Federal regulators deny construction extension deadline for LNG plant in south-central Alaska

Regulators deny more time to build LNG plant in AK

JUNEAU, Alaska — Federal regulators have denied a request by Yukon Pacific Co. to again give the company more time to build a liquefied natural gas plant in south-central Alaska.

The denial by the Federal Energy Regulatory Commission creates new questions about an option to liquify natural gas from the North Slope for shipment by sea, which is part of a proposal to build a major pipeline to bring Alaska’s gas to domestic or overseas markets.

FERC, in its denial letter last week, said environmental and regulatory standards have changed since the company obtained permission to build in 1995, and those need to be addressed.

Permission had been extended repeatedly. But the letter from Jeff C. Wright, director of the office of energy projects, said the company’s ability to build and run an export terminal for liquefied natural gas near Valdez will no longer be valid after Saturday.

Patrick Rock, an attorney for Yukon Pacific, on Tuesday called the denial a “little bit surprising.” In a letter to the commission last month seeking an extension, he said industry efforts to commercialize gas from the North Slope had “increased dramatically” since the last extension in 2007. He said failure to extend the construction deadline by three years would undermine the export project.

The development comes just weeks into TransCanada Corp.’s open season for its natural gas pipeline proposal, when shipping commitments for a line are sought.

TransCanada is partnering with Exxon Mobil Corp. on the project. The cheaper of the two plans they have put forth is a Valdez option that would cost $20 billion to $26 billion. But officials behind the proposal have said someone else would have to build the plant where gas would be liquefied for shipment by sea.

Denali, a competing major pipeline project and joint effort of ConocoPhillips and BP PLC, does not have an LNG option but has sought the ability to consider other options if it deems them necessary.

Yukon Pacific has long been pushing an “all Alaska,” or Trans-Alaska Gas System that would bring gas from the prodigious North Slope to Valdez and export markets, and it’s faced challenges. It obtained an export license years ago, but the state Department of Natural Resources more recently denied a request to renew a conditional right-of-way lease for the company’s pipeline and liquefaction plan. The state agency, among other things, cited an inability to demonstrate substantial progress in developing project plans.

Bill Walker, a Republican candidate for governor and all-Alaska pipeline supporter, called the need to update data “a minor road bump.” And Mark Myers, the state’s Alaska Gasline Inducement Act coordinator, doesn’t see any of this precluding an LNG option.

Myers said he can see elements of the proposed Trans-Alaska Gas System and major line likeTransCanada is pursuing under the inducement act coming together into one project. But he said ultimately the market will decide what happens.

Rock, in seeking the extension from FERC, said it’s important that Yukon Pacific’s LNG option be preserved as the open season and “other market-related activities … play out.”

He said Tuesday that he hadn’t spoken with officials from CSX Corp., which has an ownership stake in Yukon Pacific, to discuss next steps, which could include an appeal or request for rehearing. A CSX spokesman declined to comment.

Rock said he hoped for a better understanding of what specifically the agency considered to be deficiencies. He hoped an option, then, might include negotiating terms that would allow Yukon Pacific to address any concerns and continue to move forward.

Wright, in his letter, said the agency’s findings “will not have any direct bearing on any future consideration of an LNG export option” or any refiled application for the Yukon Pacific proposal.