed significantly – primarily as a
result of the development of shale gas resources.” NOTE: The
ASAP pipeline system is designed to have less than 0.5 billion cubic feet per
day throughput and therefore, is not a competing project under AGIA. Like
the AGIA licensee, it is intended to receive State financing.

Cost Over-runs Unanticipated costs that occur during
permitting and construction. Over-runs can have a major
impact on gas transmission costs and revenues. In other U.S.
pipelines, these unanticipated costs are incorporated into the
tariff structure and eventually are recovered by the operator of
the pipeline. AGIA required applicants to explain in advance
how cost over-runs will be handled.

The original cost estimate for building TAPS was $900 million,
but the final price tag was over $9 billion. If the gas pipeline
follows the TAPS right-of-way to Valdez, it is expected to avoid
such dramatic miscalculations due to existing data on the
TAPS route. In addition, most of the gas pipeline will be buried.

E
Export License Alaska has been exporting LNG from Cook
Inlet to Japan since 1969. Since then, 32 shipments a year
have moved approximately 64 billion cubic feet of gas to
Tokyo from the ConocoPhillips-Marathon plant at Nikiski (on
the west side of the Kenai Peninsula). This entire operation
has been conducted without interruption, accident or
environmental problem.

71

The export license for the Nikiski LNG plant was renewed in
2011 and is valid through 3/2013. However, Tokyo Gas chose
not to renew the contract because of a new cancellation clause
which allowed non-shipment in the event of an Alaska gas
shortage. Due to the tsunami that hit Japan 3/11/2011, several
nuclear power plants were shut down and LNG shipments from
Nikiski continued for several additional months.

Alaska has another valid export license. Yukon Pacific
Corporation (YPC) acquired a Presidential Finding Approving
Export of Alaska Natural Gas 1/12/1988. Nearly two years
later, YPC was granted authorization from the U.S. Department
of Energy to export liquefied natural gas (LNG) from Port
Valdez. On 3/8/1990, the authorization was modified to permit
LNG exports for sale to Japan, South Korea, and Taiwan up
to 350 million metric tons at an average annual volume of 14
million metric tons for a period of 25 years beginning on the
first date of delivery. This export license was acquired by the
Alaska Gasline Port Authority.

The APP also has export license issues. The National Energy
Board of Canada (NEB) must issue an export license if
gas brought into Canadian territories is “stored” rather than
moved immediately to U.S. pipelines. The Canadian export
license requires approval of the Governor General of Canada
(indicating approval of the Queen of England), to permit
“import, export, or flow” of U.S. natural gas.

72

F
FERC The Federal Energy Regulatory Commission
was established by the Natural Gas Act of 1938 as the lead
agency to permit and regulate interstate natural gas pipelines.
Under the federal ANGPA legislation of 2004, FERC is the
lead environmental and regulatory agency for an Alaska gas
pipeline. Regarding a cross-Canada pipeline to the Midwest
states, FERC will be the agency to issue the Certificate of
Public Convenience and Necessity and approve interstate tariff
rates. In addition, FERC has the authority to mandate pipeline
expansion, if and when additional gas supplies are discovered.

If TransCanada builds the 1,768-mile gasline to Alberta’s
western border under AGIA, 803 miles will be managed by
FERC. Canada’s National Energy Board (NEB) will permit,
approve and manage 965 miles of the pipeline in the Yukon
Territory and British Columbia extending to the western border
of Alberta.

Ω If the AGIA process results in an 800-mile All-Alaska
intrastate route, the Regulatory Commission of Alaska (RCA)
will issue the Certificate of Public Convenience and Necessity
and establish tariff rates. FERC will remain involved to permit
and regulate the gas liquefaction plant.

Fracking In 2003, a new technology was developed in the
Barnett Shale play (in northern Texas) for deep, horizontal
drilling for oil and gas. This has changed the economics of
tapping geologic formations where hydrocarbons are widely
dispersed and not in conventional anticline pools or traps.
There are 22 large-scale shale gas formations (plays) being
explored and developed in 20 states – also in Alberta, British
Columbia and Saskatchewan.

