Crackingthe code

CRACKING THE CODE 2012 A Citizen’s Guide to the Alaska Natural Gas Pipeline DiscussionMany Alaskans regard the gasline as one of the most importantprojects of our generation. We are faced with urgent technicaland fiscal issues. Our understanding of the discussion and activeparticipation will make the difference for us and our families who wantto continue to call Alaska home.This glossary began when Alaskalaunched into the Alaska GaslineInducement Act in 2007. It was extremelychallenging to follow the discussion andunderstand the options presented to us.This glossary is a quick reference, nota textbook. It is structured to give basicdefinitions of frequently-used termswith additional depth and discussionin the BACKGROUND section. As itwill be available on the Internet, it isalso designed as a student and writer’stool with extractable and ready-to-useinformation.Cindy RobertsAuthor/EditorWith thanks to the many individuals who reviewed the nearly-endlessdrafts of this document. If you have additional terms or want tofurther clarify those terms already included, please contact me atcindy.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 A Citizen’s Guide to theAlaska Natural Gas Pipeline Discussion Compiled by Cindy Roberts SEARCHERS PRESS Anchorage

CRACKING THE CODE 2012 A Citizen’s Guide to the Alaska Natural Gas Pipeline DiscussionPublished by Searchers Press2001 Churchill Drive, Anchorage, Alaska 99517 USAOther publications by Searchers Press:The Wit and Wisdom of Wally Hickel, edited by Malcolm B. Roberts 1994Copyright © 2011 by Cindy RobertsExcerpts from this book may be duplicated in any length with the writtenpermission of the author.First Printing 2008 with Alaska Business Monthly magazine.Second Printing 2012, revisedPrinted by Color Art Printing, Anchorage, AlaskaCataloging-in-Publication DataRoberts, Cindy CRACKING THE CODE 2012: A Citizen’s Guide to the Alaska Natural Gas Pipeline DiscussionISBN 978-1-4675-0494-2 $10.00 soft coverKeywords 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 FracturingCover design by Candy Johnson, Alaska Business MonthlyAuthor’s photograph by Chris Arend PhotographyMaps 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 in1968, everyone knew that someday Alaska would have vastamounts of natural gas to export. Until recently, 35 trillion cubicfeet of natural gas was considered “stranded” at the NorthSlope with no way to get it to energy-hungry markets.In June 2007, the Alaska Gasline Inducement Act (AGIA) wassigned into law. Five proposals were received that Decemberto study routes and prepare for federal approval to construct amajor gas pipeline. In January 2008, the State determined thatonly the proposal submitted by TransCanada was complete.In August of that year, the legislature voted to award the AGIAlicense to TransCanada Alaska Company, LLC and FoothillsPipe Lines Ltd (both subsidiaries of TransCanada Corporation).The official title of the gasline under AGIA is the AlaskaPipeline 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 thefact 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 TransAlaskaPipeline System in Valdez. As of this publication’s pressdeadline, the results of that Open Season have not been announced.In 2008, ConocoPhilips and BP started a second pipelineproposal, outside of AGIA called Denali – The Alaska GasPipeline Project. It focused strictly on shipping gas fromPrudhoe Bay to Alberta, Canada. However, since the Denaliconcept began, shale gas technology advanced to create ahuge supply of domestic U. S. gas and the market prices inboth 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 tounderstand that if our State-owned gas enters the Canadianpipeline system at over-supplied and minimal prices, Alaskamay receive far less revenue than if our gas is exported to thelucrative 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 GasWhere 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 gasproduction areas so far are the Alaska North Slope and CookInlet in Southcentral Alaska. The AGIA legislation focusedon North Slope natural gas development and how to get it tomarket.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 abundantenergy for Alaskans and other users worldwide. Our government revenues from natural gas development and saleswill make Alaska’s future much stronger for future generations.What route will it take? While there are three proposed gaspipelines that will begin at Prudhoe Bay, there are major routealternatives to move our gas to market. The option originallyfavored under AGIA was a 1,715-mile pipeline from PrudhoeBay south to the Alcan Highway, then across the YukonTerritory and British Columbia to the western border of Alberta,Canada. In 2007 when AGIA began, the price of natural gasin 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 stillactively pursuing the Alberta option.vi

The other route option under AGIA follows the trans-Alaska oilpipeline right-of-way and connects Prudhoe Bay and Valdezto supply gas to Alaskans in five off-take sites and to exportLNG to global markets. Valdez is also promoted by the AlaskaGas Pipeline Authority which targets much more active in-stateaccess to gas for Alaska communities in Southcentral as wellas on the road and river systems.The third option proposed by the Alaska Gasline DevelopmentCorporation connects Prudhoe Bay to the existing gasdistribution system beginning near Big Lake and eventuallygoing to Anchorage and the Kenai Peninsula. This route wouldrequire a separate spur line to Fairbanks.Alaska Natural Gas Development Authority is focused on spurlines off the main pipelines (AGIA and AGPA proposals) toenergize Southcentral and the river and coastal communities.Are there other benefits for Alaska from the in-stateoptions? Alaska and the U.S. will have all the constructionjobs along the 800-mile route, all the permanent pipelineoperation jobs, and value-added industry jobs. Through spurlines and off-takes, Alaska’s rural and urban communities willgain a major new source of clean energy for power generationand residential use. If the gas is taken to Valdez, the per unitcost for the Alaska consumer may be less as large volumes ofLNG 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, gaspipelines require totally different high-pressure engineeringthan oil pipelines. vii

What is the status of the AGIA project? TransCanadaAlaska LLC and Foothills Pipe Lines Ltd have a State licenseunder 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 ofthe 2010 Open Season when they invited gas producers to establish contracts to transport their gas via a pipeline to eitherAlberta or Valdez.The terms of AGIA do not actually require TransCanadato build a gas pipeline. Alaskans are wondering why theGovernor and the Legislature aren’t demanding that thecompanies 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 2012There are two sections in this glossary:The ALPHA section has 199 definitions and indicates relatedterms by using the following cue: (See: ). The BACKGROUNDsection provides more detail and historical context for 33 of theterms. (See: Term in bold) Items of special interest to Alaska areindicated with the Ω symbol. Dedicated readers may notice therepetition used throughout the glossary. The intent is to helpthe reader track the terms as they relate to each other.ALPHAAACES Alaska’s Clear and Equitable Share 2007 The intentof 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 profitswhile encouraging new industrial investment and increasedproduction. (See: ACES, PPT, Tax: Production)AECO [AY-co] The Alberta Gas Reference Price. Canadahas a natural gas storage and transportation system thatmoves Alberta’s gas into TransCanada’s Mainline and theFoothills / 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 agas pipeline to transport Alaska North Slope natural gas tomarket. (See: AGIA, Bcf, Incentives, Open Season)When reference term is BOLD, go to BACKGROUND discussion. 1

AGPA Alaska Gasline Port Authority [AG-pa] A taxexempt, quasi-governmental entity created in 1999 by thevoters of the North Slope Borough, the Fairbanks NorthStar Borough, and the City of Valdez. The latter two activelycontinue to support AGPA’s objective “to build, or cause tobe 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, TransCanadamakes 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-inchPoint Thomson Pipeline to connect Point Thomson andthe 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 claimsof 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 RegionalNative Corporations and numerous village corporations.When the gasline is constructed, all proposed routeswill 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 Fundor 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 theAuthority to facilitate the planning, design and construction ofa natural gas pipeline from Prudhoe Bay to Cook Inlet or toPrince William Sound with a spur line to the Southcentral gasdistribution system.2 When reference term is BOLD, go to BACKGROUND discussion.

ANGDA has focused its efforts on getting North Slope naturalgas to Alaska communities as well as identifying feasible LNGexport options. ANGDA operates within the Alaska Departmentof Revenue. (See: Routes)ANGPA Alaska Natural Gas Pipeline Act 2004[ANG-pa] Federal legislation that authorized $18 billion in loanguarantees (up to 80% of the total capital cost of an Alaskanatural gas pipeline) to facilitate delivery of gas to domesticU.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 authorityto mandate that the pipeline be expanded to accommodate thetransmission of additional gas discovered after the project isfirst designed and constructed. (See: FERC)ANGTA Alaska Natural Gas Transportation Act 1976[ANG-ta] Federal legislation that led to a treaty between theU.S. and Canada which is valid until 2012. It requires that ifAlaska North Slope gas is transported across Canada, thegasline must follow the Highway Route. There are severalCanadian companies involved in these agreements that ownand operate the “Pre-Built” Western Leg pipeline section thatconnects Alberta to San Francisco and the Northern BorderPipeline System linking Alberta to Chicago. (See: Routes: Highway)When reference term is BOLD, go to BACKGROUND discussion. 3

ANILCA Alaska National Interest Lands Conservation Act1980 [a-NIL-ca] Legislation that greatly enlarged the federalconservation system units in Alaska including national parksand wildlife refuges. Alaska now holds 70% of all nationalpark lands in America and 85% of all wildlife refuge acreagefor a total of 131 million acres (nearly 30% larger than thestate of California). ANILCA legally guarantees access acrossthese conservation units, but contains severe restrictionsto transportation and utility systems such as gaslines. Theproposed Bullet Line (or ASAP: Alaska Stand Alone PipelineProject 2010) will be required to resolve these restrictionson the Parks Highway, in proximity to Denali National Park.(See: ASAP, Routes)ANS Alaska North Slope A flat, treeless plain thatencompasses 88,000 square miles from the foothills of theBrooks Range north to the Arctic Ocean. The ANS acronym is often used in connection with oil and gas that is producedin, or shipped from, north of Alaska’s Brooks Range andnorth 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 2404 When reference term is BOLD, go to BACKGROUND discussion.

ANWR Arctic National Wildlife Refuge [AN-war] Thefederal ANILCA legislation of 1980 enlarged the ArcticNational Wildlife Range from 8.9 million to 19 million acresand reclassified the area as a “Refuge.” Eight million acres of ANWR were designated as Wilderness where no developmentcan occur. However, 1.5 million acres along the Arctic CoastalPlain in the 1002 (“ten-O-two”) Area was specifically identified as containing high oil and gas potential and designated for oiland gas evaluation. Its western border is adjacent to the PointThomson field and less than 60 miles from the Prudhoe Bayfacilities. (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 inexploration, production, transportation, refining, and marketingpetroleum in Alaska.AOGCC Alaska Oil and Gas Conservation CommissionProvides oversight and surveillance to prevent waste of oiland gas resources to protect the rights of the resource owner(State of Alaska) and maximize recovery of oil and gas for thebenefit 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 majorissue because TransCanada’s Alaska Pipeline Proposal isengineered to ship 4.5 to 5.9 (Bcf/d) to Alberta. ΩAPP Alaska Pipeline Project The name chosen byTransCanada for the State-licensed gas pipeline study underthe 2008 Alaska Gasline Inducement Act (AGIA). TransCanadaAlaska Company, LLC in cooperation with Foothills Pipelines,Ltd. hold the license and have a minority partner, ExxonMobil Alaska Midstream Gas Investments, LLC.When reference term is BOLD, go to BACKGROUND discussion. 5

Two APP route options begin at Point Thomson (58 miles eastof 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 optionfrom Point Thomson and Prudhoe Bay to tidewater at Valdezspans 858 miles. (See: APP, Routes: APP)Article VIII The Constitution of the State of Alaska mandatesin Article VIII, Section 2 that, “The legislature shall provide forthe utilization, development, and conservation of all naturalresources 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 (alsothe Bullet Line) The Legislature created the Alaska GaslineDevelopment Corporation (AGDC) a subsidiary of the AlaskaHousing Finance Corporation (AHFC) with Alaska Statute1856.086. 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 targetvolume is less than 0.5 billion cubic feet per day (limited bythe terms of AGIA). It proposes to connect with existing gasdelivery systems from its southern terminal near Big Lake. Agas liquids extraction plant is planned near Point Mackenzie onthe west side of Cook Inlet. ASAP’s target operational date is2018 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 ofthe top 20 long-term, crude oil contracts (based on volume)in the Japanese market. JCC price quotes are a similar priceindex to spot market prices at Henry Hub in the U.S. andAECO in Canada.6 When reference term is BOLD, go to BACKGROUND discussion.

