crackingthe code

CRACKING THE CODE2012

A Citizen’s Guide to theAlaska Natural Gas Pipeline Discussion

Many Alaskans regard the gasline as one of the most important projects of our generation. We are faced with urgent technical and fiscal issues. Our understanding of the discussion and active participation will make the difference for us and our families who want to continue to call Alaska home.

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

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

Cindy RobertsAuthor/Editor

With thanks to the many individuals who reviewed the nearly-endless drafts of this document. If you have additional terms or want to further clarify those terms already included, please contact me at [email protected]. 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.



Compiled by

Cindy Roberts

SEARCHERSPRESS

Anchorage

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Published by Searchers Press2001 Churchill Drive, Anchorage, Alaska 99517 USA

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

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

Printed by Color Art Printing, Anchorage, Alaska

Cataloging-in-Publication DataRoberts, Cindy

CRACKING THE CODE 2012:A Citizen’s Guide to theAlaska Natural Gas Pipeline Discussion

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

Keywords1. Glossary of Natural Gas terms2. Alaska Natural Gas Pipeline3. All-Alaska Natural Gas Pipeline4. Alaska Gas Pipeline Route Options5. Liquefied Natural Gas (LNG)6. Alberta, Canada Gas Market7. Fracking or Hydraulic Fracturing

Cover 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 [email protected] c/o Searchers Press to arrange additional website listings.

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HOW DID WE GET HERE?

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

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

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

Since then, there have been four major developments:• Newtechnologytodevelop“shalegas”intheLower48has

identified vast, new reserves estimated to be in excess of 100 years of future U.S. demand without Alaska’s gas.

• ExxonMobilboughtanundisclosedminorityinterestintheAlaska Pipeline Project in June 2009 under the name of ExxonMobilAlaskaMidstreamGasInvestments,LLCandis “jointly advancing” APP with TransCanada.

• Withitscontroversial“CitizensUnited”decisioninJanuary2011, 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.

• On10/27/2011,GovernorSeanParnellstatedthattheAlaska 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.

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Contributing to the Governor’s decision may have been the factthatTransCanadaheldAlaskaandCanadaOpenSeasonswith route options to either the western border of Alberta, Canada or to tidewater at the terminus of the TransAlaska Pipeline System in Valdez. As of this publication’s press deadline,theresultsofthatOpenSeasonhavenotbeenannounced.

In 2008, ConocoPhilips and BP started a second pipeline proposal, outside of AGIA called Denali – The Alaska Gas Pipeline Project. It focused strictly on shipping gas from Prudhoe Bay to Alberta, Canada. However, since the Denali concept began, shale gas technology advanced to create a huge supply of domestic U. S. gas and the market prices in bothCanadaandtheLower48declinedsignificantly.InMay2011 ConocoPhillips and BP determined that Denali was “uneconomic” and the project was terminated.

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

It is the responsibility of all Alaskansto 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.

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WHERE TO BEGIN…Learning about Alaska Natural Gas

Where does it come from? Oil,naturalgasandcoalcomefrom similar sedimentary geologic formations.

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

The alphabet soup of gas includes…LNG Liquefied Natural Gas has been an Alaska export from

Nikiski to Japan since 1969. That contract has not been renewed, due to diminished gas supplies from Cook Inlet. Asian markets are strong and expanding and LNG export remains an option for North Slope gas.

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

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NGLs Natural Gas Liquids are high-value hydrocarbons and thefeedstockofthepetrochemicalindustry.Oneofthoseliquids, 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 asPropane C3H8 2,500 Btu/cf feedstock for petro-Butane C4H10 3,260 Btu/cf chemical manufacturing

and fuels.

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

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

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

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

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

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

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

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What is the status of the AGIA project? TransCanada Alaska LLC and Foothills Pipe Lines Ltd have a State license under AGIA to do preliminary research on two pipeline options. ExxonMobilhasasignificant“minority”interestintheeffort.These corporations have not yet announced the results of the2010OpenSeasonwhentheyinvitedgasproducerstoestablish contracts to transport their gas via a pipeline to either Alberta or Valdez.

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

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

CRACKING THE CODE 2012

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

ALPHA

AACES Alaska’s Clear and Equitable Share 2007 The intent ofAlaskaStatute43.55istocaptureforAlaska’sgovernmentand people (the owners of Prudhoe Bay and its resources) a greater share of Alaska North Slope oil and gas profits while encouraging new industrial investment and increased production. (See: ACES, PPT, Tax: Production)

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

AGIA Alaska Gasline Inducement Act 2007 [a-GEE-a] AlaskaStatute43.90createdacompetitiveprocess for a company to obtain a license to pursue permits, customers, finances, and authority to allow construction of a gas pipeline to transport Alaska North Slope natural gas to market. (See: AGIA,Bcf,Incentives,OpenSeason)

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

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

Alaska Mainline Thein-state745milesoftheproposedAlaska Pipeline Project. Under the AGIA license, TransCanada makesregularreportstotheFederalEnergyRegulationCommission(FERC).Their8/1/2011reportextendedthe Project’s Alaska Mainline with the 58-mile, 32-inch Point Thomson Pipeline to connect Point Thomson and the planned Gas Treatment Plant (GTP) at Prudhoe Bay. (See: APP, AGIA, FERC)

ANCSA Alaska Native Claims Settlement Act 1971 [ANC-sa] Federal legislation that addressed the land claims of Alaska’s indigenous people. The settlement included $962,500,000plusfeesimpletitleto44millionacreswithin Alaska to be owned and managed by 12 Regional Native Corporations and numerous village corporations. When the gasline is constructed, all proposed routes will cross Native lands and terms will be negotiated. (See: ANCSA, Right-of-Way,Off-takes)

ANGDA Alaska Natural Gas Development Authority 2002 [ANG-da] A public corporation (much like the Permanent Fund or Alaska Railroad) created by a 62% favorable, statewide vote (138,353).Generatedbythe“Prop2”GeneralElectionBallotInitiative of 2002, AlaskaStatute41.41 (2003) established the Authority to facilitate the planning, design and construction of a natural gas pipeline from Prudhoe Bay to Cook Inlet or to Prince William Sound with a spur line to the Southcentral gas distribution system.


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

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

UnderANGPA,theU.S.FederalEnergyRegulatoryCommission(FERC)istheleadenvironmentalandregulatoryagency for an Alaska gas pipeline project. It has the authority to mandate that the pipeline be expanded to accommodate the transmission of additional gas discovered after the project is first designed and constructed. (See: FERC)

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


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

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

Umiat

Barrow

NuiqsutPrudhoe

Bay KaktovikPt ThomsonWainwright

Point Hope

Trans Alaska Pipeline System (TAPS)

National PetroleumReserve - Alaska

(NPR-A)Arctic NationalWildlife Refuge

(ANWR)

1002 Area

State & Native Corporation

Lands

Beaufort SeaChukchi Sea

Alaska North Slope (ANS)

CAN

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A

0 60 120 180 24030Miles


ANWR Arctic National Wildlife Refuge [AN-war] The federal ANILCA legislation of 1980 enlarged the Arctic National Wildlife Range from 8.9 million to 19 million acres andreclassifiedtheareaasa“Refuge.”EightmillionacresofANWR were designated as Wilderness where no development can occur. However, 1.5 million acres along the Arctic Coastal Plaininthe1002(“ten-O-two”)Areawasspecificallyidentifiedas containing high oil and gas potential and designated for oil and gas evaluation. Its western border is adjacent to the Point Thomson field and less than 60 miles from the Prudhoe Bay facilities. (See: ANWR, ANILCA, ANS, Point Thomson)

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

AOGCC Alaska Oil and Gas Conservation Commission Provides oversight and surveillance to prevent waste of oil and gas resources to protect the rights of the resource owner (State of Alaska) and maximize recovery of oil and gas for the benefitofAlaska’scitizens.TheAOGCChasdeterminedthatthe current allowable gas off-take for the Prudhoe Bay Unit (PBU) is 2.7 billion cubic feet per day (Bcf/d). This is a major issue because TransCanada’s Alaska Pipeline Proposal is engineeredtoship4.5to5.9(Bcf/d)toAlberta. Ω

APP Alaska Pipeline Project The name chosen by TransCanada for the State-licensed gas pipeline study under the 2008 Alaska Gasline Inducement Act (AGIA). TransCanada Alaska Company, LLC in cooperation with Foothills Pipelines, Ltd.holdthelicenseandhaveaminoritypartner,ExxonMobilAlaska Midstream Gas Investments, LLC.