73

In 2008, these technological developments impacted the
U.S. gas reserves calculation, exceeding estimated domestic
market demand for over 100 years. This information was not
common knowledge during the Alaska legislative debate over
the AGIA license.

Hydraulic fracturing operations have to address environmental
problems and concerns including contamination of
groundwater, handling of used “frack water,” and air pollution.
Some areas of the Marcellus play (See: Shale Gas Plays map)
have had serious impact on water supplies. Vegetable
gels have recently been developed to reduce chemicals
and improvements have been made to petroleum fracking
techniques. Most current fracking systems are 5,000 to 10,000
feet below the surface and do not impact water aquifers.

As a result, a major shift in U.S. natural gas prices has
occurred and prior LNG import facilities have recently been
re-engineered to allow liquefaction of gas for LNG export to
global markets.

In Alaska, fracking technology is being used by a new ANS
lease holder/exploration company. Great Bear Petroleum
LLC is exploring for oil and gas in shale plays south of
Prudhoe Bay.

Free Market Some oil and gas industry observers believe
the Alaska gasline route decision, target markets, and timing
should be made strictly by the “free market” i.e. oil and
gas corporations that hold Alaska leases, their customers,
and stockholders.

However, a growing number of Alaskans who understand that
the Alaska people own the oil and gas resources on state
land think otherwise. Other governments worldwide that own

74

oil and gas reserves, including Norway, provide infrastructure
including pipelines, establish timing frameworks, and define
corporate return rates.

G
Gas Hydrates Methane hydrate is a solid substance that
forms by combining gas and water within the pore space
of sediments at specific pressure and temperatures. These
conditions occur within and beneath permafrost in onshore
areas and beneath the seafloor in offshore regions of Alaska.

On the North Slope, gas hydrates have been found in
numerous locations during drilling for oil and gas. In February
2007, BP and a number of researchers drilled a test well
beneath the permafrost 1800 to 2500 feet below the surface.
In this form, gas hydrates are compressed to contain 160-180
times the energy value of normal natural gas. Findings have
not yet been published, but hydrates may be a significant
future energy source.

H
Henry Hub The pricing point for U.S. natural gas futures
contracts traded on the New York Mercantile Exchange
(NYMEX). It is located at Erath, Louisiana, the intersection
of nine interstate and four intrastate gas pipelines. Prices are
quoted as dollars per million British Thermal Units (MMBtu).
Although Mcf or thousand cubic feet is a more common unit
of measurement for natural gas, it does not account for the
energy variation of different types of natural gas. (1 Mcf is
approximately equal to 1MMBtu.) Henry Hub prices are also
used to quote short term, “spot market” prices. NOTE: In July
2007, the price for natural gas was $13.69/Mcf. The Henry Hub average
price for October 2011 was $3.64/MMBtu. The 11/16/2011 price was $3.13/
MMBtu. In Canada, the spot market quote comes from AECO.

75

K
Kitimat In 2007, Kitimat, British Columbia was envisioned as
a site to import LNG from Australia for the Canada and U.S.
markets. However, due to the major shale gas plays discovered
in British Columbia and the Lower 48, there are now a number
of LNG export operations under consideration in the Province.
Kitimat is approximately 700 air miles further east from the
Asia markets than Valdez.

L
LNG Liquefied Natural Gas Natural gas can be transported
long distances when compressed to 1/600th of the space of
natural gas under normal temperature and pressure conditions
and chilled to minus 256˚ Fahrenheit. In this liquid form, it is
carried to global markets in specialized marine tankers. At its
destination, LNG is loaded into storage tanks, re-gasified, and
transported through gas pipeline distribution systems to power
plants, industrial consumers, and other customers.

LNG is an excellent “bridge fuel” as the world urgently
searches for clean energy solutions. It is 99 percent pollution
free and is being sought by China and other Asian industrial
nations inundated by carbon release from coal-fired heavy
industry and millions of new automobiles.

LNG has been exported from Cook Inlet since 1969. Every
year, 32 shipments have left Nikiski and supplied power
generators for Tokyo Gas. The recent contract was not
renewed (5/2011) since shipments could be interrupted if
an Alaska gas shortage occurred. However, shipments have
continued since the 3/11/2011 tsunami impacted Japan
nuclear power generation and increased LNG demand.