LNG pricing in the Asian markets is based on the energyequivalency of crude oil (BOE) and is generally purchased with 20 or 30-year contracts. Historically, the price has been twoto three times higher than North American prices establishedat Henry Hub and AECO which reflect short-term supply and demand. The Japanese tsunami (3/11/2011) and the closureof damaged nuclear plants have brought short-term, spotmarket LNG sales into this pricing system. (See: AECO, BOE, Henry Hub, LNG)BBackbone Founded in 1999, a non-partisan, citizenorganization of Alaskans who “believe in the use of state oiland gas resources for the maximum benefit of current andfuture 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. Theterm originally referred to the barrels used to transport oil onthe decks of ships. The measurement of the number of barrelsof oil produced in 24 hours is barrels per day or BLD. (See: BOE) Barrow Arch The geologic “fold” that has created theseries of oil and gas traps or reservoirs that have beendiscovered at Prudhoe Bay, Kuparuk, Point Thomson andother locations on the Alaska North Slope. Oil and gas is believed to have migrated north over millions of years fromthe Brooks Range through sedimentary geologic formations.(See: ANS, Prudhoe Bay)When reference term is BOLD, go to BACKGROUND discussion. 7

Bcf billion cubic feet There are two systems for quantifyingnatural gas: 1) a cubic foot (cf) of volume under standardatmospheric pressure. Mcf indicates volume per 1,000 cubicfeet. Bcf indicates volume per billion cubic feet. The AlaskaPipeline 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. 1Bcf/d equals 7.82 million metric tons per annum (MMTA) – themeasurement for LNG shipment contracts. 2) British thermal unit (Btu) is the other measurementused. 1 million Btu (MMBtu) of energy is generally contained in1 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, itis called the Chukchi Sea. State of Alaska jurisdiction extendsoffshore 3 miles after which waters are owned and managedby the federal government. There is debate over the exactlocation of the maritime U.S.-Canada boundary. Ω The areahas significant oil and gas resources as well as migratorywhale and caribou populations. (See: ANS, Prudhoe Bay)Big 3 The major leaseholder/producers in the North Slopeoil 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 AlyeskaPipeline Service Company which owns and managesthe TransAlaska Pipeline System (TAPS) oil pipeline.(See: TAPS, Producers)8 When reference term is BOLD, go to BACKGROUND discussion.

Bitumen [Bi’ tu min] The oil sands of Alberta contain aheavy, tar-like substance that is extracted through two maintechniques: 1) A thermal recovery process dominated by atechnology of steam-assisted, gravity drainage. Natural gasis used to convert water to steam that is injected into thebitumen-rich sands at depths exceeding 250 feet. The bitumenis converted to a liquid and is drained into pipes below thestrata and pumped to the surface. The hydrocarbons are thenprocessed into synthetic crude oil. 2) Surface strip miningis also used to remove the sand which is transported to aprocessing plant for separation of oil materials that are movedon for refining. (See: GHG, in situ, Tar Sands)BOE Barrels of Oil Equivalent The Asian market establishesgas prices based on BOE that equates a barrel of oil to 600 million British thermal units (MMBtu) of energy. The energy innatural gas varies depending on the content of liquids such asethane, propane and butane. (See: Natural Gas, MMBtu, Oil Parity) Brooks Range Stretches west to east 700 miles acrossnorthern Alaska and into Canada’s Yukon Territory andapproximately 150 miles north-south at roughly 68˚NorthLatitude. It is considered an extension of the Rocky Mountainswith its highest peaks exceeding 9,000 feet. It is believed tobe 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 measurementequal to the amount of heat required to raise the temperatureof one pound of water one degree (58.5˚ to 59.5˚) Fahrenheitunder standard conditions of pressure. One cubic foot of methane equals approximately 1,000 Btu of energy value.(See: Btu, BOE, Mcf)When reference term is BOLD, go to BACKGROUND discussion. 9

Buried Line Unlike the TransAlaska Pipeline System (TAPS),the gas pipeline will be buried. Natural gas is cold and will notmelt the underlying permafrost. This will significantly reduceconstruction costs compared to the TAPS. River crossings willbe buried or bridged based on local geography and the widthof the river.Butane C4H10 A low-boiling paraffin hydrocarbon used forsmall scale (cigarette lighter) fuel as well as major fuels andpetrochemical products. It is generally obtained by processingnatural gas and refining petroleum. It is stored in liquefied formand used for fuel in a gaseous form. Its energy content (3,260Btu/cf) is more than three times the energy of methane. ΩButane is a component of North Slope crude oil and is suitedfor transmission via TAPS. Its added energy value explainswhy Alyeska Pipeline Service Company records Barrelsof Oil Equivalency or BOE rather than only barrel volume. (See: Natural Gas, BOE, Btu)CCanada Market Canada is especially interested in Alaska’sNorth Slope natural gas because of its high content of gasliquids (ethane, propane and butane). This rich mixturehas higher energy value than methane and is the essentialfeedstock for the petrochemical industry based in Alberta. Gasliquids from the (recently-approved) Mackenzie Gas Projectas well as the shale gas plays in Alberta, British Columbiaand Saskatchewan may be insufficient to supply enoughliquids for 100% petrochemical industry production capacity.(See: Shale Gas, Feedstock, NGLs)Capacity (Firm Transportation Capacity Contracts) Personsor organizations with gas to sell were invited to purchasecapacity in the AGIA Alaska Pipeline Project (APP) during the2010 Open Seasons in Alaska and the Canadian provinces. Under AGIA, individuals who do not own or control gas may10 When reference term is BOLD, go to BACKGROUND discussion.

purchase vouchers to guarantee reservation of capacity. As of12/1/2011, 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 andgreen plant production of oxygen. At Prudhoe Bay, CO2 comesto the surface with crude oil and is re-injected into the groundto pressurize the geologic formation and increase crude oilextraction. CO2 is a normal component in natural gas and willbe removed at a Gas Treatment Plant prior to compression ofmethane and transport via the gas pipeline. CO2 also resultsfrom the hydrocarbon combustion process when carbon andoxygen unite. It is a major greenhouse gas that contributes toglobal climate change. (See: GHG, Hydrocarbon)Certainty or Fiscal Certainty If and when oil and gasproducers and the State of Alaska (the resource owner) agreeto a locked-in tax rate over a specific time period, it will beknown as Fiscal Certainty. One element of Fiscal Certainty is in place, but can be changed; under AGIA, gas producersthat 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 thatamount 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 toobtain this document from the Federal Energy Regulatory Commission. It will provide the go-ahead for construction ofan interstate pipeline that crosses Canadian provinces (andis 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 issuethe Certificate. (See: AGIA, FERC, Licensee, RCA)When reference term is BOLD, go to BACKGROUND discussion. 11

Coalbed Methane CBM Natural gas derived from coalformations. (See: Natural Gas)Common Carrier A pipeline system that providestransportation service for a fee. The TransAlaska PipelineSystem (TAPS) is not a common carrier as it is owned andcontrolled by ANS producer corporations. TAPS currently hassignificant unused capacity and non-owner producers cansell their crude oil to Alyeska Pipeline Service Company fortransport via the pipeline. (See: TAPS, Gasline, Open Access Pipeline)Commons A new way to express an old idea – that someforms of wealth belong to all of us, and that these communityresources must be actively protected and managed for thegood of all. The Alaska Commons refers to both the State andFederal lands within Alaska.Compact or Statehood Compact The Alaska Statehood Actof 1958 was an agreement between the people of Alaska andthe U.S. government that established the terms under whichAlaska became the 49th state. These terms cannot be changedor altered without the consent of both parties. Under theCompact, 90% of resource revenues generated on federal landbelong to the State. Other key provisions include surface and subsurface title to 103 million acres; ownership of all navigablewaters and submerged lands; and state management of fishand wildlife resources. (See: Article VIII)Competing Project AGIA limits state-funded, competinggasline projects to a maximum throughput of 0.5 Bcf perday. As the proposed Alaska Stand Alone Pipeline Project(ASAP) would be state-funded, it has this volume limitation.(See: Competing Project)12 When reference term is BOLD, go to BACKGROUND discussion.

Compressed Natural Gas CNG A fuel alternative to diesel,propane or petrol (gasoline). CNG is mostly composed ofmethane and compressed to 1/ 200 of its volume at standardpressure. While it is mainly used for fleets of short-rangevehicles, the State of Utah has created special servicestations to encourage use of this fuel and provide greaterdistance options for natural gas-powered private vehicles.(See: Natural Gas)Compression The capacity of natural gas pipelines canbe enhanced to accommodate “new gas” by increasing thepressure in the line. This is accomplished by adding a seriesof compressor plants until the maximum pressure rating of thepipeline system is reached. (See: New Gas)Condensate Any liquid hydrocarbon that was originallyin a gaseous state underground and becomes liquid atthe surface, or a liquid hydrocarbon that is processed or“separated” from the gas stream at the surface. Condensateis generally composed of propane, butane, pentane and“heavier hydrocarbon fractions.” The Point Thomson field has acondensate production goal of 10,000 barrels per day.Conditions Precedent CPs Terms that may be negotiatedbetween the prospective shippers, the pipeline owners, andthe state or provincial government prior to, during, and afterthe close of the Open Season.When reference term is BOLD, go to BACKGROUND discussion. 13

Conventional (and Unconventional) Reservoirs Oil and gas have been traditionally discovered and produced inconventional subsurface reservoirs where geologic formationstrap hydrocarbon substances from further migration throughporous rocks. Conventional reservoirs can be economic todevelop and extract hydrocarbons when the flow rates reflecthigh enough pressure to make the unit cost of the producedoil or gas affordable. The newly-improved fracking technologyused in shale formations has revolutionized drilling inunconventional locations where widely-dispersed oil and gashydrocarbons 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 theKenai Peninsula to beyond Anchorage near the most northernarea of the Inlet. Anchorage is 61˚ North Latitude and isbracketed by Knik Arm to the northwest and Turnagain Armto the east. Cook Inlet is designated state land as a “historicbay and inlet” even though it is wide enough to be federal landoutside the three-mile limit. Along with significant crude oil,7.8 Trillion cubic feet (Tcf) of natural gas has already beenextracted from Cook Inlet formations.14 When reference term is BOLD, go to BACKGROUND discussion.

Cook Inlet and Southcentral Alaska “undiscovered gasreserves” have been estimated (6/2011) by the U.S. GeologicalSurvey (USGS) between 5 Tcf and 39 Tcf. That creates astatistical average or mean gas estimate of 19 Tcf. During the2011 drilling season, exploration companies announced veryoptimistic discoveries in Cook Inlet. On the west side of Cook Inlet, near Beluga, Cook Inlet Region, Inc. (CIRI) is developinga syngas project, using underground coal gasificationtechnology. 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 40When reference term is BOLD, go to BACKGROUND discussion. 15

Coordinators (also Pipeline Coordinators) In 2004, Congress enacted the Alaska Natural Gas Pipeline Act (ANGPA) whichestablished the Office of the Federal Coordinator – AlaskaNatural Gas Transportation Projects to expedite federal agencypermitting and regulatory work on a gasline. In 2007, AGIAestablished a state coordinator position. The assignment ofthat office is to streamline the process for the licensee toacquire the Certificate of Public Convenience and Necessityand expedite other permits required to construct a gasline.(See: ANGPA, Inducements)Cost Over-runs Unanticipated costs that occur duringpermitting and construction. (See: Cost Over-runs, Netback,Rolled-In Rates, TAPS, Buried Lines)Cost of Service COS The tariff to move gas through thepipeline 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 PortAuthority (AGPA), may choose a significantly lower COS as their financial risk can be reduced through the issuance oftax-free bonds. (See: AGPA, FERC, Tariff)Crude Oil A fluid made up of various hydrocarboncomponents including natural gas liquids and gasesand distinguished from refined petroleum products.(See: NGLs, Petroleum, Synthetic Crude)Cubic Foot Gas volume is measured at standard pressureand temperature (60˚Fahrenheit) in units of one thousandcubic feet (1Mcf). 1 Mcf of methane represents approximately1,000,000 Btu of energy. Some industries use “scf” as ameasurement, meaning standard atmospheric pressure percubic foot. (See: Natural Gas, Btu)16 When reference term is BOLD, go to BACKGROUND discussion.