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

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

ASAP Alaska Stand Alone Pipeline Project 2010 (also the Bullet Line) The Legislature created the Alaska Gasline Development Corporation (AGDC) a subsidiary of the Alaska Housing Finance Corporation (AHFC) with Alaska Statute 1856.086.On7/1/2011,AGDCannouncedthedetailsoftheAlaska Stand Alone Pipeline Project (ASAP) proposal, a 737-mile,24-inchdiameterpipeline.ItsgoalistoconnectPrudhoeBay natural gas to over half the state population in Fairbanks, Anchorage, MatSu, and the Kenai Peninsula. The target volume is less than 0.5 billion cubic feet per day (limited by the terms of AGIA). It proposes to connect with existing gas delivery systems from its southern terminal near Big Lake. A gas liquids extraction plant is planned near Point Mackenzie on the west side of Cook Inlet. ASAP’s target operational date is 2018 and the estimated cost is $7.2 billion. (See: ASAP)

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


LNG pricing in the Asian markets is based on the energy equivalencyofcrudeoil(BOE)andisgenerallypurchasedwith20 or 30-year contracts. Historically, the price has been two to three times higher than North American prices established atHenryHubandAECOwhichreflectshort-termsupplyanddemand. The Japanese tsunami (3/11/2011) and the closure of damaged nuclear plants have brought short-term, spot market LNG sales into this pricing system. (See:AECO,BOE,Henry Hub, LNG)

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

Barrel BBL Abarrelofoilcontains42U.S.gallonsandistheU.S. standard unit of measurement of petroleum products. The term originally referred to the barrels used to transport oil on the decks of ships. The measurement of the number of barrels ofoilproducedin24hoursisbarrelsperdayorBLD.(See:BOE)

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


Bcf billion cubic feet There are two systems for quantifying natural gas:

1) a cubic foot (cf) of volume under standard atmospheric pressure. Mcf indicates volume per 1,000 cubic feet. Bcf indicates volume per billion cubic feet. The Alaska PipelineProjecttargetsgasthroughputof4.5billioncubicfeetper day (Bcf/d).8.4BcfofgascurrentlycomestothesurfacewithPrudhoeBaycrudeoilevery24hours.1Bcf/disusedtopower operations at Prudhoe Bay and other North Slope fields. 7.4Bcf/disre-injectedintotheoil-bearinggeologicformationsto help maintain subsurface pressure and extract crude oil. 1 Bcf/d equals 7.82 million metric tons per annum (MMTA) – the measurement for LNG shipment contracts.

2) British thermal unit (Btu) is the other measurement used. 1 million Btu (MMBtu) of energy is generally contained in 1 Mcf of gas, depending on the gas liquids content. (See: Btu)

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

Big 3 The major leaseholder/producers in the North Slope oilfieldsare:ConocoPhillipsAlaskaInc,BPExploration(Alaska), Inc. (owned by BP p.l.c.),andExxonMobil.Thesethreecorporations also have controlling interest in the Alyeska Pipeline Service Company which owns and manages the TransAlaska Pipeline System (TAPS) oil pipeline. (See: TAPS, Producers)


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

BOE Barrels of Oil Equivalent The Asian market establishes gaspricesbasedonBOEthatequatesabarrelofoilto600million British thermal units (MMBtu) of energy. The energy in natural gas varies depending on the content of liquids such as ethane, propane and butane. (See: Natural Gas,MMBtu,OilParity)

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

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


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

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

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

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


purchase vouchers to guarantee reservation of capacity. As of 12/1/2011,theresultsoftheFirstBindingOpenSeasonhavenot been made public. (See: Open Season, FT, Vouchers)

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

Certainty or Fiscal Certainty If and when oil and gas producers and the State of Alaska (the resource owner) agree to a locked-in tax rate over a specific time period, it will be knownasFiscalCertainty.OneelementofFiscalCertaintyis in place, but can be changed; under AGIA, gas producers that committed to buy transportation capacity (and thereby, committedtheirgastothepipeline)duringthe2010OpenSeason will benefit from stable production tax rates for that amount of gas for the first ten years of the pipeline’s operation. (See: SGDA, Inducements)

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


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

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

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

Compact or Statehood Compact The Alaska Statehood Act of 1958 was an agreement between the people of Alaska and the U.S. government that established the terms under which Alaskabecamethe49th state. These terms cannot be changed or altered without the consent of both parties. Under the Compact, 90% of resource revenues generated on federal land belongtotheState.Otherkeyprovisionsincludesurfaceandsubsurface title to 103 million acres; ownership of all navigable waters and submerged lands; and state management of fish and wildlife resources. (See: Article VIII)

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


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

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

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

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


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

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


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

Knik

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Tyonek

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Coordinators (alsoPipelineCoordinators) In2004,Congressenacted the Alaska Natural Gas Pipeline Act (ANGPA) which established the Office of the Federal Coordinator – Alaska Natural Gas Transportation Projects to expedite federal agency permitting and regulatory work on a gasline. In 2007, AGIA established a state coordinator position. The assignment of that office is to streamline the process for the licensee to acquire the Certificate of Public Convenience and Necessity and expedite other permits required to construct a gasline. (See: ANGPA, Inducements)

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

Cost of Service COS The tariff to move gas through the pipelinesystem.TheFederalEnergyRegulatoryCommission(FERC)limitstheallowableprofitforpipelinecorporationsto12%. A publicly-owned utility, such as the Alaska Gasline Port Authority(AGPA),maychooseasignificantlylowerCOSastheir financial risk can be reduced through the issuance of tax-free bonds. (See: AGPA,FERC,Tariff)

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

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


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

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

Denali – The Alaska Pipeline Project Led by ConocoPhillips and BP, Denali was designated as a Competing Project with TransCanada’s Alaska Pipeline Project (APP). Denali’s original goal was to export Alaska North Slope gas to Alberta and presumably on to the Mid-America market. It began in 2008. However, the corporations announced that they were disbanding it on 5/17/2011 as a result of the depressed gas pricesintheLower48duetoshalegastechnologyandincreased gas supplies.

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

Dry Gas 1) Less than 15% of the gas content is liquids. Cook Inlet gas is very dry as it is nearly 100% methane. 2) Liquids andnon-hydrocarbongases(likeCO2) have been processed and removed. (See: Wet Gas)


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

EEIA Energy Information Administration A division of the U.S.DepartmentofEnergythatestimatesfuturedomesticenergysupplyanddemandandpublishesanAnnualEnergyOutlook.EIAreportedthatU.S.naturalgasproductionin2011 will average 65.39 Bcf/d – up nearly 6% from the 2010 average. (published 7/15/2011) (See: Shale Gas)

Ethane C2H6 A valuable component of the known gas reservesattheNorthSlope.Ethaneisthedominantliquidfeedstock from which many petrochemicals including plastics are manufactured. North Slope gas reserves contain higher-than-average amounts of ethane relative to other natural gas liquids.Ethaneenergyvalueis1,773Btu/cf,70%higherthanmethane (1,012 Btu/cf). While the major producers at the North Slope seem to favor exporting ANS ethane to existing petrochemical plants in Alberta, Canada and elsewhere Ω, many Alaskans want the State to retain control of this resource for value-added processing in Alaska. (See: Natural Gas, Btu, Butane, Methane, NGLs, Propane, Wet Gas)

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


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

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

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

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

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

FERC The Federal Energy Regulatory Commission is the lead agency to permit and regulate interstate natural gas pipelines.FERCwillbetheagencytoissuetheCertificate of Public Convenience and Necessity, approve interstate tariff rates, and regulate and permit a gas liquefaction plant. If the gaslinegoestoAlberta,theNationalEnergyBoardofCanada(NEB)willhavesimilarresponsibilitiesformorethan50%ofthe line. If the gas pipeline remains entirely within Alaska, the Certificate will be issued by the Regulatory Commission of Alaska. (See: FERC, AGIA, Certificate of Public Convenience and Necessity, ANGPA,NEB,RCA,Tariffs)


Fiscal Certainty (See: Certainty, Inducements)

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

Free Market The2010OpenSeasonsinAlaska,YukonTerritory and British Columbia for the AGIA Alaska Pipeline Project were an attempt to use the free market approach to give the gas producers and potential shippers the opportunity to purchase capacity in a gasline to reach markets either in Alberta or globally via LNG shipment from Valdez. Under AGIA, the private sector controls the route decision and timing.

