Taking a hard line on Alaska's long-term energy plan, newly elected Republican Gov. Sarah Palin said Wednesday in her State of the State address that her "primary" energy focus is to get a natural gas pipeline serving the North Slope off of the drawing board and into service. She added that the state also needs to ramp-up the development of its energy resources.
Palin noted that the nation will look to Alaska for energy independence and said that the pipeline is an essential component of the country's energy policy. She added that while proven reserves in the North Slope currently amount to 30 Tcf, there is "a good chance there's actually hundreds of Tcf in the ground. It's in Alaska's and America's interest to get that gas to market (see related story). We need a project that ensures any viable explorer or producer can access a gasline on reasonable terms and we need a project that can be expanded when there's more gas found."
While admitting that the project can't be green-lighted and built overnight, she assured the public that it is a "sound, economic project."
Palin said former Gov. Frank Murkowski's North Slope pipeline negotiations with the three major North Slope producers -- BP plc, ExxonMobil and ConocoPhillips -- were not structured to serve Alaskans. Palin, who took office last month, began meeting almost immediately with stakeholder groups involved in some aspect of the proposed pipeline, and she said she is willing to consider all comers in moving North Slope gas to market (see Daily GPI, Dec. 8, 2006; Jan. 16).
"Over the last year, Alaskans have learned a lot from the prior attempt to develop our gas, under the old 'Stranded Gas Development Act.' For instance, Alaska's gas is not stranded," Palin said Wednesday. "And we learned what the oil producers' terms are. We learned that under the old act, some producers will talk to us, and talk to us, and talk to us until we agree to their terms. The terms were unacceptable. They demanded that, in a sense, we give up some fundamental rights as a state, as part of these United States, because the deal removed our taxing, regulatory, and judicial authorities for decades."
Calling the deal a "no deal," Palin said Alaska needs "progress on this project -- and competition to result in the best project. We don't need endless discussions behind closed doors. It's time we leave the Stranded Gas Development Act in the past and move forward with a new vehicle. A vehicle that builds on the knowledge and experience gained from a valiant -- but futile -- effort previously in a noncompetitive process."
As a result, the governor said her gasline cabinet is developing a bill titled the Alaska Gasline Inducement Act, or AGIA, which will be introduced this legislative session. The centerpiece of the bill is to induce construction of the gas pipeline -- "A gasline constructed on our terms, without selling Alaska's sovereignty," she said.
First, it offers inducements to those that will build the pipeline itself, whether it turns out to be the three major oil producers, an independent pipeline company, a state or quasi-state entity, or a combination of entities joining forces. "The pipeline construction incentives will be valuable, and will encourage companies to compete for the right to build this line," she said. "We're currently developing such incentives as a substantial state capital contribution so bidders know that we'll have skin in the game. We're also developing permit streamlining and a state-funded training program to ensure a qualified Alaskan workforce."
Second, to get a chance to compete for the inducement package, the applicant must agree to certain bedrock, "must-have" requirements of the state, such as gas for Alaskans, jobs for Alaskans, and project benchmarks. AGIA will require terms that ensure competitive and long-term exploration and more development on the Slope.
Third, the act provides inducements to those who hold the leases and control the gas. "Regardless of who builds the line, we need a mechanism to 'strongly encourage' the leaseholders to commit their gas to the licensed project," Palin said. "But above all, one of the most appealing differences between this bill and the former is that AGIA will contain clear, competitive criteria by which we can judge which project best meets our long-term needs."
Palin also said the state needs to focus on developing its known reserves. "I'm keenly aware of sharply declining production from North Slope fields. The amount of oil currently flowing through the pipeline is less than half of what it was at its peak. So, we must look to responsible development throughout the state from the Slope all the way through and down to [the] Southeast [with] every region participating."
She highlighted the North Slope's Point Thomson field as a glaring example of reserves sitting idle. In late November, Alaska revoked some decades-old leases in the Point Thomson field, where ExxonMobil was the primary stakeholder. Alaska had said that barring a lawsuit, the natural gas-rich acreage could be opened to newcomers in a state lease sale scheduled for October 2007 (see Daily GPI, Nov. 30, 2006). However, ExxonMobil asked an Alaska court late last year to overturn the state's decision (see Daily GPI, Jan. 2).
"Leases held by producers are iron-clad contracts -- they're promises to develop the public's resources for mutual benefit -- or give back the leases," Palin said. "There's a large producer who's held the lease at Point Thomson for roughly 30 years with no development -- three decades to develop or step aside. Warehousing Alaska's resources is not an option anymore. We can't afford it."
She said that while the state should be trusted to keep its promises, the standard should be no different for industry. "Ironically, we're trying to convince the rest of the nation to open ANWR [Alaska National Wildlife Refuge], but we can't even get our own Point Thomson, which is right on the edge of ANWR, developed. We are ready for that gas to be tapped so we can fill a natural gas pipeline."
Addressing the ANWR situation, Palin noted that the state's chance to open the refuge to development likely diminished with the Democrats taking Congress. However, she said she will continue to stand alongside her congressional delegation to prove to the rest of the nation that Alaska must be the foundation of a National Energy Plan.
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