76

Alaska LNG potential markets include Hawaii, Japan, Korea,
Taiwan, and China. From 2005 to 2010, global LNG supplies
have grown 58%. There is still no global price system for
LNG, similar to Henry Hub or AECO. Asian contracts are
generally for 20 to 30 years and are summarized by the “Japan
Customs-Cleared Crude” or “Asian Cocktail” price index.

M
Mackenzie River Gas Pipeline In 1971, gas was discovered
just east of the Alaska-Canada border in the Mackenzie
River Delta near the Arctic coast of the Northwest Territories,
Canada. Like ANS gas, Mackenzie River gas has been
“stranded” from major markets.

This newly-authorized pipeline will “open the basin” and
establish rights-of-way for oil and gas pipelines through the
Northwest Territories and the Yukon Territory. TransCanada is
involved in the Mackenzie River Gas Pipeline with Imperial Oil
Ltd which is 70% owned by ExxonMobil

N
Natural Gas The principal components of natural gas are:
methane (CH4) generally 75% or more, ethane (C2H6),
propane (C3H8), and butane (C4H10). Geologic formations
differ in the proportion of these various elements.

Before gas is “pipeline quality” and can enter a pipeline
system, it must be processed to remove carbon dioxide (CO2),
hydrogen sulfide (H2SO4), water (H2O), nitrous oxide (N2O)
and other minor components. According to the TransCanada
AGIA proposal, gas will be shipped at 28 degrees Fahrenheit
and compressed to 2,500 pounds per square inch (psi).

77

Natural gas has many uses in Alaska including power
generation to operate the North Slope oil fields and it is
re-injected to help pressurize the oil-producing geologic
formations.

Cook Inlet gas generates electricity in Anchorage and heats
most homes and businesses. CNG or condensed natural gas
is trucked to Fairbanks for similar uses. For over 40 years Cook
Inlet gas was exported as LNG to Japan and until recently was
used to manufacture fertilizer for export to farmers worldwide.

There are many natural gas-related terms:
• Coal Bed Methane Natural gas derived from coal
formations.
• CNG Compressed Natural Gas A fuel alternative
to diesel, propane or petrol (gasoline). CNG is mostly
composed of methane and compressed to 1% of its
volume at standard pressure. CNG is packaged in
specialized containers, generally for fleets of vehicles.
A facility at Point McKenzie (across Cook Inlet from
Anchorage) creates CNG and trucks it to Fairbanks for
local distribution and use for electrical generation and
residential heating. The current global growth rate for
CNG is over 30% per year.
• Conventional wells are drilled into geologic formations
that contain concentrated pools of gas. Associated
refers to gas extracted with crude oil. Non-Associated
refers to wells where gas alone is the primary
extraction.
• Unconventional Some geologic formations have
highly-dispersed natural gas. “Fracking” or hydraulic
fracturing is one process used to bring this source of
gas to the surface.
• Dry Gas is more than 85% methane.
• Wet Gas contains 15% or more gas liquids.

78

• Gas Hydrates Methane and water can combine in
the pore space of sedimentary formations at specific
pressures and temperatures. Alaska’s vast amounts of
hydrates occur both in permafrost conditions and below
the seafloor off shore.
• Greenhouse Gas GHG Concentrations of water vapor,
carbon dioxide, methane, and other components in the
earth’s lower atmosphere can retain high amounts of
solar radiation. GHG in some locations has heated the
air to record-setting temperatures.
• GTL Gas-to-Liquids Using the Fischer-Tropsch
process, coal and natural gas can be generated into
products including 95-octane gasoline, diesel and
aviation fuels.
• Liquids See NGLs.
• LNG Liquefied Natural Gas Contains methane,
ethane, propane, and butane and becomes liquid
through pressure and temperature processing called
liquefaction. Due to its high compression, LNG is
economic to transport over long distances in custom-
built tankers
• LPG Liquefied Petroleum Gas A gas containing
certain specific hydrocarbons (propane and butane)
which can be liquefied under normal temperature
(60˚ F) and moderate pressure (14.73 psi).
• Natural Gas Liquids NGLs Ethane, propane, butane,
isobutene and pentane are found with methane in the
gas stream and can be extracted. These resources are
all valuable as they have a higher energy level than
methane and are the raw material for many plastics
and petrochemicals. The value-added processing
of these products represents opportunities for new
industries and high-salary employment in Alaska.