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

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


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

Gasline An Alaska natural gas pipeline bringing North Slope resources to market. A gas pipeline will differ from the TransAlaska Pipeline System (TAPS) in several ways:

• TAPScarrieshotcrudeoil(beginningat112˚ Fahrenheit and ending in Valdez at approximately 58˚).Overhalfofitsrouteiselevatedon“stanchions”to avoid destabilizing the permafrost soil conditions. In contrast, natural gas is cold and the gasline will be buried.

• TAPStransportscrudethroughpumpstations.Thegasline 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.

• TAPScanmovebutaneandethaneasgasliquids,butnot methane or propane.

• AGIAspecifiesthatthegasline(APP)willbeacommoncarrier with open access to serve all gas producers.

• AGIAalsorequiresthat“newgas”beaccommodated,if needed, through additional compression or “looping” every two years after gasline start-up.


Current production of North Slope crude oil brings to the surface8.4billioncubicfeetofgasdaily.(Bcf/d)Approximately1 Bcf/d is used to fuel operations at Prudhoe Bay and other ANS fields. A 150-mile, 10-inch gas pipeline distributes fuel for this use. The remainder is re-injected into the oil-producing rock strata to help pressurize the oil extraction process. The re-injected gas is also considered stored for future development. (See: ANS, Common Carrier, Routes, psi, TAPS)

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

Greenhouse Gas GHG Heavy concentrations of a range of compounds including water vapor, carbon dioxide, methane, nitrous oxide, and ozone in the earth’s lower atmosphere cantrapsolarradiationneartheearth’ssurface.Oneresultis warmer air temperatures. The processing of oil sands has contributed significantly to GHG levels in western Canada and has become controversial.

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

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


Henry Hub LocatedinErath,Louisiana,HenryHubisthepricing point for U.S. natural gas futures traded on the New YorkMercantileExchange.Pricesarequotedasdollarspermillion British thermal units (MMBtu) or per thousand cubic feet (Mcf).LocatedinAlberta,AECOisasimilarpricingpointfornatural gas in Canada. (See: Henry Hub,AECO,BOE,Btu,Mcf,WTI)

Hydrates (See: Gas Hydrates)

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

IInducements Under AGIA, the State offered major inducements to the licensee, TransCanada Alaska Company LLC and Foothills Pipe Lines Ltd:

• Upto$500millionspentbythelicenseeonqualifiedexpenditures to obtain the Certificate of Public Convenience and NecessityfromFERCorRCAwillberefunded 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.

• TheState’sproductiontaxwillbeheldconstantforthefirst ten years of gasline operation. This provision is limited to the amount of gas that was committed to the gaslinebytheproducersduringthe2010(first)OpenSeason. This assists the licensee to sell capacity in the gasline as this cost of business will be stable for shippers.


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

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

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

In-take Liquefied natural gas (LNG) requires regasification after it has been shipped and before it can enter gas pipeline transmissionsystems.SempraEnergyoperatestheonlyWestCoast LNG in-take facility (in Costa Azul, Baja California, Mexico) and moves gas to San Diego and throughout much of the U.S. There are currently four LNG intake or receiving terminalsontheU.S.EastCoastandseveraloffshoreLNGterminals in the Gulf Coast. In-take facilities in Texas and Louisiana have recently converted their design and are becoming licensed to export LNG due to the over-supply of gasfromLower48shaleplays.


Interstate Refers to a pipeline that crosses into one or more additional states. Regulations and tariff approval for interstate pipelinesarehandledbytheFederalEnergyRegulationCommission(FERC)whichalsoissuestheCertificate of Public Convenience and Necessity to authorize interstate construction.

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

JJones Act OfficiallytheMerchantMarineActof1920,theJones Act mandates that all goods shipped between U.S. ports must be transported in U.S. built, U.S. owned and U.S. manned ships.

KKitimat, British Columbia A west coast, Canadian ice-free portat54˚northLatitude.LNGfacilitiesareunderdevelopmentto export gas resources to the Asian market from BC as well as the Yukon territory and Alberta. Shipping times from Kitimat to Japan, North Korea and northern China are shorter than from Australia to these markets. However, Kitimat is nearly 700 air miles further east from Japan than Valdez. (See: Kitimat)

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


• Federal 218 million acres of Alaska are owned by the U.S. government, roughly two thirds of the state. Before statehood, 99% of Alaska was under federal ownership and control.

• OCS Outer Continental Shelf Federal jurisdiction exists in oceans and submerged lands from 3 nautical miles offshore to a maximum of 350 nautical miles at a maximum depth of 2,500 meters.

• State 103 million acres of Alaska are owned by the State with both surface and subsurface development rights. Through the Statehood Compact, Alaska also has ownership of “navigable waters” and coastal zones within three miles – designated as offshore. In addition, State title to “historic bays and inlets” was established at Statehood and includes the oil and gas geologic structures of Cook Inlet. NOTE:Alaska’scoastlineislongerthan 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 Corporationscouldselectupto44millionacresoffederal 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 OtherthanNativelands,lessthan1%ofAlaska has fee-simple ownership.

In total size, Alaska has 560,347 square miles and is

more than twice the size of Texas.


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

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

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

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

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


Lifting Cost OneofthemajoradvantagesofAlaskaNorthSlopegasoverLower48shalegasisthecosttobringitto the surface. ANS is conventional gas associated with extractionofcrudeoil.8.4billioncubicfeetperdayarebrought to the surface with current operations at Prudhoe Bay at a cost of only 26 cents per thousand cubic feet (Mcf). (Source: Wood MacKenzie study 8/17/2011).

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

Valdez

Alyeska Terminal

Anderson Bay

TAPS

RichardsonHighway

ValdezArm

Valdez Area

0 6 123Miles


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

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

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

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

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


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

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

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

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


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

NEB National Energy Board of Canada If the AGIA license resultsinacross-Canadaproject,theNEBwillhaveasimilarroletoFERCinissuingpermits.NEBwillalsoapprovetariffrates and regulate 966 miles of the gasline that crosses the Yukon Territory and British Columbia, concluding near Boundary Lake, Alberta. If Alaska gas reaches Alberta and is stored before it can be sold to U.S. markets, it will need a Canadian export license. With approval of the Governor General of Canada (indicating the approval of the Queen of England),NEBwillissuethepermitto“import,export,orflow”U.S. natural gas. (See: NEB,FERC,ExportLicense)

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

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


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

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

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

NPR-A National Petroleum Reserve-Alaska (also known as “Pet4”) Establishedbyfederallawin1923,asthe23-millionacreNavalPetroleumReserveNo.4.HalfoftheArcticcoastdirectly west of Prudhoe Bay was designated to provide domesticoilsuppliesfortheNavy.Earlyexplorationanddrilling during World War II was positive, but not productive. British Petroleum was an early explorer and in 1963 made the first gas discovery in NPR-A. Recent U.S. Geological Survey (USGS) estimates predict that there is 60 Tcf of recoverable natural gas in NPR-A as well as 6 to 13 billion barrels of oil. In 1976, management transferred to the U.S. Department of the Interior. (See: ANS)


OOCS Outer Continental Shelf Marine areas more than 3 nautical miles from the coast are owned and managed by the federalgovernment.OCSextendsfromstateterritory(lessthan 3 miles from the coast) to a maximum of 200 nautical miles (or to 350 nautical miles if the water is less than 2,500 meters deep).

Offshore Territory from mean high tide (on the beach) to the 3-mile,state-federalboundary.Alaskahasatotalof44,000miles of coastline – more than all the rest of the U.S.