DDehydration The removal of water from a substance. Thesubstance 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, theAGIA licensee, is required to design a minimum of five deliverypoints, or off-takes, within Alaska to provide local access tothe gas. In addition, TransCanada’s AGIA proposal (12/2007)indicated 16 points along the 965 miles of the Canadiansection of the gasline if the route goes to Alberta. The 800-mileAll-Alaska route proposed by the Alaska Gasline Port Authority(AGPA) puts more emphasis on the possible number of Alaskaoff-takes to allow for additional local utilization of propane andother gas forms. (See: AGPA, Off-takes, Plants: Straddle, Propane)Denali – The Alaska Pipeline Project Led by ConocoPhillipsand BP, Denali was designated as a Competing Projectwith TransCanada’s Alaska Pipeline Project (APP). Denali’soriginal goal was to export Alaska North Slope gas to Albertaand presumably on to the Mid-America market. It began in2008. However, the corporations announced that they weredisbanding it on 5/17/2011 as a result of the depressed gasprices in the Lower 48 due to shale gas technology and increased gas supplies.Downstream The refining and marketing sectors of the oiland gas industry that include the petrochemical industry andthe local distributing companies that sell gas to power plantsand residential users. (See: Midstream, Upstream)Dry Gas 1) Less than 15% of the gas content is liquids. CookInlet gas is very dry as it is nearly 100% methane. 2) Liquidsand non-hydrocarbon gases (like CO2) have been processedand removed. (See: Wet Gas)When reference term is BOLD, go to BACKGROUND discussion. 17

Duty to Produce Alaska’s leases include an implied “dutyto produce” oil and gas when there is an economic means oftransport to market. If there is a willing buyer and the producerrefuses to sell, the State has the authority to cancel leases andoffer them to new bidders. An economic transportation systemsuch as a pipeline is essential for the State to enforce thisrequirement. (See: Point Thomson)EEIA Energy Information Administration A division of theU.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 2010average. (published 7/15/2011) (See: Shale Gas)Ethane C2H6 A valuable component of the known gasreserves at the North Slope. Ethane is the dominant liquid feedstock from which many petrochemicals including plasticsare manufactured. North Slope gas reserves contain higher-than-average amounts of ethane relative to other natural gasliquids. Ethane energy value is 1,773 Btu/cf, 70% higher than methane (1,012 Btu/cf). While the major producers at theNorth Slope seem to favor exporting ANS ethane to existingpetrochemical plants in Alberta, Canada and elsewhere Ω,many Alaskans want the State to retain control of this resourcefor 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 theStranded Gas Development Act) with the North Slope producersgranting control of the construction and timing of the gasline aswell as locked-in tax rates. Not wanting to violate Article IX ofthe State Constitution by surrendering future taxing authority,18 When reference term is BOLD, go to BACKGROUND discussion.

the legislature refused to vote on this proposed contract.(See: Stranded Gas Development Act, Producers)Expansion After initial gasline construction, AGIA requiresthat “new gas” be allowed access to the pipeline every twoyears. (See: Compression, Looping, Open Access Pipeline)Explorers Companies that engage in active exploration fornew resources. Alaska’s Big 3 corporations all began in Alaskawith oil exploration activities. Currently, they are focusedprimarily on harvesting ANS crude oil, rather than oil and gasexploration. (See: ANS, Big 3, Producers)Export License In order to sell natural gas to a non-domesticor global market, an export license must be obtained fromthe U.S. Department of Energy. (See: Export License, LNG,Yukon Pacific Corporation)FFeedstock Crude oil and gas liquids are the building blocks ofthe petrochemical industry used to create a myriad of valuableproducts from vitamins to contact lenses. Agrium, the recentlyclosed plant at Nikiski on the Kenai Peninsula, used Cook Inletgas to produce fertilizer for farmers worldwide.FERC The Federal Energy Regulatory Commission isthe lead agency to permit and regulate interstate natural gaspipelines. FERC will be the agency to issue the Certificate ofPublic Convenience and Necessity, approve interstate tariffrates, and regulate and permit a gas liquefaction plant. If thegasline 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 Commissionof Alaska. (See: FERC, AGIA, Certificate of Public Convenience andNecessity, ANGPA, NEB, RCA, Tariffs)When reference term is BOLD, go to BACKGROUND discussion. 19

Fiscal Certainty (See: Certainty, Inducements)Fracking or Fraccing [FRa-king] In 2003, hydraulic fracturingtechnology was developed for deep, horizontal drilling to tapgeologic formations where hydrocarbons (both oil and naturalgas) are widely dispersed and not in conventional poolsor traps. There are 22 shale gas “plays” in 20 states underexploration and development. The result has been a dramaticrecalculation of U.S. natural gas reserves to more than 100years of domestic supply. (See: Fracking, Shale Gas)Free Market The 2010 Open Seasons in Alaska, Yukon Territory and British Columbia for the AGIA Alaska PipelineProject were an attempt to use the free market approach togive the gas producers and potential shippers the opportunityto purchase capacity in a gasline to reach markets eitherin Alberta or globally via LNG shipment from Valdez. UnderAGIA, 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 theresource owner, should determine routes and timing of pipelineconstruction. Ω (See: Article VIII, LNG, Open Season, Routes, Shippers)FT Firm Transportation Commitment A binding financialcommitment or contract between a gas owner/producer anda pipeline owner to purchase a specific capacity (space) inthe pipeline to transport gas at a certain cost for a set timeperiod. These contracts are generally for 20 to 30 years andlead to sanctioning or securing the financing for constructionof the pipeline. (See: Open Season, Capacity, Precedent Agreements, Sanctioning, Take or Pay Contracts)20 When reference term is BOLD, go to BACKGROUND discussion.

GGas Hydrates A substance that forms by combining gas andwater within the pore space of sedimentary strata at specificpressure and temperatures. These conditions occur withinand beneath permafrost in onshore areas and beneath theseafloor in offshore regions of Alaska. Enormous deposits of gas hydrates have been identified at the North Slope, butproduction technology is still at the research stage.Gasline An Alaska natural gas pipeline bringing NorthSlope resources to market. A gas pipeline will differ from theTransAlaska 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.When reference term is BOLD, go to BACKGROUND discussion. 21

Current production of North Slope crude oil brings to thesurface 8.4 billion cubic feet of gas daily. (Bcf/d) Approximately 1 Bcf/d is used to fuel operations at Prudhoe Bay and otherANS fields. A 150-mile, 10-inch gas pipeline distributes fuelfor this use. The remainder is re-injected into the oil-producingrock 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 gasforms: CNG, GTL, LNG, LPG, and NGL and associatedchemistries: butane, ethane, and propane, wet gas and drygas. (See: Natural Gas)Greenhouse Gas GHG Heavy concentrations of a range ofcompounds including water vapor, carbon dioxide, methane,nitrous oxide, and ozone in the earth’s lower atmospherecan trap solar radiation near the earth’s surface. One result is warmer air temperatures. The processing of oil sands hascontributed significantly to GHG levels in western Canada andhas become controversial.GTL Gas-to-Liquids Using the Fischer-Tropsch processdeveloped in Germany in the 1930s, coal and natural gascan be used as a feedstock for products such as 95-octanegasoline, diesel and aviation fuels.HHeavy Crude Oil with high viscosity or resistance to flow. In addition to chemical characteristics that make this crudedense and thick, North Slope permafrost can extend todepths of 2,000 feet, adding to the difficulty of bringing thesehydrocarbons to the surface. However, heavy crude is a vastpotential resource at the North Slope and research continueson how to produce it economically.22 When reference term is BOLD, go to BACKGROUND discussion.

Henry Hub Located in Erath, Louisiana, Henry Hub is the pricing point for U.S. natural gas futures traded on the NewYork 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 compoundcomprised of hydrogen and carbon. Hydrocarbon generallyrefers to oil and gas, but not to coal. Many hydrocarbons arehighly complex molecules and can occur as gases, liquidsor solids. These molecules can have the shape of chains,branching chains, rings or other structures.IInducements Under AGIA, the State offered majorinducements to the licensee, TransCanada Alaska CompanyLLC 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.When reference term is BOLD, go to BACKGROUND discussion. 23

In return for these inducements, if the pipeline fails to goforward, the State will own all engineering studies, designs,and permits developed by the licensee. AGIA does not ensureconstruction of the gasline.Infrastructure State-owned infrastructure has played a majorrole in creating the economy of Alaska. Primary examplesinclude: the Alaska Railroad (critical to the export of coal aswell as in-state transport), the Alaska Marine Highway System(essential to nearly everything in Southeast Alaska), twelveAlaska Highway System units including the DeLong MountainTransportation System (the toll road essential for the Red DogMine), as well as airports and harbors. State ownership, inpart or total, of the gas pipeline is regarded by many Alaskansas an excellent investment and a vital piece of our futureeconomic infrastructure.in situ (literally means “in place”) Refers to the process ofoil and gas development below ground. In the case of theAlberta oil sands, gas-fired steam-heat is used to liquefysynthetic crude oil within the bitumen more than 250 feetbelow the ground’s surface. Another in situ technologyis underground coal gasification (UCG) which producessyngas. (See: UCG, Syngas)In-take Liquefied natural gas (LNG) requires regasificationafter it has been shipped and before it can enter gas pipelinetransmission 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 muchof the U.S. There are currently four LNG intake or receivingterminals on the U.S. East Coast and several offshore LNG terminals in the Gulf Coast. In-take facilities in Texas andLouisiana have recently converted their design and arebecoming licensed to export LNG due to the over-supply ofgas from Lower 48 shale plays.24 When reference term is BOLD, go to BACKGROUND discussion.

Interstate Refers to a pipeline that crosses into one or moreadditional states. Regulations and tariff approval for interstatepipelines are handled by the Federal Energy Regulation Commission (FERC) which also issues the Certificate ofPublic Convenience and Necessity to authorize interstateconstruction.Intrastate The proposed 800-mile All-Alaska gasline is anexample of an intrastate pipeline. The Regulatory Commissionof Alaska (RCA) has authority and will issue the Certificate ofPublic Convenience and Necessity to authorize construction ifan intrastate route is chosen.JJones Act Officially the Merchant Marine Act of 1920, the Jones Act mandates that all goods shipped between U.S. portsmust be transported in U.S. built, U.S. owned and U.S. mannedships.KKitimat, British Columbia A west coast, Canadian ice-freeport at 54˚north Latitude. LNG facilities are under development to export gas resources to the Asian market from BC as wellas the Yukon territory and Alberta. Shipping times from Kitimatto Japan, North Korea and northern China are shorter thanfrom Australia to these markets. However, Kitimat is nearly 700air miles further east from Japan than Valdez. (See: Kitimat)LLand Ownership in Alaska Alaska has a total of 365 millionacres, equal to 1/5 of the continental U.S. Land ownershipincludes land, waters, and legal interests therein.When reference term is BOLD, go to BACKGROUND discussion. 25

• 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.26 When reference term is BOLD, go to BACKGROUND discussion.