79

• Natural Gas Reserves This year’s Annual Energy
Outlook (published by the U.S. Department of Energy
– Energy Information Administration) estimates U.S.
natural gas reserves at 827 Tcf. The prior estimate was
480 Tcf. This dramatic increase was the result of new
technology and the discovery of additional shale gas
reserves. Alaska’s proven (conventional gas) reserves
are generally estimated at 35 Tcf. However, in 2008 the
U.S. Geologic Survey (USGS) estimated that 250 Tcf
of “undiscovered, technically recoverable” natural gas
resources exist in the Alaskan Arctic. On and off shore
resources, coal bed methane, and other categories of
gas can add dramatically to this resource total.
• New Gas Discovered after the original engineering
and purchase of capacity in a gasline. Under AGIA,
the APP must be engineered to accommodate new
supplies every two years and operate as an open
access pipeline.
• Pentane An organic compound similar to butane
used as a laboratory solvent and as a petrochemical
feedstock.
• Shale Gas An “unconventional” resource where the
hydrocarbons are not contained in traps or pools but
are widely-dispersed in a geologic formation. Fracking
or “hydraulic fracturing” processes release and collect
hydrocarbons where they have not been geologically
concentrated. Shale gas formations and coalbed
methane are classed as unconventional reserves.
Shale gas exploration was slated to begin north of the
Brooks Range and south of Prudhoe Bay during the 4th
Quarter of 2011.

80

• SNG Syngas also Synthetic Natural Gas A product
of underground coal gasification (UCG) that can
be used directly for electrical power generation or
converted to synthetic natural gas for local use or
export. Syngas is also a feedstock for producing
gasoline, diesel, and jet fuel as well as petrochemical
products such as fertilizer and a range of plastics.
• Unassociated Gas Refers to natural gas
unaccompanied by crude oil during production.

NEB National Energy Board of Canada The equivalent
to the U.S. Federal Energy Regulatory Commission (FERC).
However, with reference to the “Alaska Highway Gas Pipeline,”
some NEB responsibilities were delegated (in 1978) to The
Northern Pipeline Agency (NPA). NPA provides a “single
window” coordination of Canada, U.S., Provincial, and
territorial government actions.

P
Permafrost In “cold permafrost” soil temperatures remain
below 30˚Fahrenheit and may be as low as 10˚. In other
parts of the state, “warm permafrost” remains just below 32˚.
Because the TAPS carries hot crude oil, two-thirds of the TAPS
was elevated and placed on specialized vertical supports.
This prevented the melting of the permafrost and maintained
ground stability and the integrity of the pipeline. The gasline,
however, will be a cold, buried line and will benefit from the
cool soil temperatures.

Point Thomson Alaska’s third largest oil field after Prudhoe
Bay and Kuparuk, and the largest undeveloped gas field in
North America.

81

In 10/2006, the State of Alaska pulled the unit agreement
(operations contract) for Point Thomson due to failure by
the leaseholders under the unit leadership of ExxonMobil to
implement over 20 annual development plans. ExxonMobil
subsequently launched legal challenges to that decision
and has drilled two on-site exploration wells, the first in 20
years. On 10/27/2011, Governor Parnell announced that
there had been an undisclosed resolution of the issue with
ExxonMobil, and he is waiting for the other leaseholders (BP
and ConocoPhillips) to agree.

The control and availability of Point Thomson gas has major
implications for an Alaska gasline. Point Thomson gas plus
state royalty gas from Prudhoe Bay could supply a 2 billion
cubic foot per day gasline system. As this formation is higher
pressure (10,000 psi) than the Prudhoe fields (5,000 psi) to the
west, Exxon maintains that the oil must be developed before
the gas is extracted.

As of 6/2009, ExxonMobil Alaska Midstream Gas Investments
LLC became an investor (undeclared but nominally less
than 50%) in the TransCanada Alaska Pipeline Project under
AGIA. On 8/1/2011, FERC received an Intent to Prepare
an Environmental Impact Statement for the Alaska Pipeline
Project that included a 58-mile, 32-inch diameter pipeline to
connect Point Thomson to the Gas Treatment Plant (GTP) at
Prudhoe Bay.