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

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


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

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

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

OPEC Organization of Petroleum Exporting Countries A permanent, non-governmental organization established in 1960 in Baghdad, Iraq. Its objective is to coordinate and unify petroleum policies among member countries and satisfy global supplyanddemandissues.OPEC’smembersareAlgeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia,theUnitedArabEmiratesandVenezuela. U.S. crudeoilimportsaregreatlyaffectedbyOPECsupplyandpricecontrols.OPECiscarefullywatchingdecreasingdemandfor its members’ gas as a result of the current increase in U.S. domestic natural gas supplies.


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

Open Season also Binding Open Season In order to guarantee the profitability of a pipeline system, pipeline ownersholdan“OpenSeason”whengasproducersbidforand purchase a certain amount of transportation capacity (FT) in the pipeline at a specific price for a set time period. These contracts demonstrate market need and impact pipeline capacity,engineeringandfinancing.OpenSeasons were held inAlaska,BritishColumbiaandYukonTerritoryfrom4/30/2010until 7/30/2010.

AGIAspecifiedthattheFirstBindingOpenSeasonwouldbeconcluded within 36 months after TransCanada received the license. That deadline was 12/5/2011. Results have not been announced as of 12/7/2011.

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

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


OilandgasleaseholdersarenottheownersofAlaska’sresources. They are the explorers and producers and have the right and obligation to market the resources they discover. Under the Statehood Compact, if Alaska yields control of its resource lands, the federal government can reclaim ownership of those lands. This has important implications regarding Point ThomsonandExxonMobil’sannualworkplancommitments.(See: Compact)

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

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

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

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


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

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

FBI investigations of vote-buying during the 2006 passage of PPT placed a cloud over the integrity of the statute. The legislaturereplacedPPTwithACESin2007.(See: ACES, Taxes: Net Profits)

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

Plants• Gas Conditioning Plant The existing “Central Gas

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


• Gas Treatment Plant GTP Before “pipeline quality gas” is entered into a pipeline, it must have impurities removed and be compressed to the appropriate pressure (psi) for the pipeline system.

• Cracking Plant Refines crude oil and other hydrocarbons by “cracking” complex molecules (breaking them into smaller molecules) to produce gasoline and other products.

• Gas Plant Separates propane or other natural gas liquids from the natural gas stream. This process is called “fractionization.”

• Liquefaction Plant Lowers the temperature of natural gas to minus 256˚ Fahrenheit and compresses it to 1/600th of its original density – converting it to liquefied natural gas (LNG). An All-Alaska gasline will require such a plant at tidewater in Valdez or Cook Inlet. The liquefaction plant at Nikiski has produced LNG for export to Japan since 1969.

• Petrochemical Plants These facilities will process the gas liquids from the North Slope gas stream into a spectrum of high-value products. It is yet to be determined whether these plants and the jobs they generate will be located in Alaska, Canada, or elsewhere in the world.

• Regasification Plant Receives LNG and warms and stores it prior to entrance into gas distribution (pipeline) systems that move gas to final markets.


• Straddle Plant Connects to a major gas pipeline to extract propane and other natural gas liquids (NGLs) for local use or processing, or to repackage propane as bottled gas for non-pipeline destinations and small scale users. If propane is the desired goal of the off-take operation, the remaining gas (methane) is returned to the pipeline and sent to other markets. “Stub gas delivery” and “compressor station side-streams” have similar roles and can be incorporated into the original construction of the pipeline.

• Train In a liquefaction plant, a train is a purification and production unit that is replicated to increase the capacity of the plant. A typical LNG train consists of a compression area, propane condenser area, methane and ethane areas in addition to a cooling or cryogenic section.

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

Point Thomson Alaska’s third largest oil and gas field after Prudhoe Bay and Kuparuk and the largest undeveloped gas field in North America. It is located east of Prudhoe Bay and just west of the ANWR 1002 boundary. It contains at least 8.5to10.4trillioncubicfeetofgas,490millionto600millionbarrels of associated condensate, and 580 million to 950 million barrels of oil. (See: Point Thomson, ANS, ANWR, Prudhoe Bay, Condensate, Reserves)


Power Cost Equalization PCE TheState’sPCEprogramprovides economic assistance to residents in rural areas of Alaska where the kilowatt-hour (kWh) charge for electricity isthreetofivetimeshigherthaninurbanareas.PCEpaysaportion of approximately 30% of all power sold by participating utilities.CommercialcustomersarenoteligibletoreceivePCEcredit. Participating utilities are required to reduce each eligible customer’sbillbytheamountthattheStatepaysforPCE.

In calendar year 2010, the average residential rate for Anchorage,FairbanksandJuneauwas$0.1342perkWh.InthatsametimeperiodresidentialratesforPCEcommunitiesranged between $0.20 and $1.02 per kWh. The average cost acrossallthecommunitiesreportedbythePCEutilitiesinDecember 2010 was $0.5559 per kWh. The share of the local energycostpaidbyPCEisbasedontheaveragepriceofenergy in Anchorage, Juneau and Fairbanks. Ω This program illustrates why ANS natural gas is urgently needed by Alaska rural communities as well as urban Alaska. (See: Routes: MarinePropaneoption,Off-takes)

PPT (See: Petroleum Profits Tax of 2006)

Precedent Agreements “Conditioned” bids were submitted to TransCanada by prospective shippers under the AGIA Alaska PipelineProject(APP)OpenSeasoncompleted7/30/2010.Oncenegotiationsarecompletedregardingcontractspecificsand government issues (like regulation and taxation), precedent agreements will be finalized and contracts will be signed to create FTs or Firm Transportation Commitments. TheAPPOpenSeasonresultshavenotbeenannouncedto the Alaska legislature or the public as of 12/1/2011. (See:OpenSeason,FT)


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

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

Prudhoe Bay is North America’s largest oil field and is located on State-owned land on Alaska’s north coast on the Arctic Ocean.In1968,thefirstdiscoverywellatPrudhoeBaywasannounced. In 1977, crude oil began moving through the trans-Alaska pipeline 800 miles south to the ice-free port of Valdez where it was loaded into tankers and shipped south to out-of-state refineries.

Since then, more than 16 billion barrels of crude oil have been transported from Prudhoe Bay to Valdez through the TransAlaska Pipeline System (TAPS). The highest throughput (amount shipped) was 2.1 million barrels per day (BLD) in 1988. (The 2010 average throughput was 619,655 BLD. As of 4/2011,the2011annualthroughputestimatewasexpectedtobe594,147BLD.)


The price per barrel has fluctuated dramatically depending on the global petroleum market. In 1977, the average was $11 per barrel. In 1986, the average dropped to $3.50. The annual average in 1989 was $17.13. The highest monthly average price ever was $133.78 per barrel in 6/2008. The highest monthlyaveragepricein2011hasbeen$115.34perbarrel.(See: Prudhoe Bay, ANS)

psi Pounds per Square Inch The strength of a pipeline system and its throughput capacity are measured by psi. Alaska Pipeline Project’s Alaska Mainline (750 miles from Prudhoe Bay to the Alaska /Yukon territory border) will have a maximum allowable operating pressure of 2,500 psi. Some majorgaslinesintheLower48areratedmuchlowerat1,000 psi. Geologic structures of the Point Thomson field are measured at 10,000 psi and Prudhoe Bay is generally at 5,000 psi. The TransAlaska Pipeline System (TAPS) is designed to operate at approximately 1,200 psi. The current average is close to 700 psi. (See: Compression)

Pump or Push Gas pipelines and oil pipelines require different engineering. Gasline contents are highly pressurized andare“pushed”throughmultiplecompressorstations.Oilpipelines “pump” the fluids they transport. Some natural gas liquids are currently moving through TAPS along with crude oil. Consequently, the throughput is sometimes measured in barrelsofoilequivalency(BOE)toreflectthehigherenergycontent in the crude oil.