Lease (oil and gas) A contract establishing the conditionsunder which exploration can occur on State land. In keepingwith the Alaska Statehood Act of 1958, the State cannotsell its land or subsurface estate for resource development.However, it can lease its lands for resource exploration andproduction. Ω Alaska’s oil and gas leases include an impliedobligation to produce a discovered resource, if there is aneconomic means to get it to market and a “reasonable” rateof return is anticipated. Unproduced, but economic, leasescan be discontinued by the State, requiring forfeiture for non-compliance. (See: Point Thomson)Lessee A person or organization that holds an oil or gaslease.License The contract between the State and the successfulapplicant under AGIA (TransCanada) to pursue authorizationto build an Alaska natural gas pipeline by obtaining theCertificate of Public Convenience and Necessity from FERC or the Regulatory Commission of Alaska.Licensee The licensee has the exclusive right to theAGIA inducements. The AGIA applicant selected by theCommissioners of Natural Resources and Revenue andapproved 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 3producer corporations from controlling the gasline, ExxonMobil Alaska Midstream Gas Investments LLC purchased interestin the gas pipeline project shortly after TransCanada receivedthe AGIA license. The details of this agreement remainundisclosed by the State and the corporations.When reference term is BOLD, go to BACKGROUND discussion. 27

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 withextraction of crude oil. 8.4 billion cubic feet per day are brought to the surface with current operations at PrudhoeBay 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 transportedlong distances when compressed to 1/600th of the density ofnatural gas under normal temperature and pressure conditionsand chilled to minus 256˚ Fahrenheit. In this liquid form, itis carried by specialized marine tankers or “cryogenic seavessels” to global markets. At the port of entry, LNG is re-gasified and transported through gas pipeline distributionsystems. The heating value of LNG is 635 Btu per cubicfoot. Shipping of LNG is measured by million metric tons perannum (MMTPA). 1 Bcf = 7.82 MMT. LNG has 70% the energyvalue of gasoline and 60% the energy density of propane andethanol. LNG has been exported to Japan from Nikiski on theKenai Peninsula since 1969. If the gas pipeline goes to Valdez,the liquefaction plant will be located in Anderson Bay, close tothe 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 1228 When reference term is BOLD, go to BACKGROUND discussion.

Looping Once the maximum capacity of a gas pipe-line has been reached through compression of the gas, “looping” canbe utilized to increase capacity by installing a duplicate pipesystem in the same right-of-way.LPG Liquid Petroleum Gas A gas containing certain specifichydrocarbons (typically ethane, propane, butane, isobuteneor 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 forpetrochemical processes. (See: Natural Gas, psi)MMackenzie River Gas Pipeline was authorized forconstruction 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 theAlberta 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 isa standard measurement of natural gas quantities and marketprices. MMcf is one million cubic feet. Bcf is one billion cubicfeet. Tcf is one trillion cubic feet and is used to estimate gasreserves, e.g. Prudhoe Bay’s proven gas reserves are 35 Tcf.(See: Btu)MDQ Maximum Daily Quantity The amount of gas to beshipped under a specific contract, exclusive of fuel required foroperation of the pipeline system. This term is used in biddingfor capacity shipping contracts by the gasline users.When reference term is BOLD, go to BACKGROUND discussion. 29

Methane CH4 or “C-4” The lightest and most abundantof the hydrocarbon gases and the principal component ofnatural gas. Methane is a colorless, odorless gas that is stableunder a wide range of pressure and temperature conditions.This portion of the natural gas stream is used mainly forpower generation and residential heat and light. The averagemethane content of ANS natural gas is just above 80%.Methane heating value is 1012 Btu/cf. (See: Btu)Midstream Industry activities that occur between explorationand production (upstream) and refining and marketing(downstream). The term is most often applied to pipeline andmarine transportation. (See: Upstream, Downstream)Mineral Leasing Act 1920 (MLA) Federal legislation enactedto stop abuses of natural resource development on federallands in the early 20th Century. Alaska’s Statehood Act appliesMLA’s requirements to Alaska’s state land. Subsurfaceresources such as oil, gas, coal, hard rock minerals, sand andgravel cannot be sold or given away by the State or ownershipwill revert to the federal government. Development rights andrequirements are established through State leases.NNative Regional Corporations Alaska Native ClaimsSettlement Act of 1971 created 12 in-state regional, profit-based corporations that mirror historic ethnic and geographicareas of Alaska’s indigenous people. The corporations havebecome major centers of economic and cultural activity. Theyhave title to both surface and subsurface resources of theiracreage and subsurface title to village corporation lands intheir respective regions. A 13th Regional Corporation basedin Seattle provided an option for Alaskans of Native heritageliving outside the state when ANCSA became law. (See: ANCSA)30 When reference term is BOLD, go to BACKGROUND discussion.

Natural Gas A naturally occurring mixture of hydrocarbonand non-hydrocarbon gases found in porous rock formationsbeneath the earth’s surface, often in association withpetroleum. (See: Natural Gas)NEB National Energy Board of Canada If the AGIA licenseresults 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 crossesthe Yukon Territory and British Columbia, concluding nearBoundary Lake, Alberta. If Alaska gas reaches Alberta andis stored before it can be sold to U.S. markets, it will needa Canadian export license. With approval of the GovernorGeneral of Canada (indicating the approval of the Queen ofEngland), 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 establishedby subtracting midstream transportation and processing costsfrom the sales price at the final market. The netback pricedetermines the royalties and revenues received by the State inreturn for its gas and oil resources. If the producer corporationsalso own the pipeline (like TAPS), the term wellhead price isused. (See: Tax: Royalty)Net Present Value The value of a resource in the present ascontrasted to the value of the same resource available at somefuture point in time. Inflation and the interest paid on borrowedfunds are two factors in the calculation.When reference term is BOLD, go to BACKGROUND discussion. 31

New Gas AGIA requires that the gasline be engineered toaccommodate additional supplies of gas that are discoveredand become available after the first (2010) Open Season. If there is additional demand for capacity, the gasline mustbe expanded every two years after operations begin. Newdiscoveries are highly likely as the 35 Tcf of known reservesin Prudhoe Bay and Point Thomson have been locatedthrough the exploration for oil, not gas. Ω With the prospectof a gasline in the immediate future, numerous independentcompanies have begun leasing and exploring State lands forgas. (See: Natural Gas, Open Access Pipeline)NGLs Natural Gas Liquids Ethane, propane, butane, and pentane that are found in, and extracted from, the natural gasstream. (See: Natural Gas, Pentane)North Slope or Alaska North Slope The Arctic Coast ofAlaska, north of the Brooks Range. In 1/68, Atlantic Richfieldannounced that it had the first commercial oil discovery atPrudhoe Bay. Since 1977, over 16 billion barrels of ANS crudeoil have been transported from the North Slope to Valdez viaTAPS. In addition to Prudhoe Bay, numerous other oil provinceshave been discovered on the Slope as well as offshore in theBeaufort 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 providedomestic 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 thefirst gas discovery in NPR-A. Recent U.S. Geological Survey(USGS) estimates predict that there is 60 Tcf of recoverablenatural gas in NPR-A as well as 6 to 13 billion barrels of oil. In1976, management transferred to the U.S. Department of theInterior. (See: ANS)32 When reference term is BOLD, go to BACKGROUND discussion.

OOCS Outer Continental Shelf Marine areas more than 3nautical miles from the coast are owned and managed by thefederal government. OCS extends from state territory (less than 3 miles from the coast) to a maximum of 200 nauticalmiles (or to 350 nautical miles if the water is less than 2,500meters deep).Offshore Territory from mean high tide (on the beach) to the3-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 gasliquids can be removed from the gasline, processed, and usedto meet local needs. AGIA required applicants to accommodateat least five off-takes within Alaska to allow for in-state useby cities and remote communities along the rivers and roadsystem. The TransCanada proposal also has designated 16delivery points listed in the 965 miles of the Canadian section ofthe Alaska Pipeline Project (APP) on the Alcan Highway route.The map below illustrates potential off-take points withinthe state.When reference term is BOLD, go to BACKGROUND discussion. 33

Local access can be engineered into the pipeline systemduring construction as “compressor station side-streams” oras “stub gas delivery.” These connections can be activatedat a later date as local commercial agreements are finalized.Capital costs per location for a stub delivery option areestimated to be $150,000 to $200,000. (See: Delivery Points, Plants:Straddle, Propane)Oil Parity In some markets, natural gas is priced oncomparable energy value to crude oil rather than on gassupply and demand. (See: Asian Cocktail, BOE)Oil Sands Canadians prefer this term to tar sands. Whenfully developed, Alberta’s oil sands territory will be the sizeof the State of New York. Bitumen is mined by strip mines orbelow-surface “in situ” procedures, and processed to producea synthetic crude oil for domestic use or export to the U.S.Canadian corporations are also investigating the Asian marketand the possibility of exporting both synthetic crude oil andLNG from Kitimat, British Columbia. (See: Bitumen, Synthetic Crude,Tar Sands)OPEC Organization of Petroleum Exporting CountriesA permanent, non-governmental organization established in1960 in Baghdad, Iraq. Its objective is to coordinate and unifypetroleum policies among member countries and satisfy globalsupply 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.34 When reference term is BOLD, go to BACKGROUND discussion.

Open Access Pipeline Under AGIA, all producers of naturalgas can purchase capacity, or space, in the gasline to shiptheir gas to market. Every two years after start-up, the gasline operators must offer space for “new gas” and make necessaryengineering changes to accommodate the increase in volume.This differs from most U.S. gas pipelines in which contractsfor capacity are established and locked-in prior to design andconstruction. (See: Common Carrier, Compression, Vouchers)Open Season also Binding Open Season In order toguarantee the profitability of a pipeline system, pipelineowners 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 pipelinecapacity, engineering and financing. Open Seasons were heldin 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 thelicense. That deadline was 12/5/2011. Results have not beenannounced as of 12/7/2011.Unless AGIA is abandoned, the Open Season information will reveal if the Alaska Pipeline Project will cross Canada to theAlberta border or follow the TAPS right-of-way from PrudhoeBay to Valdez. (See: AGIA, FT, Sanction)Owners of Alaska’s Oil and Gas The Alaska StatehoodAct of 1958 (the Statehood Compact), passed by Congressand agreed to by an overwhelming vote of the Alaska people,granted the State both surface and subsurface ownership of103 million acres of the total 365 million acres of Alaska.When reference term is BOLD, go to BACKGROUND discussion. 35

Oil and gas leaseholders are not the owners of Alaska’s resources. They are the explorers and producers and havethe right and obligation to market the resources they discover.Under the Statehood Compact, if Alaska yields control of itsresource lands, the federal government can reclaim ownershipof those lands. This has important implications regarding PointThomson and ExxonMobil’s annual work plan commitments. (See: Compact)PPentane C5H12 An organic compound similar to butaneused 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 frozenfor more than two years. The North Slope and over half of theTAPS right-of-way are underlain by continuous permafrostsoils, ranging in depth from a few inches to more than2,000 feet.“Pet 4” National Petroleum Reserve No. 4(See: NPR-A)Petrochemical Applications “Value-added” processing andglobal marketing of ANS gas promises to be highly lucrativedue to its high gas liquids content and the petrochemicalindustry demand for feedstock. Petrochemical value-added products include: plastics, nylon, bleach, adhesives,moisturizers, food additives, and fertilizers. The recently-closedAgrium 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 hasCanada’s most developed petrochemical industry but ischallenged by excess production capacity and insufficientfeedstock. This is one reason why Alberta is interested inAlaska’s North Slope gas. (See: Cook Inlet, Gas Liquids)36 When reference term is BOLD, go to BACKGROUND discussion.

Petroleum Crude oil that is found in sedimentary rockformations is a complex mixture of naturally occurringhydrocarbon compounds that is refined into petroleum.Petroleum remains the world’s most widely used energysource. (See: Crude Oil)Petroleum Profits Tax 2006 (PPT) This profits-based taxreplaced Alaska’s previous production tax system knownas the “Economic Limit Factor” or ELF. PPT was an attemptto share the profits from high oil prices more equitablywith the State and the people of Alaska while at the sametime encouraging investment by the industry in additionalexploration and development. The PPT is a net profits tax withmany complex deductions.FBI investigations of vote-buying during the 2006 passageof PPT placed a cloud over the integrity of the statute. Thelegislature replaced PPT with ACES in 2007. (See: ACES,Taxes: Net Profits)PLA Project Labor Agreement A comprehensive agreementbetween the licensee and labor union representatives toensure expedited construction and jobs for qualified residentsof the state. Without a PLA, attempts to hire Alaska Nativesand other Alaska workers on a priority basis will be challengedin court as discriminatory and unconstitutional. AGIA does notinclude 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.When reference term is BOLD, go to BACKGROUND discussion. 37

• 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.38 When reference term is BOLD, go to BACKGROUND discussion.