Propane is a major opportunity for Alaska as it is a
compressible and transportable fuel and can become
available to rural communities on the road system and barged
to maritime destinations throughout the state. The Alaska
Natural Gas Development Authority (ANGDA) proposes that
rural propane distribution occur by using the Yukon River
system to connect ANS gas (via the North Slope Haul Road
which is parallel to TAPS) to Alaska maritime communities

82

from Kaktovik to Ketchikan and throughout the navigable
river systems.

Once the pipeline is operating, straddle plants can extract
propane from the gas stream. ANGDA is also promoting the
use of the M/V Susitna, an ice resistant ferry to transport
propane in Northwest Alaska and along the Yukon River. As
propane is shipped in a variety of tank sizes, it can also supply
remote communities only accessible by air. Propane energy
content is 2,500 Btu/cf.

Propane and Natural Gas Distribution
ARCTIC OCEAN

BEAUFORT SEA
CHUKCHI SEA

Pipelines & Roads
Distribution Potential

BERING SEA

GULF OF ALASKA

Map courtsey of ANGDA. Copyright 2009 ANGDA.

Prudhoe Bay is legendary in global oil and gas history as it
ranks as one of the top 20 largest oil fields ever discovered
in the world. After 30 years of production, Greater Prudhoe
Bay (with 18 satellite fields) is still the largest field in
North America.

83

In January 1964, only a few months before the devastating
Good Friday earthquake of March 27th, Alaska Governor Bill
Egan decided to file for State ownership of over one and a half
million acres (1,595,170) of federal land on the Arctic coast
lying between the Naval/National Petroleum Reserve-Alaska
(NPR-A also called “Pet 4”) and the Arctic National Wildlife
Range (which in 1980 became ANWR, the Arctic National
Wildlife Refuge).

The State held its first North Slope lease sale in 7/1965. The
1966 drilling projects were unsuccessful, and the world crude
oil price was $3 per barrel. The exploration companies had
found only dry holes on their leased areas on the North Slope
and many pulled out.

Encouraged by newly-elected Governor Wally Hickel, a second
sale of Prudhoe Bay acreage was held 1/24/1967. Before year
end, the Atlantic Richfield Company’s Susie Rig was making
progress drilling on their lease at Prudhoe Bay. It was the
last hope for the North Slope leaseholders. At approximately
10,000 feet it struck the Prudhoe Bay reservoir. By May,
a second well confirmed that it was the largest field ever
discovered in North America.

This news had a huge impact. The State’s next North Slope
lease sale (9/10/1969) generated over $900 million. Inspired by
the Susie Rig discovery, many other national companies joined
the pursuit of Alaska North Slope crude. By this time, Governor
Hickel had become Secretary of the Interior in President
Nixon’s cabinet and Lt. Governor Keith Miller was serving
as Governor.

Getting the oil to market was a challenge. Prudhoe is less
than five miles from the Arctic coast but 800 miles from
the year-round, ice-free port of Valdez. On 12/18/1971, the
Alaska Native Claims Settlement Act (ANCSA) was signed
by President Nixon. This resolved fundamental questions
84

regarding land ownership and enabled the establishment
of the pipeline right-of-way so construction could begin.
On 6/20/1977, the first oil entered the TransAlaska
Pipeline System.

By mid-1977, the world oil price had increased to $11 per
barrel, and, by 1979, it reached $30 a barrel as a result of
Saudi Arabia deliberately limiting its oil production. This was
good news for the young state of Alaska in the short term,
but it illustrated that we were operating in an OPEC-driven,
global petroleum market. OPEC and Alaska prices cratered in
1985 when global supplies surged and the price dropped to
$8/barrel. By mid-1986, the ANS wellhead value had dropped
below $3.50 per barrel.

Since then, prices have rebounded and currently are
skyrocketing. The highest-ever monthly average price of
$133.78 per barrel was 7/2008. In 2011, the highest monthly
average price was $115.34 per barrel reached in March.