QQatar [gut ter] is located on the west bank of the Persian Gulf(25˚North51˚East)andhastheworld’ssecondlargestgas field with 18,000 Tcf of gas and 50 billion barrels of condensates.Itisthelocationofthe4-trainExxonMobilandConocoPhillips gas liquefaction operations designed to export LNG to the Asian and U.S. markets. The current largest LNG ships serve Qatar and are called Q Max and Q Flex. They are designed to yield the lowest possible transportation cost per gas unit. (See: Plants: Trains)

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

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

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

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


Re-imbursement FundEstablishedunderAGIAwithintheState General Fund to match up to $500 million of the qualified expenses of the licensee. (See: Inducements)

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

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

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

Right-of-Way ROW The builder of the gasline will acquire rights by lease or purchase to cross federal, State, Native corporation, and private lands. As the gasline will be buried, thewidthoftheROWwillbereducedafterconstruction.TheAll-AlaskaGasPipelinetoValdezwillusetheTAPSROW.


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

Routes The maps that follow illustrate the routes under discussion by the prospective gasline builders. Ω From Prudhoe Bay to Valdez is 800 miles; to the western border of Albertais1715miles;andtoChicagois3,640miles.

• The All-Alaska Route isaproposed800-mile,48-inchdiameter 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-inchdiametersystemthatbeginsatPrudhoeBayand 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 BigLake(ENSTARBelugaDistributionSystem). The Fairbanks Lateral isaproposed35-mile,24-inchspurlinethatwouldbeginatmilepost458andconnectwithFairbanks. (See: ASAP)


Tok

Homer

Valdez

Seward

Fairbanks

Anchorage

Glennallen

Prudhoe Bay

Delta Junction

0 40 80 120 16020Miles

To Alberta

ALA

SKA

CAN

AD

AAll Alaska RouteAlCan (Highway) RouteDelta Spur Line RouteParks Highway RouteASAP/Bullet Line

Proposed Gasline Routes

Beaufort Sea

Gulf of AlaskaCookInlet

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


• The Hub Concept Under this proposal, the State of Alaskawouldfinancea48-inchpipelinefromPrudhoeBay 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.

• TheAPP 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, 517milesintheYukonand448milesacrosstheNEcorner 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.


Whitehorse

Boundary Lake

Fort Nelson

Watson Lake

Kitimat

Tok

Barrow

Valdez

Juneau

Prudhoe Bay

Delta Junction

Fairbanks

Anchorage

ALA

SKA

CAN

AD

A

YUKON TERRITORY

BRITISH COLUMBIA

ALBERTA

NORTHWEST TERRITORIES

NUNAVAT

0 150 300 450 60075Miles

Alberta CaseValdez LNG Case

Alaska Pipeline ProjectBeaufort Sea

Pacific Ocean

Gulf of Alaska


• The Over-the-Top route went east from Prudhoe Bay either offshore or through ANWR to connect with Canadianpipelinesystems.The2004ANGPAfederallegislationprohibitedtheOver-the-Topalternative.ThisroutewaspreferredbyExxontoconnectwiththe proposed Mackenzie River Valley gasline from the Arctic coast to Alberta for processing in the Canadian petrochemicalinfrastructure.ExxonMobilwroteoffitsinvestment in this route with the U.S. Securities and ExchangeCommission(6/07),declaringituneconomicand 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, ExxonMobiljoinedTransCanada(theholderoftheAGIAlicense)and has a major role in evaluating the Highway Route to Alberta as well as the route to Valdez.

• The Y-Line combines most of the other concepts. It includes a Prudhoe Bay to Valdez gasline for LNG production and distribution, and a hub at Delta Junction so that additional pipeline systems can be constructed to carry gas into and across Canada.

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

Royalty Owner The State of Alaska owns the resources on all State land, including Prudhoe Bay and Point Thomson. The federal government has the potential to earn royalties from resources developed on its Alaska lands as well as from the OuterContinentalShelfmorethanthreemilesfromshore.(See:LandOwnership)


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

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

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

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


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

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

SOA State of Alaska Statedocumentsoftenuse“SOA”toindicate the Governor, the administration, and other State agencies.

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

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


Stranded Gas Development Act 2000 SGDA (AS43.82)AlaskaGovernorFrankMurkowskiandhisadministration (2002-2006) focused on negotiating the terms of a proposed gasline contract with the ANS oil producers as per the SGDA. The lengthy contract included “fiscal certainty” i.e. oil and gas tax regimes, unchangeable for 30 years (oil) and45years(gas).Therequiredlegislativeapprovalofthecontract was never obtained in spite of three special sessions held after the regular 2006 session. ΩOnereasonthiscontract failed was that the Alaska Constitution (Article IX Section 1) mandates that “the power of taxation shall never be surrendered.”

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

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

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


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

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

TAPS TransAlaska Pipeline System The800-mile,48-inchdiameter pipeline from Prudhoe Bay to Valdez that transports Alaska North Slope (ANS) crude oil to tidewater. TAPS is owned and operated by a consortium of oil producers under the name of Alyeska Pipeline Service Company. Approximately half of the 800 miles is underlain by permafrost, and the pipeline is elevated with special structures to avoid melting and destabilizing the soil. To date, more than 16 billion barrels of ANS crude oil have been piped from Prudhoe Bay to Valdez and shipped to refineries. (See: TAPS, ANS)

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


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

Taxes• Net Profits UsedintheAlaskaClearandEquitable

Share(ACES)2007legislationtocaptureforAlaska’sgovernment and people (the owners of Prudhoe Bay and its resources) a greater share of Alaska North Slope oil and gas profits while encouraging new industrialinvestmentandincreasedproduction.ACEShasa“progressivity”provisionthatincreases0.4%forevery 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 OpenSeason.

• Property taxes Based on assessed value, payments are made to local Borough and Municipal governments by the owner of real or personal property. This includes oil and gas production facilities and equipment.


Tcf Trillion Cubic Feet Proven gas reserves at Prudhoe Bay are24.5Tcfand9TcfatPointThomson.In2008,theU.S.Geologic Survey estimated that over 200 Tcf of “undiscovered, technically recoverable” natural gas resources exist in the Alaska Arctic. (See: Reserves)

Tons of LNG Specialized marine tankers measure their LNG capacityintons.OnemilliontonsofLNGequalsapproximately48billioncubicfeetofnaturalgas.Thetotalamountshippedunder contract is measured in million metric tons per annum (MMTA).

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

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


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

Upstream Oilandgasexplorationandproductionoperationsthat bring a resource to the surface and prepare it to enter apipelinesystem.Example:NorthSlopeoperationspriortowhencrudeoilentersTAPSatPumpStationOne.(See: Midstream, Downstream)

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

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


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

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

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

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

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


WTI West Texas Intermediate Crude serves as an oil price indexjustasHenryHubandAECOaregaspriceindexes.

YYukon Pacific Corporation YPC Building on the successful export of Cook Inlet gas as LNG to Japan since 1969, YPC waslaunchedbyformerGovernorsWallyHickelandBillEganand others in 1983 to expand Alaska’s exports to the Asian Market. Teamed with investor CSX, YPC obtained nearly all of the necessary permits, rights-of-way, the export license, andcontractedcustomers.Observersblamepoliticalfactorsin Washington DC and Juneau for the company’s inability to move the project to completion. The export license obtained by YPC is still valid and held by Alaska Gasline Port Authority. (See: Yukon Pacific Corporation)

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

AACES Alaska’s Clear and Equitable Share (Alaska Statute 43.55)Alaska’sPPTorPetroleumProfitsTaxof2006wasmodifiedbyACESin2007.Theintentwastocaptureagreatershare of Alaska North Slope oil and gas profits for Alaska and the Alaska people while encouraging new industrial investment and production. Key elements include:

• TheStatenetprofitstaxontheoilindustryincreasedfrom 22.5% to 25%.

• A“progressivity”provisionincreasedtheNetProfitsTaxby0.4%foreverydollarincreaseinthewellheadpriceof 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.

• Thenetprofitstaxdropsto5%fornaturalgassoldandused in-state.

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

While critics charge that this legislation made Alaska an unstableplacetodobusiness,ACESwasonlythesecondchange in Alaska’s severance and production tax system in 17 years.TheEconomicLimitFactor,orELF,wasagrossprofitstax in use prior to the PPT.

