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Alaska Pipe Unlikely, Says Critic of State Process

The Alaska Gasline Inducement Act (AGIA) -- the pipeline development initiative of former Gov. Sarah Palin -- used a flawed financial analysis and overstated the "economic vitality" of the project, making the prospects for construction of an actual pipeline "doubtful," according to an analysis by a petroleum economist who used to work for the state.

Under AGIA, Alaska awarded a concession to construct a gas pipeline from the North Slope to Alberta, in order to ultimately deliver gas to Lower 48 markets, to pipeline developer TransCanada Corp. (see NGI, Nov. 3, 2008). A competing project backed by producers BP and ConocoPhillips, called Denali, was not considered under AGIA but is still being pursued by its backers. ExxonMobil Corp. recently agreed to work with TransCanada (see NGI, June 15).

In a paper published in September in the Journal of Economic Issues titled "Why America May Not See Alaska Natural Gas Soon," Roger Marks, who is retired from Alaska's Department of Revenue, wrote that "many of the AGIA provisions run counter to sound commercial arrangements that [gas pipeline] shippers need. The prospects for AGIA's success will be highly dependent on these issues. They may also explain the anemic interest in the application process..." They are:

Marks asserted that the Palin administration was aware of many of these concerns as they were brought to light during the public review process prior to the passage of AGIA itself. According to a report by the Associated Press, state Revenue Commissioner Pat Galvin said Marks' points were previously analyzed and "found to be without merit."

Gov. Sean Parnell defended the state's work toward a pipeline during a news conference last Thursday. "When you consider that we've been trying to get a gasline for 32 years, and now two open seasons are scheduled and the world's largest company [Exxon] is working with TransCanada," significant progress is being made, Parnell told reporters from Anchorage, as reported by the Juneau Empire.

"When the producers are ready to build the pipeline, the financing will follow," Marks wrote. "All AGIA offers is $500 million [in seed money to licensee TransCanada]; certainly in a $30-40 billion project it is not want of $500 million that is slowing it down. As much as some Alaskans may want a third-party pipeline, creating additional commercial challenges ensures the process will not work."

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