Natural gas estimated to be 8.4 billion cubic feet (Bcf) is
pumped to the surface daily with the crude oil at the North
Slope. All but one Bcf is re-injected to help maintain the
pressure in the oil strata to maximize oil extraction. A 150-mile,
10-inch diameter gas pipeline provides fuel for operations at
Prudhoe and other satellite fields.

Corporations that have played a major role in Prudhoe Bay
(with their historic names) are:
• 36% ConocoPhillips Alaska, Inc., formerly ARCO,
Alaska (acquired by Phillips Petroleum, Inc.), and
formerly Atlantic Richfield Corporation that united with
the merger of Atlantic Refining Company, Richfield Oil
Company, and Hondo Oil & Gas Company.
• 36% ExxonMobil Corp, formerly Exxon, formerly
Humble Oil & Refining Company.

85

• 26% BP Exploration (Alaska), Inc. (owned by BP p.l.c.),
formerly British Petroleum that merged with Standard
Oil of Ohio (Sohio).

Environmental impact has always been a major concern
at the North Slope, especially with regard to the caribou
herds in the region. However, the oil producers and the
State of Alaska have done an excellent job in this regard.
For example, Prudhoe is home to the Central Arctic
Caribou Herd which has grown from 3,000 head to 67,000
since drilling began.

S
Shale Gas In 2008, “unconventional gas” from numerous
geologic formations in the Lower 48 dramatically improved
the estimates of U.S. gas supplies. The nation went from LNG
“import-dependent” to having domestic reserves that will
satisfy projected demand for more than 100 years.

In only three years, between 2007 and 2010, U.S. shale gas
increased from 5% to over 20% in its share of domestic gas
consumption. By 3/08, there had been a 50% increase in gas
reserves due to 22 shale gas formations in 20 states. In the
90 days between 7/08 and 10/08, the price of gas at Henry
Hub dropped 44%. As a result, demand for Alaska gas in the
Mid-America market has been radically changed, even with
the higher “lifting” or production costs required by shale gas
compared to conventional gas.

T
TAPS TransAlaska Pipeline System Crude oil transit
from Prudhoe Bay’s Pump Station One to Valdez (named
VMT or Valdez Marine Terminal), takes approximately 15
days. Maximum pressure of the system in 2011 is 1180 psi
and varies depending on the exact location and slope of
the pipeline.
86

Since operations began in 1977, the record TAPS throughput
was 2.136 million barrels per day (BPD) in 1988. However, the
average price in 1989 was $17.13 per barrel. In contrast, the
average throughput of TAPS during the first quarter of 2011
was 594,147 BPD. The highest monthly average price was in
June 2008 for $133.78 per barrel. The highest 2011 monthly
average price was $115.34 in June.

If the TAPS throughput drops below 550,000 BPD, there
will be additional challenges due to lower temperatures in
the crude oil and risks due to freezing. Many Alaskans are
concerned that declining pipeline throughput may make TAPS
uneconomic. If TAPS discontinued operations, the State would
be at risk of losing up to 90% of its general fund revenue.

TAPS is owned and operated by a consortium of oil producers
under the name of Alyeska Pipeline Service Company:
BP Pipelines (Alaska) Inc. (46.93%), ConocoPhillips
Transportation Alaska, Inc. (28.29%), ExxonMobil Pipeline
Company (20.34%), Koch Alaska Pipeline Company, LLC
(3.08%) and Unocal Pipeline Company (1.36%).

In 2002, after extensive review, the TAPS right-of-way was
renewed with the State of Alaska and Alaska Native regional
and village corporation land owners for 30 more years.

Tariff The fee that a pipeline owner charges to transport gas
or oil through a pipeline. Gas tariffs are generally measured
as dollars per million Btu to account for the variety of energy
values in the gas stream due gas liquid content.
• Distance-sensitive rates are based on the cost to
move gas to off-takes or delivery points for local use
instead of the cost to move it to the final terminus of
the pipeline.

87

• Recourse rates are the maximum-to-minimum range
of costs (per-unit shipped) based on construction and
operation costs, established by FERC, RCA or NEB for
each specific pipeline segment.
• Rolled-in rates AGIA mandates that tariffs will be
adjusted so that all gasline users share the cost of
increasing the throughput capacity. The purpose is to
accommodate “new gas” available after the first Open
Season. This increase is capped at 15% for the original
AGIA shippers.
• Incremental rates are often used in other pipeline
systems where additional costs are charged to new gas
shippers that cause a pipeline system to be expanded.