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AGIA Alaska Gasline Inducement Act 2007 (a-GEE-a)AlaskaStatute43.90createdacompetitiveprocessforacompany to obtain a license to pursue permits, customers, finances, and authority to build an Alaska natural gas pipeline. The goal was to generate the infrastructure to transport Alaska North Slope natural gas either to markets in Canada and the U.S. or to Valdez for LNG export to global markets.

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

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

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

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

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

Unfortunately, this open and transparent design did not hold. On6/11/2009,TransCanadaannouncedthatExxonMobil Alaska Midstream Gas Investments, LLC had obtained a minority, but significant, interest in the Alaska Pipeline Project (APP). Ω The actual nature and percentage of the relationship has not been disclosed. It is interesting that TransCanada did not include Point Thomson in its original proposal, but a 58-mile pipeline connection from Point Thomson to Prudhoe Bay is now part of the APP.

Ifa48-inchdiameterpipelineisbuiltfromPrudhoeBaytothewestern border of Alberta it will span 1,715 miles. 965 miles will be in Canada crossing the Yukon Territory (517 miles) and theNEcornerofBritishColumbia(448miles).Theexpectedcostofthisoptionis$32to$41billionU.S.dollars.Proposedthroughputis4.5billioncubicfeetperday(Bcf/d)withapossible expansion to 5.9 Bcf/d.

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

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For many years, the route to Valdez has been strongly supportedbyamajorityofAlaskans.On10/27/2011,GovernorSeanParnellspoketotheAlaskaOilandGasAssociationconference in Anchorage about AGIA progress. He stated, “…no commercial alignment exists among producers and shippers to the Lower 48.” “…a better market for Alaska gas could very well be in Pacific Rim countries.” “I let them know I want them to move forward on a large-diameter, LNG pipeline to tidewater in Alaska…” The only tidewater option allowed under AGIA is Valdez.

ThereisanabandonmentprovisioninAGIA(43.90.240)iftheAPPisdeterminedtobeuneconomic.On5/17/2011,a “Competing Project,” Denali – The Alaska Gas Pipeline was abandoned by partners ConocoPhillips and BP, as they determined that the Canada /Mid-America market was uneconomic – given the high cost of the 1,715-mile pipeline andthesignificantlylowerpriceofgasintheLower48duetothe dramatic increase in available shale gas.

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

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

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

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

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

AGPA envisions its major clients will be LNG export to Hawaii and the Asian market. A recent study (by WoodMackenzie

7/28/2011) projected that a pipeline to Valdez and a liquefied natural gas export project could generate revenues and royaltiestotheStateof$419billion(innominalor2011dollars) over the 30-year project life. This was based on the “worst-casescenario”usingBarrelofOilEquivalent(energycomparison of gas and oil) of $75/barrel oil. The highest monthlyaveragepriceperbarrelin2011hasbeen$115.34.

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

ANCSA Alaska Native Claims Settlement Act 1971 [ANC-sa] This federal legislation addressed the land claims of Alaska’s indigenous people. In addition to a $962,500,000 cashsettlement,ANCSAincludedfeesimpletitleto44million acres in Alaska. By clarifying land ownership, the passage of ANCSA helped move forward the construction of the oil pipeline from Prudhoe Bay to Valdez. Both surface and subsurface land title was granted to 12 Regional Native Corporations and surface-only title to village corporations and individuals.

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DOYON LTD

THE ALEUT CORP

CALISTA CORP

ARCTIC SLOPEREGIONAL CORP

KONIAG INC

AHTNAINC

SEALASKACORP

BERINGSTRAITSNATIVECORP

BRISTOL BAYNATIVE CORP

COOK INLETREGION INC

N.A.N.A. REGIONAL CORP

CHUGACHALASKA CORP

Tok

Delta Junction

Kodiak

Bethel

Barrow

Juneau

Dillingham

Prudhoe Bay

Anchorage

Nome Fairbanks

Port Moller

Kotzebue

Valdez

Glennallen

Alaska NativeRegional

Corporations

To Alberta

Proposed Gas Line Routes

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

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

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The North Slope Borough is the local political organization for the area. Nine communities in the Borough have an estimated year-roundpopulationof6,600.ENSorEasternNorthSloperefers to territory to the east of Prudhoe Bay and directly west of ANWR, including the resource-rich Point Thomson field.

EstimatesofANSnaturalgasresourcesrangefrom35Tcfofproven reserves (Alaska Dept. of Natural Resources) to 250 Tcf in estimated reserves (U.S. Geological Survey). In addition to oil and gas, the western areas of the North Slope have world class deposits of high-quality, low-sulfur coal.

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

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

There is extreme interest and controversy over this decision in Alaska and across the U.S. A large majority of Alaskans support tapping the 1002 area as the gas could greatly increase known reserves and extend the already-acknowledgedlonglifeofagaslineproject.Oilfromthe1002area would also extend the life of the TAPS infrastructure.

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

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

1. The “Alaska-Canada Pipeline” combines four pipeline segments:

• “Point Thomson Pipeline” from Point Thomson to the gas treatment plant (GTP) near Prudhoe Bay (58-mile, 32-inch diameter)

• “Alaska Mainline” from the GTP to Fairbanks, to Delta Junction and then to the Alaska-Canada border in the vicinity of the towns of Border City, Alaska and Boundary, Yukon Territory near Beaver Creek. (745-miles,48-inchdiameter,2,500psi)

• “Yukon Pipeline”OfficiallyknownastheFoothillsSouth 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.

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• “B.C. Pipeline” At the Yukon-B.C. border, the APP willincludea448-milesectiontoFortNelson,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 operatedbyNOVAGasTransmissionLtd.,awhollyowned 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 abase-casecapacityof4.5billioncubicfeetperdayandexpandableto5.9Bcf/d.OperationpressureontheCanadian Pipeline segment will be 2,500 psi.

In2005,Exxonstatedthatitwouldcost$25billionUStomove North Slope gas to the Mid-America market. When ExxonMobilannouncedjoiningTransCanadafortheAPP(6/11/2009), the estimated cost of the project was $26 billion US. The cost estimate currently used by the media regarding the pipeline from Prudhoe Bay to the Alberta border exceeds $40billion(in2009USdollars).(Reuters1/29/2010$32to$41billion,JuneauEmpire11/29/2011)

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

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Article VIII Natural Resources In 1955, the Territorial Legislature passed the Constitutional Convention Act. That led to a 75-day Convention in Fairbanks during the winter of 1955-56 when 55 elected delegates wrote and refined the Constitutionforthefuture49th state. The only state constitution to address natural resources, it mandates in Article VIII Section 2, “The legislature shall provide for the utilization, development, and conservation of all natural resources belonging to the State, including land and waters, for the maximum benefit of its people.”

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

If the route crosses any part of Denali National Park, ASAP will require unanimous consent by all affected federal agencies affirming that there is no alternative route that is economically feasible.SeeSection1104(g)ofANILCA,theAlaskaNationalInterest Lands Conservation Act of 1980. If any one agency rules that the pipeline would adversely affect “the purposes for which the Federal unit…was established,” the State can appeal to the President. If he, or she, favors the appeal, Congress must pass a joint resolution within 120 days that supports the President’s decision or the application will be denied.

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

OtherPermanent Facilities in the proposed system include:• ACookInletnaturalgasliquidextractionfacilityatthe

pipeline terminus near Big Lake.• AGasoff-takefacilitynearDunbar.• Custody-transfergas-meteringstationsatDunbarand

at the Big Lake terminus.• OperationandmaintenancecentersinWasilla,

Fairbanks, and Prudhoe Bay.

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

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

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

Btu British Thermal Unit The price of energy in Asian markets recognizes the option of using either crude oil or gas products. Therefore, Btu measurements are often pricedasBOEorBarrelsofOilEquivalency.Naturalgas energy values fluctuate depending on the chemical compositionofthegassoBOEisusedtocalibratevalue.Methane=1,012Btu/cf,Ethane=1,773Btu/cf,Propane = 2,500 Btu/cf, Butane = 3,260 Btu/cf. In 2009, Alaska used approximately 1 million Btu of energy per day for residential, commercial, industrial, and transportation applications.