• 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 canbe accessed for gas or oil through conventional drilling orhydraulic fracturing. (See: Shale Gas, Fracking)Point Thomson Alaska’s third largest oil and gas field afterPrudhoe Bay and Kuparuk and the largest undeveloped gasfield in North America. It is located east of Prudhoe Bay andjust west of the ANWR 1002 boundary. It contains at least8.5 to 10.4 trillion cubic feet of gas, 490 million to 600 million barrels of associated condensate, and 580 million to 950million barrels of oil. (See: Point Thomson, ANS, ANWR, Prudhoe Bay,Condensate, Reserves)When reference term is BOLD, go to BACKGROUND discussion. 39

Power Cost Equalization PCE The State’s PCE program provides economic assistance to residents in rural areas ofAlaska where the kilowatt-hour (kWh) charge for electricityis three to five times higher than in urban areas. PCE pays a portion of approximately 30% of all power sold by participatingutilities. Commercial customers are not eligible to receive PCE credit. Participating utilities are required to reduce each eligiblecustomer’s bill by the amount that the State pays for PCE.In calendar year 2010, the average residential rate forAnchorage, 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 costacross all the communities reported by the PCE utilities in December 2010 was $0.5559 per kWh. The share of the localenergy cost paid by PCE is based on the average price of energy in Anchorage, Juneau and Fairbanks. Ω This programillustrates why ANS natural gas is urgently needed by Alaskarural 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 toTransCanada by prospective shippers under the AGIA AlaskaPipeline 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 besigned 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)40 When reference term is BOLD, go to BACKGROUND discussion.

Producers Lease-holding companies that have the rightand responsibility to explore and produce the resources theydiscover. The major producers on the North Slope are BPExploration (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 gasstream that can be processed for in-state use as bottledgas for power generation as well as residential heatingand cooking. It can be tapped from a gas pipeline by using“straddle plants,” then tanked and transported in a variety ofcontainers. (See: Propane, Natural Gas, Off-takes)Prudhoe Bay is North America’s largest oil field and is locatedon State-owned land on Alaska’s north coast on the ArcticOcean. In 1968, the first discovery well at Prudhoe Bay was announced. In 1977, crude oil began moving through thetrans-Alaska pipeline 800 miles south to the ice-free port ofValdez where it was loaded into tankers and shipped south toout-of-state refineries.Since then, more than 16 billion barrels of crude oil havebeen transported from Prudhoe Bay to Valdez through theTransAlaska Pipeline System (TAPS). The highest throughput(amount shipped) was 2.1 million barrels per day (BLD) in1988. (The 2010 average throughput was 619,655 BLD. As of4/2011, the 2011 annual throughput estimate was expected to be 594,147 BLD.)When reference term is BOLD, go to BACKGROUND discussion. 41

The price per barrel has fluctuated dramatically depending onthe global petroleum market. In 1977, the average was $11per barrel. In 1986, the average dropped to $3.50. The annualaverage in 1989 was $17.13. The highest monthly averageprice ever was $133.78 per barrel in 6/2008. The highestmonthly average price in 2011 has been $115.34 per barrel. (See: Prudhoe Bay, ANS)psi Pounds per Square Inch The strength of a pipelinesystem and its throughput capacity are measured by psi.Alaska Pipeline Project’s Alaska Mainline (750 miles fromPrudhoe Bay to the Alaska /Yukon territory border) will havea maximum allowable operating pressure of 2,500 psi. Somemajor gaslines in the Lower 48 are rated much lower at 1,000 psi. Geologic structures of the Point Thomson field aremeasured at 10,000 psi and Prudhoe Bay is generally at 5,000psi. The TransAlaska Pipeline System (TAPS) is designed tooperate at approximately 1,200 psi. The current average isclose to 700 psi. (See: Compression)Pump or Push Gas pipelines and oil pipelines requiredifferent engineering. Gasline contents are highly pressurizedand are “pushed” through multiple compressor stations. Oil pipelines “pump” the fluids they transport. Some natural gasliquids are currently moving through TAPS along with crudeoil. Consequently, the throughput is sometimes measured inbarrels of oil equivalency (BOE) to reflect the higher energy content in the crude oil.42 When reference term is BOLD, go to BACKGROUND discussion.

QQatar [gut ter] is located on the west bank of the PersianGulf (25˚North 51˚East) and has the world’s second largest gas field with 18,000 Tcf of gas and 50 billion barrels ofcondensates. It is the location of the 4-train ExxonMobil and ConocoPhillips gas liquefaction operations designed to exportLNG to the Asian and U.S. markets. The current largest LNGships serve Qatar and are called Q Max and Q Flex. They aredesigned to yield the lowest possible transportation cost pergas unit. (See: Plants: Trains)RRates Pipeline transportation costs or tariffs.(See: Tariffs, Expansion)(Required) Rate of Return Oil and gas corporations, like many other private enterprises, establish a minimumpercentage return that they expect to earn on theirinvestments. These targets impact their global decisionsregarding investment and timing. (See: Duty to Produce,Net Present Value, Risks)RCA Regulatory Commission of Alaska The State agencythat will issue the Certificate of Public Convenience andNecessity and oversee the permitting and tariff structure of thegasline 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 thecrude oil. Approximately 1 Bcf/d is used to power Prudhoeand associated field operations. With no pipeline systemto transport natural gas to market, the producers re-injectthe unused gas back into the oil-producing rock formationsthousands of feet below the surface. This helps maintain fieldpressure and aids oil recovery and stores the gas until apipeline is built to take it to market.When reference term is BOLD, go to BACKGROUND discussion. 43

Re-imbursement Fund Established under AGIA within the State General Fund to match up to $500 million of the qualifiedexpenses of the licensee. (See: Inducements)Reserves Discovered oil, gas and mineral resources thatare not yet in production. Reserves are generally defined as“proven” or “estimated.” The Alaska Department of NaturalResources lists proven reserves of natural gas on the NorthSlope at 35 trillion cubic feet (Tcf) with roughly 25 to 26 Tcfin the Prudhoe Bay unit “gas cap” and 10 to 11 Tcf in thePoint Thomson unit. The USGS has estimated North Slopereserves (on and off shore and north of the Brooks Range) ata staggering 250 Tcf.Most observers anticipate that gas reserves will increasedramatically when explorers specifically search for gasinstead of oil. Ω This will ramp up when a gas pipelinegets the Certificate of Public Convenience and Necessityand explorers are confident construction will take place.(See: ANS, Certificate, FERC)Revenue Eighty to ninety per cent of the State of Alaska’sGeneral Fund revenue in 2011 was generated by oil and gasroyalties and taxes. (Alaskans do not pay state income or statesales taxes.)Right-of-Way ROW The builder of the gasline will acquirerights by lease or purchase to cross federal, State, Nativecorporation, 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.44 When reference term is BOLD, go to BACKGROUND discussion.

Risks In applying for the AGIA license in 2007, proposalsevaluated the risks associated with building the gaslineincluding cost overruns, project delays, firm transportationcommitments, as well as political, taxation, and regulatoryissues. “Price risk” is also calculated to determine if over time,the market price will cover costs and produce the targeted rateof return on the original investment. (See: Take-or-Pay Contracts)Routes The maps that follow illustrate the routes underdiscussion by the prospective gasline builders. Ω FromPrudhoe Bay to Valdez is 800 miles; to the western border ofAlberta 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)When reference term is BOLD, go to BACKGROUND discussion. 45

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)46 When reference term is BOLD, go to BACKGROUND discussion.

• 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.When reference term is BOLD, go to BACKGROUND discussion. 47

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 60048 When reference term is BOLD, go to BACKGROUND discussion.

• 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 specifiedpercentage of oil and gas production, free of productionexpenses. Most of Alaska’s oil and gas leases require a royaltyof 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). AGIAstipulated specific procedures regarding the State’s ability toshift from one type of royalty payment to the other.Royalty Owner The State of Alaska owns the resources onall State land, including Prudhoe Bay and Point Thomson. Thefederal government has the potential to earn royalties fromresources developed on its Alaska lands as well as from theOuter Continental Shelf more than three miles from shore. (See: Land Ownership)When reference term is BOLD, go to BACKGROUND discussion. 49

SSanction The Alaska Pipeline Project will be considered“sanctioned” and financially solvent when the AGIA licensee(TransCanada) obtains at least $1 billion of financialcommitments from gas producer/shippers who purchasecapacity in the gasline to transport gas. “Sanctioning” indicatesthe final decision has been made to build a pipeline and thefinancing is in place. (See: FT)Shale Gas An “unconventional” resource where thehydrocarbons are not contained in traps or pools but arewidely-dispersed in a geologic formation. Fracking or “hydraulicfracturing” processes can collect and bring to the surfacehydrocarbons 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?50 When reference term is BOLD, go to BACKGROUND discussion.

Note: They do! In 2010, Great Bear Petroleum, LLC – a company with majorshale exploration experience in Texas and South Dakota – leased 500,000acres of State land north of the Brooks Range and significantly south ofPrudhoe Bay. As a result, additional gas and oil may be generated in Alaskafrom fracking technology.Shipper A pipeline customer who holds a contract with thepipeline owners for transportation service. This term also refersto LNG transportation customers.SOA State of Alaska State documents often use “SOA” to indicate the Governor, the administration, and other Stateagencies.Spot Market A commodities or securities market in whichgoods are sold and delivered immediately. Contracts boughtand sold on these markets are immediately effective. Whena power generation utility or petrochemical producer needsadditional gas supplies, it goes to the (short-term) “spot” orfutures market to purchase more gas. In the U.S., spot pricesare most often quoted from Henry Hub and in Canada fromAECO. (See: Henry Hub, AECO)Statehood Act of 1958 When the U.S. Congress passed theAlaska Statehood Act, it ratified the draft State constitution andgranted the State 103 million acres of potentially resource-richlands for the purpose of funding State government servicesand creating a strong, local economy in Alaska. When Alaska’selected delegates wrote the Constitution two years earlier, theyincluded a Natural Resources section that is unique amongState constitutions. It mandated “the utilization, development,and conservation of all natural resources belonging to theState…for the maximum benefit of its people.” (See: Article VIII)When reference term is BOLD, go to BACKGROUND discussion. 51

Stranded Gas Development Act 2000 SGDA(AS 43.82) Alaska Governor Frank Murkowski and his administration (2002-2006) focused on negotiating the termsof a proposed gasline contract with the ANS oil producers asper 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 sessionsheld after the regular 2006 session. Ω One reason this contract failed was that the Alaska Constitution (Article IXSection 1) mandates that “the power of taxation shall never besurrendered.”Strip Mining A technique used to remove large quantities ofdispersed oil or mineral resource material so that they can beprocessed at a centralized site to extract valuable components.In the Alberta oil sands, large quantities of bitumen are removedfrom the surface of the ground and trucked to a processing plantto create synthetic crude oil. (See: in situ, Tar Sands)Surface – Subsurface Under the U.S. Mineral Leasing Actof 1920 and the Alaska Statehood Act of 1958, the Stateretains ownership of the natural resources in its 103 millionacres, but may issue leases for oil, gas and mineral explorationand development. Likewise, Native Regional Corporationshave both subsurface and surface title to their lands and candevelop their resources whenever they determine it is in thebest interest of their shareholders. (See: Mineral Leasing Act)Syngas SNG also Synthetic Natural Gas A product ofunderground coal gasification that can be used directly forelectrical power generation or converted to synthetic naturalgas for local use or export. Syngas is also a feedstock toproduce gasoline, diesel, and jet fuel as well as petrochemicalproducts such as fertilizer and a range of plastics.(See: Natural Gas, UCG)52 When reference term is BOLD, go to BACKGROUND discussion.

