Alaska chases Hawaii as natural gas customer

ANCHORAGE, Alaska » For more than a year, some Alaska political leaders have been quietly pursuing Hawaii, an untapped market for the state's vast stores of natural gas.

Hawaii, with electric bills so steep they rival those in rural Alaska, is interested.

State Sen. Lesil McGuire, an Anchorage Republican, brought up the idea at a recent meeting of the Legislature's In-State Gas Caucus.

"Can you please include Hawaii in your outreach for markets?" McGuire asked Alaska Natural Resources Commissioner Dan Sullivan and other state officials. "They are very interested. They've got their leadership moved into a position where they'd like to start considering that."

Hawaii's point person for exploring cheaper natural gas energy options is Lt. Gov. Brian Schatz. He already has talked with U.S. Sen. Mark Begich, D-Alaska. And the Hawaii State Energy Office has sought help from the Alaska Energy Authority.

A new report by the federal gas czar for Alaska examined the issue in depth.

Executing such an initiative would be hugely complex and expensive, the federal report concluded. Costs on the Hawaii side are estimated at hundreds of millions for storage tanks, pipelines and facilities to process liquefied natural gas and retrofit power plants that now run on oil.

Then there's the tricky matter of a federal law that requires transport of goods from one U.S. port to another to be in a U.S.-built, U.S.-owned and U.S.-crewed vessel. There are no such LNG tankers in the country, the federal report said.

"The question for Alaska LNG will be: Could Hawaii get gas for less elsewhere?" Larry Persily, the federal natural gas coordinator, wrote.

The political charm of an Alaska-Hawaii energy link cannot be denied.

But can it work? The prospects for a big natural gas pipeline from the North Slope, with its vast resources, to commercial markets remain uncertain.

One new twist helps. At Alaska Gov. Sean Parnell's direction, Alaska's major oil and gas producers and pipeline company TransCanada have shifted focus from a big pipeline to the mainland to one leading to an LNG export plant in Southcentral Alaska. TransCanada, which holds a state license to develop a natural gas pipeline, is soliciting interest in either option from Aug. 31 through Sept. 14.

"The state will hopefully one day gets its act together on this," Begich said. "In the meantime, what we are going to do is drive the issue from a customer end."

He's talked about the Alaska gas idea with his Hawaii counterpart, U.S. Sen. Daniel Ino­uye.

"It intrigued him because they have huge costs on energy," Begich said.

Hawaii, like Alaska, is a small, isolated market. The cost of electricity there is triple the average around the country, the new federal report said. But it's cheaper than in some small Alaska villages.

Begich is organizing a roundtable for later this month in Anchorage to explore markets — including Hawaii and Japan — for Alaska gas.

While the big customer for any export of Alaska liquefied natural gas is expected to be Japan or another Asian country, Hawaii fits into the equation, the senator said.

"Are we going to let Hawaii import gas from Australia or Canada when we have lots of it on the West Coast potentially, with Alaska?" Begich said. That would be outrageous, he said.

Some U.S. politicians oppose exporting U.S. natural gas. But if Hawaii could get relief from high energy bills by buying Alaska gas, that could secure political capital for exports to foreign countries including Japan and South Korea, Begich said.

"I keep a file on my desk about this one project all the time because I think at the end of the day, it makes sense for Alaska, it creates opportunity for our gas supply and we have no better partner than Hawaii and Japan," Begich said.

Natural gas production is booming in countries like Australia and on the mainland. But Alaska is ahead of the curve in one sense. The first LNG export plant in the country is in Nikiski, supplied by gas from Cook Inlet, and it began operating in 1969. Around the country, only one other LNG export plant has been approved, in Louisiana. Construction is just beginning.

ConocoPhillips expects to export four or five tankers full of gas from Alaska to Japan this year, spokes­woman Nata­lie Lowman said in an email. But she said the company wasn't prepared to discuss whether it had any interest in Hawaii.

The Nikiski plant processes 60 million cubic feet of gas a day, one-fourth of its capacity, she said. During winter months all of the gas produced from Cook Inlet is used by Southcentral electric and gas utilities, and none is exported.

Cook Inlet gas had been seen as an aging, dwindling resource. Then state tax incentives for Cook Inlet sparked exploration for oil, and that might lead to gas finds, said Joe Balash, deputy natural resources commissioner. The result could be more gas than Southcentral Alaska needs — maybe enough for Hawaii even without a big pipeline from the North Slope, he said.

"Based on resource potential, we could get there," Balash said. "We're not there today."

Hawaii state Rep. Marcus Oshiro, a Demo­crat, and Alaska's Mc­Guire both are active in the Council of State Governments-West. Mc­Guire doesn't let the Hawaii lawmaker forget about Alaska gas potential.

"Whenever we see each other, she says, ‘Hey, Marcus! When are you guys going to start buying some of our gas?'" Oshiro said in a recent telephone interview.

Oil-fired power plants now provide electricity in Hawaii, the most petroleum-dependent state in the nation. That is changing fast, though.

Gov. Neil Abercrombie has directed the state's biggest electric utility to convert to natural gas-fueled power wherever possible while working on a bigger goal of renewable energy from solar panels, wind, biomass fuels and other sources.

"I understand there are numerous logistical, environmental, and economic questions that need to be addressed in order for LNG to become a reality," the governor wrote. Hawaii may not ultimately go that way. "However, there's no doubt that continuing to burn oil for the majority of our electricity is an expensive and dirty option, and we ought to aggressively pursue all realistic alternatives."

A Hawaii state law passed three years ago says that 40 percent of the electricity sold by the big utility, Hawaiian Electric, and associated companies must come from renewable sources by 2030.

So does it even make sense to invest in natural gas?

Yes, says state Rep. Pono Chong, a Demo­crat who serves as majority leader in the House. Wind and solar power, even in Hawaii, aren't steady enough to be the main sources, he said.

"If you watch a solar meter as just clouds pass over your panel, not even having rain, it dips quite a bit," he said.

In addition, efforts to tap into geothermal power from volcanoes have met resistance from Native Hawaiians, Mc­Guire said.

"They've got issues because Pele is the goddess of fire, and the locals don't want to disrupt," she said.

That's true, Chong said. There's been a lot of discussion with Native Hawaiian cultural groups concerned that geothermal energy production would desecrate the goddess. Some now are more open to the idea, he said.

It makes sense to examine Alaska natural gas as a source of cleaner, cheaper energy, Chong said. The connections between the two youngest states go deep.

"We are interested. The governor is interested. The public utility commission is interested," Chong said. "So I think you have a good mix of people who hopefully can start moving this forward."

HAWAI‘IGAS, formerly The Gas Co., already provides synthetic gas to about 70,000 customers in Hawaii to run stoves, hot water heaters, dryers and, in the case of businesses, air conditioners.

The company is working on a trial project to bring in liquefied natural gas in a modular container that is like a huge Thermos.

HAWAI‘IGAS looked at Alaska as a possible source but will probably get shipments out of the Port of Long Beach in California because the logistics work better, said Joe Boivin Jr., senior vice president of external affairs for the company.

If the experiment works and the company needs a big supply of liquefied natural gas, the company will look at Alaska again, he said.