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

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In 2008, ConocoPhillips and BP initiated Denali – The Alaska Gas Pipeline Project that also intended to ship ANS gas to Alberta. These corporations were not interested in either the benefitsorrequirementsoftheAGIAlegislation.On5/17/2011,however, the corporations discontinued the project explaining that the price of gas entering the Mid-American (Canada and the U.S.) market had “changed significantly – primarily as a result of the development of shale gas resources.” NOTE:TheASAP pipeline system is designed to have less than 0.5 billion cubic feet per day throughput and therefore, is not a competing project under AGIA. Like the AGIA licensee, it is intended to receive State financing.

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

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

EExport License Alaska has been exporting LNG from Cook Inlet to Japan since 1969. Since then, 32 shipments a year havemovedapproximately64billioncubicfeetofgastoTokyo from the ConocoPhillips-Marathon plant at Nikiski (on the west side of the Kenai Peninsula). This entire operation has been conducted without interruption, accident or environmental problem.

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

Alaska has another valid export license. Yukon Pacific Corporation (YPC) acquired a Presidential Finding Approving ExportofAlaskaNaturalGas1/12/1988.Nearlytwoyearslater, YPC was granted authorization from the U.S. Department ofEnergytoexportliquefiednaturalgas(LNG)fromPortValdez.On3/8/1990,theauthorizationwasmodifiedtopermitLNG exports for sale to Japan, South Korea, and Taiwan up to350millionmetrictonsatanaverageannualvolumeof14million metric tons for a period of 25 years beginning on the first date of delivery. This export license was acquired by the Alaska Gasline Port Authority.

TheAPPalsohasexportlicenseissues.TheNationalEnergyBoardofCanada(NEB)mustissueanexportlicenseifgas brought into Canadian territories is “stored” rather than moved immediately to U.S. pipelines. The Canadian export license requires approval of the Governor General of Canada (indicatingapprovaloftheQueenofEngland),topermit“import, export, or flow” of U.S. natural gas.

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FFERC The Federal Energy Regulatory Commission was established by the Natural Gas Act of 1938 as the lead agency to permit and regulate interstate natural gas pipelines. UnderthefederalANGPAlegislationof2004,FERCisthelead environmental and regulatory agency for an Alaska gas pipeline. Regarding a cross-Canada pipeline to the Midwest states,FERCwillbetheagencytoissuetheCertificate of Public Convenience and Necessity and approve interstate tariff rates.Inaddition,FERChastheauthoritytomandatepipelineexpansion, if and when additional gas supplies are discovered.

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

Ω If the AGIA process results in an 800-mile All-Alaska intrastate route, the Regulatory Commission of Alaska (RCA) will issue the Certificate of Public Convenience and Necessity andestablishtariffrates.FERCwillremaininvolvedtopermitand regulate the gas liquefaction plant.

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

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

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

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

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

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

However, a growing number of Alaskans who understand that the Alaska people own the oil and gas resources on state landthinkotherwise.Othergovernmentsworldwidethatown

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

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

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

HHenry Hub The pricing point for U.S. natural gas futures contractstradedontheNewYorkMercantileExchange(NYMEX).ItislocatedatErath,Louisiana,theintersectionof nine interstate and four intrastate gas pipelines. Prices are quoted as dollars per million British Thermal Units (MMBtu). Although Mcf or thousand cubic feet is a more common unit of measurement for natural gas, it does not account for the energy variation of different types of natural gas. (1 Mcf is approximately equal to 1MMBtu.) Henry Hub prices are also used to quote short term, “spot market” prices. NOTE:InJuly2007, the price for natural gas was $13.69/Mcf. The Henry Hub average priceforOctober2011was$3.64/MMBtu.The11/16/2011pricewas$3.13/MMBtu.InCanada,thespotmarketquotecomesfromAECO.

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KKitimat In 2007, Kitimat, British Columbia was envisioned as a site to import LNG from Australia for the Canada and U.S. markets. However, due to the major shale gas plays discovered inBritishColumbiaandtheLower48,therearenowanumberof LNG export operations under consideration in the Province. Kitimat is approximately 700 air miles further east from the Asia markets than Valdez.

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

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

LNGhasbeenexportedfromCookInletsince1969.Everyyear, 32 shipments have left Nikiski and supplied power generators for Tokyo Gas. The recent contract was not renewed (5/2011) since shipments could be interrupted if an Alaska gas shortage occurred. However, shipments have continued since the 3/11/2011 tsunami impacted Japan nuclear power generation and increased LNG demand.

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

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

This newly-authorized pipeline will “open the basin” and establish rights-of-way for oil and gas pipelines through the Northwest Territories and the Yukon Territory. TransCanada is involvedintheMackenzieRiverGasPipelinewithImperialOilLtdwhichis70%ownedbyExxonMobil

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

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

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

Cook Inlet gas generates electricity in Anchorage and heats most homes and businesses. CNG or condensed natural gas istruckedtoFairbanksforsimilaruses.Forover40yearsCookInlet gas was exported as LNG to Japan and until recently was used to manufacture fertilizer for export to farmers worldwide.

There are many natural gas-related terms:• Coal Bed Methane Natural gas derived from coal

formations.• CNG Compressed Natural Gas A fuel alternative

to diesel, propane or petrol (gasoline). CNG is mostly composed of methane and compressed to 1% of its volume at standard pressure. CNG is packaged in specialized containers, generally for fleets of vehicles. A facility at Point McKenzie (across Cook Inlet from Anchorage) creates CNG and trucks it to Fairbanks for local distribution and use for electrical generation and residential heating. The current global growth rate for CNG is over 30% per year.

• Conventional wells are drilled into geologic formations that contain concentrated pools of gas. Associated refers to gas extracted with crude oil. Non-Associated refers to wells where gas alone is the primary extraction.

• Unconventional Some geologic formations have highly-dispersed natural gas. “Fracking” or hydraulic fracturing is one process used to bring this source of gas to the surface.

• Dry Gas is more than 85% methane.• Wet Gas contains 15% or more gas liquids.

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• 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)andmoderatepressure(14.73psi).

• 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.

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• Natural Gas Reserves Thisyear’sAnnualEnergyOutlook(publishedbytheU.S.DepartmentofEnergy–EnergyInformationAdministration)estimatesU.S.natural gas reserves at 827 Tcf. The prior estimate was 480Tcf.Thisdramaticincreasewastheresultofnewtechnology 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 resourcesexistintheAlaskanArctic.Onandoffshoreresources, 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 BrooksRangeandsouthofPrudhoeBayduringthe4th Quarter of 2011.

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

• Unassociated Gas Refers to natural gas unaccompanied by crude oil during production.

NEB National Energy Board of Canada The equivalent totheU.S.FederalEnergyRegulatoryCommission(FERC).However, with reference to the “Alaska Highway Gas Pipeline,” someNEBresponsibilitiesweredelegated(in1978)toTheNorthern Pipeline Agency (NPA). NPA provides a “single window” coordination of Canada, U.S., Provincial, and territorial government actions.

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

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

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In 10/2006, the State of Alaska pulled the unit agreement (operations contract) for Point Thomson due to failure by theleaseholdersundertheunitleadershipofExxonMobiltoimplementover20annualdevelopmentplans.ExxonMobilsubsequently launched legal challenges to that decision and has drilled two on-site exploration wells, the first in 20 years.On10/27/2011,GovernorParnellannouncedthatthere had been an undisclosed resolution of the issue with ExxonMobil,andheiswaitingfortheotherleaseholders(BPand ConocoPhillips) to agree.

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

As of 6/2009, ExxonMobilAlaskaMidstreamGasInvestmentsLLC became an investor (undeclared but nominally less than 50%) in the TransCanada Alaska Pipeline Project under AGIA.On8/1/2011,FERCreceivedanIntent to Prepare an Environmental Impact Statement for the Alaska Pipeline Project that included a 58-mile, 32-inch diameter pipeline to connect Point Thomson to the Gas Treatment Plant (GTP) at Prudhoe Bay.

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

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from Kaktovik to Ketchikan and throughout the navigable river systems.