Synthetic Crude Various hydrocarbons can be processedinto liquid fuel similar to crude oil. One type of synthetic crude is the result of processing bitumen, a major component of theAlberta oil sands. If approved, the proposed and controversialKeystone XL Pipeline from Alberta to refineries in Texas willtransport synthetic crude. (See: Bitumen, Strip Mining)TTake or Pay Contracts During the Open Season, companies can purchase capacity (space) in a gasline that they mustpay for whether or not they have gas to put in the line. Marinetransportation works on the same “take or pay” system.As these contracts impact design and engineering of apipeline, 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 transportsAlaska North Slope (ANS) crude oil to tidewater. TAPS isowned and operated by a consortium of oil producers underthe name of Alyeska Pipeline Service Company. Approximatelyhalf of the 800 miles is underlain by permafrost, and thepipeline is elevated with special structures to avoid melting anddestabilizing the soil. To date, more than 16 billion barrels ofANS crude oil have been piped from Prudhoe Bay to Valdezand shipped to refineries. (See: TAPS, ANS)Tariff The fee that a pipeline owner charges to transport gasor oil through a pipeline. Gas tariffs are generally measuredas dollars per million Btu to account for the variety ofenergy values in the gas stream. (See: Tariff, Btu, FERC, NEB, Open Season, RCA)When reference term is BOLD, go to BACKGROUND discussion. 53

Tar Sands or Oil Sands Sedimentary formations that containa high content of “bitumen” [Bi-tu-min]. Alberta has thesecond largest proven reserves of bitumen after Saudi Arabia.These sedimentary formations are locally called “oil sands.”Production of synthetic crude from these areas requires stripmining and off-site processing or in situ processing whichuses natural gas-heated steam injected into the formationto separate the sand and the hydrocarbons. Liquifiedhydrocarbons are gravity-fed into pipes and pumped to thesurface. (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.54 When reference term is BOLD, go to BACKGROUND discussion.

Tcf Trillion Cubic Feet Proven gas reserves at Prudhoe Bayare 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 theAlaska Arctic. (See: Reserves)Tons of LNG Specialized marine tankers measure their LNGcapacity 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).UUCG Underground Coal Gasification An in situ processingtechnology for deeply-buried, previously-stranded andunmineable coal formations. Injection wells are drilled to deepcoal seams and oxygen, heat, water, and pressure are usedto gasify the coal. A second well brings the resulting syntheticgas or “syngas” to the surface where it is cleaned andprocessed for near-site use or transport. The end product canbe used for low-carbon energy production and petrochemicalmanufacturing. Cook Inlet Region, Inc. (CIRI) has a UCGproject underway on the west side of Cook Inlet near Beluga.(See: Syngas, Cook Inlet, in situ)Unconventional Gas While conventional gas is obtained bydrilling a well into gas-rich geologic formations, unconventionalformations are generally “continuous” i.e. gas is dispersed overlarge regions rather than concentrated in discrete traps. Shalegas was considered an unconventional and non-developablereserve until hydraulic fracturing technology was improved in2007. Other unconventional gases are coalbed methane and condensate. Conventional gas is generally associated with oilfields and is extracted at significant and economic flow ratesat the same time as crude oil. (See: Natural Gas, Coal Bed Methane,Condensate, Fracking, Shale Gas)When reference term is BOLD, go to BACKGROUND discussion. 55

Unit Agreement A contract negotiated between theleaseholders (usually two or more oil and gas exploration orproduction companies) and the resource owners – the Stateof Alaska on state land, Native Regional Corporations, orthe Federal government on federal land or beyond the Stateoff shore boundaries. The purpose of a unit agreement is tocreate a single manager for resource development on leasesin 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 entera pipeline system. Example: North Slope operations prior to when crude oil enters TAPS at Pump Station One. (See: Midstream, Downstream)VValue-added Refining, high-tech processing, andmanufacturing of raw resources prior to export. This term isoften used in public policy debates to illustrate the differencebetween a “colony” and a more advanced, self-sustainingeconomy. The recently-closed Agrium fertilizer plant in Nikiskiwas an example of value-added processing of Alaska’s naturalgas (Cook Inlet methane). In addition to employment of askilled workforce, value-added facilities build a tax base forlocal government as well as a more stable community.Voucher Under AGIA, persons or companies that do not holdan oil and gas lease were given the opportunity to purchasevouchers for transportation capacity in the gasline at the firstOpen Season. Vouchers entitle the holder to benefit from the AGIA inducement of stable production taxes for the firstten years of gasline operation. Vouchers may be transferredto a gas producer in the future. (See: AGIA, FT, Inducements,Open Season)56 When reference term is BOLD, go to BACKGROUND discussion.

WWarehousing While the re-injection of gas has had a majorpositive impact in prolonging the successful extraction of high-value crude oil on the North Slope, the delay in marketing gasvia 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 theworld, we are at a disadvantage. Some of Alaska’s earlyleases did not have performance deadlines after which thelease must be returned to the State (a standard practiceworldwide). However, if a company or the State builds apipeline to transport our gas to market, our leases require gasshipment under the “duty to produce” clause.Wellhead The point at which oil or gas, extracted from below-surface reservoirs, enters a metering system before enteringa pipeline.Wellhead Price When both the oil or gas and thetransportation system (like TAPS) are controlled by the samecompanies, the wellhead price is used to determine the State’sroyalties and revenues based on the net value of a barrelof oil or Mcf of natural gas. This price is established aftertransportation costs, including the construction and operationof pipelines and tankers, have been deducted from the salesprice in the market place. (See: Netback)Wet Gas Natural gas that contains less methane (typicallyless than 85 percent) and more gas liquids. The gas inboth Prudhoe Bay fields and Point Thomson contains thisadditional value and can be processed and used for localenergy needs such as propane, or used in-state or exportedas petrochemical feedstock. (See: Dry Gas, Ethane, NGLs, Propane, Condensate)When reference term is BOLD, go to BACKGROUND discussion. 57

WTI West Texas Intermediate Crude serves as an oil priceindex just as Henry Hub and AECO are gas price indexes.YYukon Pacific Corporation YPC Building on the successfulexport of Cook Inlet gas as LNG to Japan since 1969, YPCwas launched by former Governors Wally Hickel and Bill Egan and others in 1983 to expand Alaska’s exports to the AsianMarket. Teamed with investor CSX, YPC obtained nearly allof 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 tomove the project to completion. The export license obtainedby YPC is still valid and held by Alaska Gasline Port Authority.(See: Yukon Pacific Corporation)58 When reference term is BOLD, go to BACKGROUND discussion.

BACKGROUND The following discussions build onearlier definitions and add editorial opinion on issues thatface Alaska. Ω indicates special facts.AACES Alaska’s Clear and Equitable Share (Alaska Statute43.55) 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 andthe Alaska people while encouraging new industrial investmentand 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 metricsystems are used including “effective tax rate,” “nominaltax rate,” and “marginal tax rate.” These complex options toestablish net value illustrate why Alaska needs skilled, state-employed accounting professionals.While critics charge that this legislation made Alaska anunstable place to do business, ACES was only the second change in Alaska’s severance and production tax system in 17years. 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 AlaskaNorth Slope natural gas either to markets in Canada and theU.S. or to Valdez for LNG export to global markets.AGIA provided inducements for the licensed company to obtaina Certificate of Public Necessity and Convenience eitherfrom the Federal Energy Regulatory Commission (FERC) for an interstate project or from the Regulatory Commission ofAlaska (RCA) for an intrastate project. Among the inducementsprovided by the State was up to $500 million in refunds forqualified expenditures. Governor Sarah Palin signed AGIA intolaw on 6/7/2007.Five proposals for the AGIA license were submitted:TransCanada Corporation, Alaska Gasline Port Authority(AGPA), Little Susitna Construction Company, Inc., AlaskaNatural Gasline Development Authority (ANGDA), andAENERGIA.The Commissioners of Revenue and Natural Resourcesdetermined that TransCanada Corporation had submitted theonly complete proposal. Proposals for an All-Alaska routefrom AGPA and from Little Susitna Construction Company,Inc. were both declared to be incomplete and were not given arevision option by the Commissioners who reviewed the AGIAapplications.The Legislature approved the Commissioners’ Intent to Issue aLicense to TransCanada 8/1/2008 and specified that in additionto studying the Alcan Highway route into Canada “It is theintent of the Legislature that an AGIA license will enable andencourage an All Alaska gas line/liquefied natural gas (LNG)project within the TransCanada project.” Ω60

Governor Palin signed the AGIA license (8/27/08) awardingit to TransCanada Alaska Company, LLC and Foothills PipeLines, Ltd. – both subsidiaries of TransCanada Corporation.It had an effective date of 12/5/2008. The stated goals ofGovernor Palin were to award the AGIA license to a pipelinecompany and not to a gas producer corporation, and toconduct an open, transparent process in awarding the contract.Unfortunately, this open and transparent design did not hold.On 6/11/2009, TransCanada announced that ExxonMobilAlaska Midstream Gas Investments, LLC had obtained aminority, but significant, interest in the Alaska Pipeline Project(APP). Ω The actual nature and percentage of the relationshiphas not been disclosed. It is interesting that TransCanada didnot include Point Thomson in its original proposal, but a 58-mile pipeline connection from Point Thomson to Prudhoe Bayis 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 mileswill be in Canada crossing the Yukon Territory (517 miles) andthe 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 APPOpen Season, it will result in an (800-mile, 48-inch diameter) All-Alaska system that markets gas to Hawaii as well as Asiaand the global LNG market. This route shares the right-of-way with the TransAlaska Pipeline System (TAPS) and has anestimated pipeline cost of $20 to $26 billion. 61

For many years, the route to Valdez has been stronglysupported 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 andshippers to the Lower 48.” “…a better market for Alaska gascould very well be in Pacific Rim countries.” “I let them know Iwant them to move forward on a large-diameter, LNG pipelineto tidewater in Alaska…” The only tidewater option allowedunder 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 Pipelinewas abandoned by partners ConocoPhillips and BP, asthey determined that the Canada /Mid-America market wasuneconomic – given the high cost of the 1,715-mile pipelineand 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 in1999 by the voters of the North Slope Borough, the FairbanksNorth Star Borough, and the City of Valdez, AGPA’s objectiveis “to build, or cause to be built, a natural gas pipeline fromPrudhoe Bay to Valdez” resulting in the All-Alaska GasPipeline. Its projected throughput is 2.7 Bcf/day.AGPA is a tax-exempt, quasi-governmental entity and thereforecan provide cost-reducing benefits including tax-exempt bondsfor portions of the project. Reduction in project constructioncosts will reduce the cost of service and tariff rates the pipelineowner (AGPA) will charge gas producers to ship gas inthe pipeline.AGPA submitted a proposal in the AGIA process andwas 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 proposalfrom Prudhoe Bay to Valdez with a liquefaction facility nearbyin Anderson Bay.The AGPA proposal has the environmental benefit of sharingthe right-of-way with the TAPS oil pipeline, requiring no newaccess across environmentally-sensitive lands. The AGPAproposal also includes gas off-takes and propane generationoptions that would be available to rural and urban communitiesthrough 18 possible, in-state sites – going well beyond the fivesites required by AGIA.AGPA envisions its major clients will be LNG export to Hawaiiand the Asian market. A recent study (by WoodMackenzie7/28/2011) projected that a pipeline to Valdez and a liquefiednatural gas export project could generate revenues androyalties 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 highestmonthly average price per barrel in 2011 has been $115.34.Currently, AGPA’s main partners are the Fairbanks North StarBorough and the City of Valdez.ANCSA Alaska Native Claims Settlement Act 1971[ANC-sa] This federal legislation addressed the land claimsof Alaska’s indigenous people. In addition to a $962,500,000cash settlement, ANCSA included fee simple title to 44 million acres in Alaska. By clarifying land ownership, thepassage of ANCSA helped move forward the constructionof the oil pipeline from Prudhoe Bay to Valdez. Both surfaceand subsurface land title was granted to 12 Regional NativeCorporations and surface-only title to village corporationsand 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 INCIf the Alaska Pipeline Project goes to the Alberta border,rights-of-way will need to be negotiated with Native landownersin Alaska as well as with the Canadian First Nations, mostof whom have not yet resolved their land claims with theCanadian government. If the project goes to Valdez, theexisting TransAlaska Pipeline System (TAPS) right-of-way willbe used.ANS Alaska North Slope This acronym for the AlaskaNorth Slope is often used in connection with oil and gas thatis located at, or shipped from north of Alaska’s Brooks Rangeand north of 68˚ North Latitude. Nearly 1,900 oil and gasleases, both on- and offshore, are currently active on state andfederal land in the area. Peak employment in the oil and gasindustry at the Slope has been as high as 8,900 (February2007), 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 forthe area. Nine communities in the Borough have an estimatedyear-round population of 6,600. ENS or Eastern North Slope refers to territory to the east of Prudhoe Bay and directly westof 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 250Tcf in estimated reserves (U.S. Geological Survey). In additionto oil and gas, the western areas of the North Slope haveworld class deposits of high-quality, low-sulfur coal.ANWR Arctic National Wildlife Refuge [AN-war] The ArcticNational Wildlife Range was expanded by the Alaska NationalInterest Lands Conservation Act of 1980 (ANILCA) from 8.9million to 19 million acres and was reclassified from a Rangeto 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 refersto allowing oil and gas exploration to proceed in the 1002 Areaonly. The western border of ANWR lies less than 60 mileseast of Prudhoe Bay and Pump Station One of TAPS. Ω TheU.S. Geologic Survey estimates that at least 8 billion barrelsof recoverable oil (and possibly 16 billion barrels) is in the1002 area.There is extreme interest and controversy over thisdecision in Alaska and across the U.S. A large majority ofAlaskans support tapping the 1002 area as the gas couldgreatly 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 thewestern 1002 boundary. To the east of ANWR is the Canadianborder and the Mackenzie River Delta – another oil and gas-rich area at the head of the newly-approved Mackenzie RiverGasline to Alberta. With the latest technology, developmentin the 1002 Area would affect less than 2000 acres of surfacearea, less than the size of the Dulles International Airport nearWashington DC.Alaska Pipeline Project APP The result of the 2008Alaska Gasline Inducement Act (AGIA) license awarded toTransCanada. The two route options under study begin at PointThomson:1. The “Alaska-Canada Pipeline” combines four pipelinesegments: • “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. WhenExxonMobil announced joining TransCanada for the APP (6/11/2009), the estimated cost of the project was $26 billionUS. The cost estimate currently used by the media regardingthe 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 APProute that begins at the outlet point of a future Point Thompsonplant and extends through points near Prudhoe Bay, Fairbanks,and Delta Junction. Near Valdez, it would interconnect witha third-party LNG terminal. (858 miles, 48-inch diameter, 2,500 psi) 67

