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Alaska Lawmakers Urge Rethinking of TransCanada Gasline License

A pair of Alaska lawmakers are asking the state's governor and attorney general to take another look at the natural gas pipeline license issued to TransCanada Alaska Co. LLC under the Alaska Gasline Inducement Act (AGIA) to see if it is still a good deal for the state. Gov. Sarah Palin said the resolution is unnecessary.

State Rep. James Ramras (R-Fairbanks) and Rep. Craig Johnson (R-Anchorage) introduced legislation last week that cites "...economic changes affecting project financing, the availability of liquefied natural gas [LNG] and natural gas from nonconventional sources, the state's risk of paying treble damages associated with an in-state gas pipeline, and the expected [state] budget deficit..." as reasons for reconsidering the TransCanada license.

Palin, also a Republican, has made a gasline from the North Slope to serve the Lower 48 the cornerstone of her goals for the state. "I believe they [Ramras and Johnson] want us to double check, triple check, make quite sure all decisions we've made thus far with the gasline are truly in Alaska's best interest, and I am confident they are,” Palin said. "I believe Rep. Ramras and Rep. Johnson are instructing us to be vigilant in pursuit of this gasline. I agree with the premise, but I don't believe this resolution is necessary, and I certainly don't agree that there should be an AGIA 'redo.'

"Finally, we expect the oil and gas industry to abide by contracts and agreements they sign with us as they develop our resources, just as they have a right to expect us to abide by our agreements. AGIA is a contract. Why would we take it off the table, especially in this economy and at a time of great need for energy independence?"

The lawmakers cite the recession as creating "new uncertainties for the economic feasibility of the large-diameter gas pipeline." They also note robust production from Lower 48 gas shale plays and other unconventional resources as well as technology developments that have led better drilling economics of the same. Additionally, they cite the underutilization of LNG import terminals on the eastern and southern coasts of the United States.

The resolution asserts that Alaskans should be the first to benefit from North Slope gas production. "...[T]he people of the state have a present need for natural gas produced from the North Slope, and it is in the best interests of the state to pursue a means for delivering natural gas produced from the North Slope to the people of the state before the commencement of commercial operations of the project proposed by TransCanada..."

After some criticism, Palin has acknowledged the need for an in-state gasline to serve the southern part of the state, which is running short of supplies. In late January Palin said her goal was to have an in-state 460 MMcf/d pipeline constructed in five years (see Daily GPI, Jan. 26). A report prepared in early February pointed out that the state needs to focus on supplying its own people before worrying about supplying the Lower 48 (see Daily GPI, Feb. 6). Palin recently introduced legislation of her own to move an in-state line along (see Daily GPI, March 3).

TransCanada is eligible for reimbursement by the state of up to $500 million of its development costs. Late last year TransCanada CEO Hal Kvisle said he hoped that about $18 billion in loan guarantees available to the project could be increased (see Daily GPI, Dec. 16, 2008). BP and ConocoPhillips are working on a competing project, called Denali, which is moving forward outside AGIA and does not have access to the state subsidy.

"...[I]t is unclear if there is a value for the state to spend up to $500,000,000 to create competition when it is uncertain, even if there are two or more competing projects, whether or not those projects will ultimately be commercially viable," the resolution says.

The resolution (HCR 12) asks that the governor and attorney general reevaluate the license and report their findings to lawmakers within six months.

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