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

Propane and Natural Gas DistributionARCTIC OCEAN

BEAUFORT SEACHUKCHI SEA

BERING SEA

GULF OF ALASKA

Pipelines & Roads

Distribution Potential

Map courtsey of ANGDA. Copyright 2009 ANGDA.

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

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InJanuary1964,onlyafewmonthsbeforethedevastatingGood Friday earthquake of March 27th, Alaska Governor Bill EgandecidedtofileforStateownershipofoveroneandahalfmillion acres (1,595,170) of federal land on the Arctic coast lying between the Naval/National Petroleum Reserve-Alaska (NPR-Aalsocalled“Pet4”)andtheArcticNationalWildlifeRange (which in 1980 became ANWR, the Arctic National Wildlife Refuge).

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

Encouragedbynewly-electedGovernorWallyHickel,asecondsaleofPrudhoeBayacreagewasheld1/24/1967.Beforeyearend, the Atlantic Richfield Company’s Susie Rig was making progress drilling on their lease at Prudhoe Bay. It was the last hope for the North Slope leaseholders. At approximately 10,000 feet it struck the Prudhoe Bay reservoir. By May, a second well confirmed that it was the largest field ever discovered in North America.

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

Getting the oil to market was a challenge. Prudhoe is less than five miles from the Arctic coast but 800 miles from theyear-round,ice-freeportofValdez.On12/18/1971,theAlaska Native Claims Settlement Act (ANCSA) was signed by President Nixon. This resolved fundamental questions

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regarding land ownership and enabled the establishment of the pipeline right-of-way so construction could begin. On6/20/1977,thefirstoilenteredtheTransAlaskaPipeline System.

By mid-1977, the world oil price had increased to $11 per barrel, and, by 1979, it reached $30 a barrel as a result of Saudi Arabia deliberately limiting its oil production. This was good news for the young state of Alaska in the short term, butitillustratedthatwewereoperatinginanOPEC-driven,globalpetroleummarket.OPECandAlaskapricescrateredin1985 when global supplies surged and the price dropped to $8/barrel. By mid-1986, the ANS wellhead value had dropped below $3.50 per barrel.

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

Naturalgasestimatedtobe8.4billioncubicfeet(Bcf)ispumped to the surface daily with the crude oil at the North Slope. All but one Bcf is re-injected to help maintain the pressure in the oil strata to maximize oil extraction. A 150-mile, 10-inch diameter gas pipeline provides fuel for operations at Prudhoe and other satellite fields.

Corporations that have played a major role in Prudhoe Bay (with their historic names) are:

• 36%ConocoPhillipsAlaska,Inc.,formerlyARCO,Alaska (acquired by Phillips Petroleum, Inc.), and formerly Atlantic Richfield Corporation that united with themergerofAtlanticRefiningCompany,RichfieldOilCompany,andHondoOil&GasCompany.

• 36%ExxonMobilCorp,formerlyExxon,formerlyHumbleOil&RefiningCompany.

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• 26%BPExploration(Alaska),Inc. (owned by BP p.l.c.), formerly British Petroleum that merged with Standard OilofOhio(Sohio).

Environmentalimpacthasalwaysbeenamajorconcernat 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 numerous geologicformationsintheLower48dramaticallyimprovedthe estimates of U.S. gas supplies. The nation went from LNG “import-dependent” to having domestic reserves that will satisfy projected demand for more than 100 years.

In only three years, between 2007 and 2010, U.S. shale gas increased from 5% to over 20% in its share of domestic gas consumption. By 3/08, there had been a 50% increase in gas reserves due to 22 shale gas formations in 20 states. In the 90 days between 7/08 and 10/08, the price of gas at Henry Hubdropped44%.Asaresult,demandforAlaskagasintheMid-America market has been radically changed, even with the higher “lifting” or production costs required by shale gas compared to conventional gas.

TTAPS TransAlaska Pipeline System Crude oil transit fromPrudhoeBay’sPumpStationOnetoValdez(namedVMT or Valdez Marine Terminal), takes approximately 15 days. Maximum pressure of the system in 2011 is 1180 psi and varies depending on the exact location and slope of the pipeline.

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Since operations began in 1977, the record TAPS throughput was 2.136 million barrels per day (BPD) in 1988. However, the average price in 1989 was $17.13 per barrel. In contrast, the average throughput of TAPS during the first quarter of 2011 was594,147BPD.ThehighestmonthlyaveragepricewasinJune 2008 for $133.78 per barrel. The highest 2011 monthly averagepricewas$115.34inJune.

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

TAPS is owned and operated by a consortium of oil producers under the name of Alyeska Pipeline Service Company: BPPipelines(Alaska)Inc.(46.93%),ConocoPhillipsTransportationAlaska,Inc.(28.29%),ExxonMobilPipelineCompany(20.34%),KochAlaskaPipelineCompany,LLC(3.08%) and Unocal Pipeline Company (1.36%).

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

Tariff The fee that a pipeline owner charges to transport gas or oil through a pipeline. Gas tariffs are generally measured as dollars per million Btu to account for the variety of energy values in the gas stream due gas liquid content.

• Distance-sensitive rates are based on the cost to move gas to off-takes or delivery points for local use instead of the cost to move it to the final terminus of the pipeline.

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• Recourse rates are the maximum-to-minimum range of costs (per-unit shipped) based on construction and operationcosts,establishedbyFERC,RCAorNEBforeach 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“newgas”availableafterthefirstOpenSeason. This increase is capped at 15% for the original AGIA shippers.

• Incremental rates are often used in other pipeline systems where additional costs are charged to new gas shippers that cause a pipeline system to be expanded.

Yukon Pacific Corporation YPC In 1983, former Governors BillEganandWallyHickel,RobertO.AndersonofARCO,andtwo other investors formed Yukon Pacific Corporation. The prior year, Governor Jay Hammond had recruited the former governorstoco-chairtheGovernor’sEconomicCommitteeon North Slope Gas. The Committee studied the barriers to building an All-Alaska gasline from Prudhoe Bay to Valdez. YPC worked to advance the Committee’s conclusion that Alaska should expand LNG export to the Asian market.

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KEY WEBSITES for CRACKING THE CODE 2012

Alaska Gasline Development Corporation AGDCwww.gasline.us.com

Alaska Gas Pipeline Project Office GPPOhttp://gasline.alaska.gov

Alaska Gasline Port Authority AGPAwww.allalaskagasline.com

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

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

The Alaska Stand Alone Gas Pipeline Project ASAPwww.gasline.us.com

EIA – Energy Information Administrationhttp://www.eia.gov

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

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

FERC – Federal Energy Regulatory Commissionhttp://www.ferc.gov

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

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

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

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

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Governor Bill Egan argued for state ownership of the trans Alaska oil pipeline: “We must have full control and responsibility for moving that first huge volume of crude oil from Prudhoe Bay.” Anchorage Daily News November 11, 1971 Quoted in Crude Dreams by Jack Roderick

Governor Wally Hickel argued for state ownership of the natural gas pipeline: “�e state should build and own a 48-inch diameter natural gas pipeline from Prudhoe Bay to Valdez and ship our trillions of cubic feet of gas as LNG to world markets where they will earn a fortune for Alaskans. If I were governor, we would start building the All-Alaska gasline tomorrow. All it takes is some guts and a decision.”

Op Ed, Anchorage Daily News May 4, 2009

Senator Ted Stevens changed his view from Canada to Asia: “I tried to do everything I could to accelerate the pipeline through Canada. I’ve now changed my position. I believe emergency power should be given to a special coordinator to devise ways to get the main pipeline from the North Slope to Valdez built in record time. Let’s move ahead. We don’t need any more open seasons. We don’t need any more periods for analysis. We need an emphasis on getting the job done.” Speech to Commonwealth North March 12, 2010

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

With thanks to the Alaskan businesses,trade unions, educational institutions, and

individuals who have helped makeCRACKING THE CODE 2012 possible

both on-line and in print.

BOB BAER, REALTOR

Dynamic Properties

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 makeCRACKING THE CODE 2012 possible

both on-line and in print.

Wally and Ermalee Hickel

Al and Ann Parrish WALKER & LEVESQUE, LLC

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