Article VIII Natural Resources In 1955, the TerritorialLegislature passed the Constitutional Convention Act. Thatled to a 75-day Convention in Fairbanks during the winter of1955-56 when 55 elected delegates wrote and refined theConstitution for the future 49th state. The only state constitutionto address natural resources, it mandates in Article VIIISection 2, “The legislature shall provide for the utilization,development, and conservation of all natural resourcesbelonging to the State, including land and waters, for themaximum benefit of its people.”ASAP Alaska Stand Alone Pipeline Project The proposedASAP Project is a $5.7 to $11.8 billion State-financed systemwith support facilities. As it is restricted by provisions in AGIA,it is limited to 0.5 billion cubic of feet of throughput per day or500 million standard cubic feet per day (MMscfd). The MainlinePipeline (737-mile, 24-inch-diameter, 2,500 psi) begins at Prudhoe Bay and follows the TransAlaska Pipeline Systemand Dalton Highway corridors. Near Livengood (northwest ofFairbanks), the route heads south, joining the Parks Highwaycorridor. ASAP terminates at the Beluga Pipeline near BigLake (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 andcustomers in Fairbanks.If the route crosses any part of Denali National Park, ASAPwill require unanimous consent by all affected federal agenciesaffirming that there is no alternative route that is economicallyfeasible. See Section 1104(g) of ANILCA, the Alaska National Interest Lands Conservation Act of 1980. If any one agencyrules that the pipeline would adversely affect “the purposes forwhich the Federal unit…was established,” the State can appealto the President. If he, or she, favors the appeal, Congressmust pass a joint resolution within 120 days that supports thePresident’s decision or the application will be denied.68

A Gas Conditioning Facility is proposed at a 70-acre site atPrudhoe 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 withgas-turbine-driven centrifugal systems and gas-turbine-drivenelectric 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.BBackbone Founded and co-chaired by the late GovernorWalter 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 useof state oil and gas resources for the maximum benefit ofcurrent and future generations of Alaskans.” It was active inthe prevention of the purchase of ARCO, Alaska by British Petroleum. The planned buyout would have resulted in onecorporation controlling more than 70 per cent of Prudhoe Bayand the TransAlaska Pipeline System (TAPS).Backbone members successfully convinced the U.S. FederalTrade Commission (FTC) to intervene. BP chose to divestitself 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 operatesin Alaska as ConocoPhillips Alaska, Inc. 69

Backbone later helped de-rail the 2006 Alaska StrandedGas Development Act contract negotiated by the MurkowskiAdministration and the North Slope producers. It supportedthe AGIA legislation (2007) with some modifications, but tookissue with the AGIA proposal review process and granting thelicense to TransCanada (2008). Hickel and Gottstein wrote acritical letter to Governor Palin pointing out that the two All-Alaska LNG proposals (Alaska Gasline Port Authority andLittle Susitna Construction Company, Inc.) were rejected withno opportunity to clarify or expand their proposals.Btu British Thermal Unit The price of energy in Asianmarkets recognizes the option of using either crude oilor gas products. Therefore, Btu measurements are oftenpriced as BOE or Barrels of Oil Equivalency. Natural gas energy values fluctuate depending on the chemicalcomposition 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 energyper day for residential, commercial, industrial, andtransportation applications.CCompeting Project While AGIA awarded inducements onlyto the holder of the AGIA license, other companies, or groupsof companies, were not prohibited from pursuing a “competingproject.” In order to be considered a valid competing project, agasline was required to accommodate throughput of more than500,000,000 cubic feet (0.5 Bcf) of gas per day from the NorthSlope to market.70

In 2008, ConocoPhillips and BP initiated Denali – The AlaskaGas Pipeline Project that also intended to ship ANS gas toAlberta. These corporations were not interested in either thebenefits or requirements of the AGIA legislation. On 5/17/2011, however, the corporations discontinued the project explainingthat the price of gas entering the Mid-American (Canada andthe U.S.) market had “changed significantly – primarily as aresult of the development of shale gas resources.” NOTE: The ASAP pipeline system is designed to have less than 0.5 billion cubic feet perday throughput and therefore, is not a competing project under AGIA. Likethe AGIA licensee, it is intended to receive State financing.Cost Over-runs Unanticipated costs that occur duringpermitting and construction. Over-runs can have a majorimpact on gas transmission costs and revenues. In other U.S.pipelines, these unanticipated costs are incorporated into thetariff structure and eventually are recovered by the operator ofthe pipeline. AGIA required applicants to explain in advancehow 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 pipelinefollows the TAPS right-of-way to Valdez, it is expected to avoidsuch dramatic miscalculations due to existing data on theTAPS route. In addition, most of the gas pipeline will be buried.EExport License Alaska has been exporting LNG from CookInlet to Japan since 1969. Since then, 32 shipments a yearhave moved approximately 64 billion cubic feet of gas to Tokyo from the ConocoPhillips-Marathon plant at Nikiski (onthe west side of the Kenai Peninsula). This entire operationhas been conducted without interruption, accident orenvironmental problem. 71

The export license for the Nikiski LNG plant was renewed in2011 and is valid through 3/2013. However, Tokyo Gas chosenot to renew the contract because of a new cancellation clausewhich allowed non-shipment in the event of an Alaska gasshortage. Due to the tsunami that hit Japan 3/11/2011, severalnuclear power plants were shut down and LNG shipments fromNikiski continued for several additional months.Alaska has another valid export license. Yukon PacificCorporation (YPC) acquired a Presidential Finding ApprovingExport of Alaska Natural Gas 1/12/1988. Nearly two years later, YPC was granted authorization from the U.S. Departmentof 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 upto 350 million metric tons at an average annual volume of 14 million metric tons for a period of 25 years beginning on thefirst date of delivery. This export license was acquired by theAlaska 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 thanmoved immediately to U.S. pipelines. The Canadian exportlicense 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

FFERC The Federal Energy Regulatory Commissionwas established by the Natural Gas Act of 1938 as the leadagency 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 gaspipeline. Regarding a cross-Canada pipeline to the Midweststates, FERC will be the agency to issue the Certificate ofPublic Convenience and Necessity and approve interstate tariffrates. 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’swestern border under AGIA, 803 miles will be managed byFERC. Canada’s National Energy Board (NEB) will permit, approve and manage 965 miles of the pipeline in the YukonTerritory and British Columbia extending to the western borderof Alberta.Ω If the AGIA process results in an 800-mile All-Alaskaintrastate route, the Regulatory Commission of Alaska (RCA)will issue the Certificate of Public Convenience and Necessityand establish tariff rates. FERC will remain involved to permit and regulate the gas liquefaction plant.Fracking In 2003, a new technology was developed in theBarnett Shale play (in northern Texas) for deep, horizontaldrilling for oil and gas. This has changed the economics oftapping geologic formations where hydrocarbons are widelydispersed and not in conventional anticline pools or traps.There are 22 large-scale shale gas formations (plays) beingexplored and developed in 20 states – also in Alberta, BritishColumbia and Saskatchewan. 73

In 2008, these technological developments impacted theU.S. gas reserves calculation, exceeding estimated domesticmarket demand for over 100 years. This information was notcommon knowledge during the Alaska legislative debate overthe AGIA license.Hydraulic fracturing operations have to address environmentalproblems and concerns including contamination ofgroundwater, 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. Vegetablegels have recently been developed to reduce chemicalsand improvements have been made to petroleum frackingtechniques. Most current fracking systems are 5,000 to 10,000feet below the surface and do not impact water aquifers.As a result, a major shift in U.S. natural gas prices hasoccurred and prior LNG import facilities have recently beenre-engineered to allow liquefaction of gas for LNG export toglobal markets.In Alaska, fracking technology is being used by a new ANSlease holder/exploration company. Great Bear PetroleumLLC is exploring for oil and gas in shale plays south ofPrudhoe Bay.Free Market Some oil and gas industry observers believethe Alaska gasline route decision, target markets, and timingshould be made strictly by the “free market” i.e. oil andgas corporations that hold Alaska leases, their customers,and stockholders.However, a growing number of Alaskans who understand thatthe Alaska people own the oil and gas resources on stateland think otherwise. Other governments worldwide that own 74

oil and gas reserves, including Norway, provide infrastructureincluding pipelines, establish timing frameworks, and definecorporate return rates.GGas Hydrates Methane hydrate is a solid substance thatforms by combining gas and water within the pore spaceof sediments at specific pressure and temperatures. Theseconditions occur within and beneath permafrost in onshoreareas 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 February2007, BP and a number of researchers drilled a test wellbeneath the permafrost 1800 to 2500 feet below the surface.In this form, gas hydrates are compressed to contain 160-180times the energy value of normal natural gas. Findings havenot yet been published, but hydrates may be a significantfuture energy source.HHenry Hub The pricing point for U.S. natural gas futurescontracts 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 arequoted as dollars per million British Thermal Units (MMBtu).Although Mcf or thousand cubic feet is a more common unitof measurement for natural gas, it does not account for theenergy variation of different types of natural gas. (1 Mcf isapproximately equal to 1MMBtu.) Henry Hub prices are alsoused to quote short term, “spot market” prices. NOTE: In July 2007, the price for natural gas was $13.69/Mcf. The Henry Hub averageprice 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