Yukon Pacific Corporation YPC In 1983, former Governors
Bill Egan and Wally Hickel, Robert O. Anderson of ARCO, and
two other investors formed Yukon Pacific Corporation. The
prior year, Governor Jay Hammond had recruited the former
governors to co-chair the Governor’s Economic Committee
on North Slope Gas. The Committee studied the barriers to
building an All-Alaska gasline from Prudhoe Bay to Valdez.
YPC worked to advance the Committee’s conclusion that
Alaska should expand LNG export to the Asian market.

88

KEY WEBSITES for CRACKING THE CODE 2012
Alaska Gasline Development Corporation AGDC
www.gasline.us.com

Alaska Gas Pipeline Project Office GPPO
http://gasline.alaska.gov

Alaska Gasline Port Authority AGPA
www.allalaskagasline.com

Alaska Natural Gas Development Authority ANGDA
http://www.angda.state.ak.us

Alaska Oil & Gas Conservation Commission AOGCC
http://doa.alaska.gov/ogc/

The Alaska Stand Alone Gas Pipeline Project ASAP
www.gasline.us.com

EIA – Energy Information Administration
http://www.eia.gov

Federal Coordinator – Alaska Natural Gas Transportation
Projects
http://www.arcticgas.gov

State Pipeline Coordinator’s Office
http://www.dnr.alaska.gov/commis/pco

FERC – Federal Energy Regulatory Commission
http://www.ferc.gov

National Energy Board of Canada
http://www.neb-one.gc.ca

NYMEX Henry-Hub NATURAL GAS PRICE
http://www.oilenergy.com/1gnymex.htm#daily

PPT – Petroleum Profits Tax 2006
http://www.gov.state.ak.us/oiltax/ppt_report.php

RCA Regulatory Commission of Alaska
http://www.rca.state.ak.us

89

Bold “Owner State” ideas
from Alaska’s Make it Happen Leaders

Governor Governor Senator
Bill Egan argued Wally Hickel Ted Stevens
for state ownership argued for state changed his view from
of the trans Alaska ownership of the Canada to Asia:
oil pipeline: natural gas pipeline:
“I tried to do
“We must have full “ e state should build everything I could to
control and and own a 48-inch accelerate the pipeline
responsibility for diameter natural gas through Canada. I’ve
moving that ﬁrst huge pipeline from Prudhoe now changed my
volume of crude oil Bay to Valdez and ship position. I believe
from Prudhoe Bay.” our trillions of cubic emergency power
feet of gas as LNG to should be given to a
Anchorage Daily News world markets where special coordinator to
November 11, 1971 they will earn a fortune devise ways to get the
Quoted in Crude Dreams for Alaskans. If I were main pipeline from the
by Jack Roderick governor, we would North Slope to Valdez
start building the built in record time.
All-Alaska gasline Let’s move ahead. We
tomorrow. All it takes don’t need any more
is some guts and a open seasons. We don’t
decision.” need any more periods
for analysis. We need an
Op Ed, Anchorage Daily emphasis on getting the
News May 4, 2009 job done.”

Speech to
Commonwealth North
March 12, 2010

92

With thanks to the Alaskan businesses,
trade unions, educational institutions, and
individuals who have helped make
CRACKING THE CODE 2012 possible
both on-line and in print.

BOB BA ER, RE A LTOR
Dynami c Pro per ties

All definitions, historical context, and opinions
in this glossary are the responsibility of the author/editor

With thanks to the Alaskan businesses,
trade unions, educational institutions, and
individuals who have helped make
CRACKING THE CODE 2012 possible
both on-line and in print.

Wally and Ermalee Hickel

Al and Ann Parrish

W ALKER & L EVESQUE , LLC
Al and Ann Parrish AW
Al and Ann Parrish
ATTORNEYS AT L

W ALKER & L EVESQUE , LLC LLC
W ALKER & L EVESQUE ,
ATTORNEYS AT LAW
ATTORNEYS AT LAW

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