KKitimat In 2007, Kitimat, British Columbia was envisioned asa site to import LNG from Australia for the Canada and U.S.markets. However, due to the major shale gas plays discoveredin 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 theAsia markets than Valdez.LLNG Liquefied Natural Gas Natural gas can be transportedlong distances when compressed to 1/600th of the space ofnatural gas under normal temperature and pressure conditionsand chilled to minus 256˚ Fahrenheit. In this liquid form, it iscarried to global markets in specialized marine tankers. At itsdestination, LNG is loaded into storage tanks, re-gasified, andtransported through gas pipeline distribution systems to powerplants, industrial consumers, and other customers.LNG is an excellent “bridge fuel” as the world urgentlysearches for clean energy solutions. It is 99 percent pollutionfree and is being sought by China and other Asian industrialnations inundated by carbon release from coal-fired heavyindustry and millions of new automobiles.LNG has been exported from Cook Inlet since 1969. Every year, 32 shipments have left Nikiski and supplied powergenerators for Tokyo Gas. The recent contract was notrenewed (5/2011) since shipments could be interrupted ifan Alaska gas shortage occurred. However, shipments havecontinued since the 3/11/2011 tsunami impacted Japannuclear power generation and increased LNG demand.76

Alaska LNG potential markets include Hawaii, Japan, Korea,Taiwan, and China. From 2005 to 2010, global LNG supplieshave grown 58%. There is still no global price system forLNG, similar to Henry Hub or AECO. Asian contracts are generally for 20 to 30 years and are summarized by the “JapanCustoms-Cleared Crude” or “Asian Cocktail” price index.MMackenzie River Gas Pipeline In 1971, gas was discoveredjust east of the Alaska-Canada border in the MackenzieRiver 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” andestablish rights-of-way for oil and gas pipelines through theNorthwest Territories and the Yukon Territory. TransCanada isinvolved in the Mackenzie River Gas Pipeline with Imperial Oil Ltd which is 70% owned by ExxonMobilNNatural Gas The principal components of natural gas are:methane (CH4) generally 75% or more, ethane (C2H6),propane (C3H8), and butane (C4H10). Geologic formationsdiffer in the proportion of these various elements.Before gas is “pipeline quality” and can enter a pipelinesystem, it must be processed to remove carbon dioxide (CO2),hydrogen sulfide (H2SO4), water (H2O), nitrous oxide (N2O) and other minor components. According to the TransCanadaAGIA proposal, gas will be shipped at 28 degrees Fahrenheitand compressed to 2,500 pounds per square inch (psi). 77

Natural gas has many uses in Alaska including powergeneration to operate the North Slope oil fields and it isre-injected to help pressurize the oil-producing geologicformations.Cook Inlet gas generates electricity in Anchorage and heatsmost homes and businesses. CNG or condensed natural gasis trucked to Fairbanks for similar uses. For over 40 years Cook Inlet gas was exported as LNG to Japan and until recently wasused 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 equivalentto 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 “singlewindow” coordination of Canada, U.S., Provincial, andterritorial government actions.PPermafrost In “cold permafrost” soil temperatures remainbelow 30˚Fahrenheit and may be as low as 10˚. In otherparts of the state, “warm permafrost” remains just below 32˚.Because the TAPS carries hot crude oil, two-thirds of the TAPSwas elevated and placed on specialized vertical supports.This prevented the melting of the permafrost and maintainedground stability and the integrity of the pipeline. The gasline,however, will be a cold, buried line and will benefit from thecool soil temperatures.Point Thomson Alaska’s third largest oil field after PrudhoeBay and Kuparuk, and the largest undeveloped gas field inNorth America. 81

In 10/2006, the State of Alaska pulled the unit agreement(operations contract) for Point Thomson due to failure bythe leaseholders under the unit leadership of ExxonMobil to implement over 20 annual development plans. ExxonMobil subsequently launched legal challenges to that decisionand has drilled two on-site exploration wells, the first in 20years. On 10/27/2011, Governor Parnell announced that there had been an undisclosed resolution of the issue withExxonMobil, and he is waiting for the other leaseholders (BP and ConocoPhillips) to agree.The control and availability of Point Thomson gas has majorimplications for an Alaska gasline. Point Thomson gas plusstate royalty gas from Prudhoe Bay could supply a 2 billioncubic foot per day gasline system. As this formation is higherpressure (10,000 psi) than the Prudhoe fields (5,000 psi) to thewest, 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 lessthan 50%) in the TransCanada Alaska Pipeline Project underAGIA. On 8/1/2011, FERC received an Intent to Preparean Environmental Impact Statement for the Alaska PipelineProject that included a 58-mile, 32-inch diameter pipeline toconnect Point Thomson to the Gas Treatment Plant (GTP) atPrudhoe Bay.Propane is a major opportunity for Alaska as it is acompressible and transportable fuel and can becomeavailable to rural communities on the road system and bargedto maritime destinations throughout the state. The AlaskaNatural Gas Development Authority (ANGDA) proposes thatrural propane distribution occur by using the Yukon Riversystem to connect ANS gas (via the North Slope Haul Roadwhich is parallel to TAPS) to Alaska maritime communities82

from Kaktovik to Ketchikan and throughout the navigableriver systems.Once the pipeline is operating, straddle plants can extract propane from the gas stream. ANGDA is also promoting theuse of the M/V Susitna, an ice resistant ferry to transportpropane in Northwest Alaska and along the Yukon River. Aspropane is shipped in a variety of tank sizes, it can also supplyremote communities only accessible by air. Propane energycontent 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 itranks as one of the top 20 largest oil fields ever discoveredin the world. After 30 years of production, Greater PrudhoeBay (with 18 satellite fields) is still the largest field inNorth America. 83

In January 1964, only a few months before the devastating Good Friday earthquake of March 27th, Alaska Governor BillEgan decided to file for State ownership of over one and a half million acres (1,595,170) of federal land on the Arctic coastlying 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 NationalWildlife Refuge).The State held its first North Slope lease sale in 7/1965. The1966 drilling projects were unsuccessful, and the world crudeoil price was $3 per barrel. The exploration companies hadfound only dry holes on their leased areas on the North Slopeand 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 makingprogress drilling on their lease at Prudhoe Bay. It was thelast hope for the North Slope leaseholders. At approximately10,000 feet it struck the Prudhoe Bay reservoir. By May,a second well confirmed that it was the largest field everdiscovered in North America.This news had a huge impact. The State’s next North Slopelease sale (9/10/1969) generated over $900 million. Inspired bythe Susie Rig discovery, many other national companies joinedthe pursuit of Alaska North Slope crude. By this time, GovernorHickel had become Secretary of the Interior in PresidentNixon’s cabinet and Lt. Governor Keith Miller was servingas Governor.Getting the oil to market was a challenge. Prudhoe is lessthan five miles from the Arctic coast but 800 miles fromthe year-round, ice-free port of Valdez. On 12/18/1971, the Alaska Native Claims Settlement Act (ANCSA) was signedby President Nixon. This resolved fundamental questions84

regarding land ownership and enabled the establishmentof 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 perbarrel, and, by 1979, it reached $30 a barrel as a result ofSaudi Arabia deliberately limiting its oil production. This wasgood 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 droppedbelow $3.50 per barrel.Since then, prices have rebounded and currently areskyrocketing. The highest-ever monthly average price of$133.78 per barrel was 7/2008. In 2011, the highest monthlyaverage 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 NorthSlope. All but one Bcf is re-injected to help maintain thepressure in the oil strata to maximize oil extraction. A 150-mile,10-inch diameter gas pipeline provides fuel for operations atPrudhoe 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.SShale Gas In 2008, “unconventional gas” from numerousgeologic 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 willsatisfy projected demand for more than 100 years.In only three years, between 2007 and 2010, U.S. shale gasincreased from 5% to over 20% in its share of domestic gasconsumption. By 3/08, there had been a 50% increase in gasreserves due to 22 shale gas formations in 20 states. In the90 days between 7/08 and 10/08, the price of gas at HenryHub dropped 44%. As a result, demand for Alaska gas in the Mid-America market has been radically changed, even withthe higher “lifting” or production costs required by shale gascompared to conventional gas.TTAPS TransAlaska Pipeline System Crude oil transitfrom Prudhoe Bay’s Pump Station One to Valdez (named VMT or Valdez Marine Terminal), takes approximately 15days. Maximum pressure of the system in 2011 is 1180 psiand varies depending on the exact location and slope ofthe pipeline.86

Since operations began in 1977, the record TAPS throughputwas 2.136 million barrels per day (BPD) in 1988. However, theaverage price in 1989 was $17.13 per barrel. In contrast, theaverage throughput of TAPS during the first quarter of 2011was 594,147 BPD. The highest monthly average price was in June 2008 for $133.78 per barrel. The highest 2011 monthlyaverage price was $115.34 in June.If the TAPS throughput drops below 550,000 BPD, therewill be additional challenges due to lower temperatures inthe crude oil and risks due to freezing. Many Alaskans areconcerned that declining pipeline throughput may make TAPSuneconomic. If TAPS discontinued operations, the State wouldbe at risk of losing up to 90% of its general fund revenue.TAPS is owned and operated by a consortium of oil producersunder 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 wasrenewed with the State of Alaska and Alaska Native regionaland village corporation land owners for 30 more years.Tariff The fee that a pipeline owner charges to transport gasor oil through a pipeline. Gas tariffs are generally measuredas dollars per million Btu to account for the variety of energyvalues 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 GovernorsBill Egan and Wally Hickel, Robert O. Anderson of ARCO, and two other investors formed Yukon Pacific Corporation. Theprior year, Governor Jay Hammond had recruited the formergovernors to co-chair the Governor’s Economic Committee on North Slope Gas. The Committee studied the barriers tobuilding an All-Alaska gasline from Prudhoe Bay to Valdez.YPC worked to advance the Committee’s conclusion thatAlaska should expand LNG export to the Asian market.88

KEY WEBSITES for CRACKING THE CODE 2012Alaska Gasline Development Corporation AGDCwww.gasline.us.comAlaska Gas Pipeline Project Office GPPOhttp://gasline.alaska.govAlaska Gasline Port Authority AGPAwww.allalaskagasline.comAlaska Natural Gas Development Authority ANGDAhttp://www.angda.state.ak.usAlaska Oil & Gas Conservation Commission AOGCChttp://doa.alaska.gov/ogc/The Alaska Stand Alone Gas Pipeline Project ASAPwww.gasline.us.comEIA – Energy Information Administrationhttp://www.eia.govFederal Coordinator – Alaska Natural Gas TransportationProjectshttp://www.arcticgas.govState Pipeline Coordinator’s Officehttp://www.dnr.alaska.gov/commis/pcoFERC – Federal Energy Regulatory Commissionhttp://www.ferc.govNational Energy Board of Canadahttp://www.neb-one.gc.caNYMEX Henry-Hub NATURAL GAS PRICEhttp://www.oilenergy.com/1gnymex.htm#dailyPPT – Petroleum Profits Tax 2006http://www.gov.state.ak.us/oiltax/ppt_report.phpRCA Regulatory Commission of Alaskahttp://www.rca.state.ak.us 89

NOTES90

NOTES 91

Bold “Owner State” ideas from Alaska’s Make it Happen LeadersGovernor Governor SenatorBill Egan argued Wally Hickel Ted Stevensfor state ownership argued for state changed his view fromof 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 tocontrol and and own a 48-inch accelerate the pipelineresponsibility for diameter natural gas through Canada. I’vemoving that ﬁrst huge pipeline from Prudhoe now changed myvolume of crude oil Bay to Valdez and ship position. I believefrom Prudhoe Bay.” our trillions of cubic emergency power feet of gas as LNG to should be given to aAnchorage Daily News world markets where special coordinator toNovember 11, 1971 they will earn a fortune devise ways to get theQuoted in Crude Dreams for Alaskans. If I were main pipeline from theby 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, 201092

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 opinionsin 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 HickelAl and Ann Parrish Wally and Ermalee Hickel Wally and Ermalee HickelW ALKER & L EVESQUE , LLCAl and Ann Parrish AW Al and Ann Parrish ATTORNEYS AT LW ALKER & L EVESQUE , LLC LLC W ALKER & L EVESQUE , ATTORNEYS AT LAW ATTORNEYS AT LAW

Crackingthe code

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Crackingthe code — Document Transcript