Notably absent from those stepping up to commercialize Alaska’s vast North Slope gas reserves with pipeline/liquefied natural gas (LNG) projects under a state-sanctioned plan are the region’s three major producers and a pipeline company that many expected to throw its hat in the ring.
Five companies submitted applications Nov. 30 under the state-sanctioned Alaska Gasline Inducement Act (AGIA). They are TransCanada along with Foot Hills Pipe Line Ltd.; Sinopec ZPEB, which is China’s second largest energy company; the Alaska Gasline Port Authority (AGPA); the Alaska Natural Gas Development Authority (ANGDA); and AEnergia LLC. Little seems to be known about AEnergia other than it is based in California.
The applicant names were announced shortly after an unofficial gasline proposal was released by ConocoPhillips. Entirely absent from the fray are the North Slope’s two other major producers besides ConocoPhillips — ExxonMobil and BP — as well as pipeliner MidAmerican Energy and major liquefied natural gas (LNG) player BG Group plc.
ExxonMobil would not comment on its absence from the applicant pool. BP has said it would not sign take-or-pay contracts with a pipeline licensed under AGIA. MidAmerican had said it might submit a proposal and many expected it to do so, but the company’s absence from the group of applicants was explained by a Nov. 30 letter from CEO David Sokol to Gov. Sarah Palin (see related story).
“As you are painfully aware the ongoing corruption investigations coupled with previous indictments, guilty pleas and convictions draw into question virtually every major Alaskan project participant and governmental levels from state to federal,” Sokol wrote Palin, alluding in part to a recent bribery scandal (see NGI, May 14). “Obviously your administration had no involvement in these previous shenanigans nor did we; however, you and we alone cannot develop the pipeline project through AGIA’s expected process.”
In a Nov. 29 letter to Palin, BG Group Managing Director Martin Houston said there was “too much economic uncertainty” around the project for the company to get involved. “But this does not affect our view that there is potential for robust projects in which we would be keen to participate as the picture firms up,” Houston wrote. “Based on our work, we also believe that LNG should and will be part of the solution for the future development of Alaska’s natural gas resources.”
Enbridge Inc. is on record as expressing interest in a pipeline project but not willing to go it alone, preferring to be part of a consortium.
The Fairbanks Daily News-Miner saw the absence of conforming applications from producers as a failure of Palin’s plan. “It’s a pity that the Palin administration chose to adopt a hostile attitude to the major oil companies upon taking office,” the paper wrote in an editorial.
The applications themselves will not be released until reviewed and certified as AGIA-compliant by the state. While details of the proposals were not available, TransCanada previously told NGI that its project would integrate with the company’s pipeline system at the Alberta Hub. The ConocoPhillips proposal will not be considered under AGIA, but it will be reviewed, Palin told reporters Friday.
The AGPA, a consortium of municipalities, backs an all-Alaska line that would include shipping gas in the form of LNG to Lower 48 markets. The ANGDA backs a spur line to deliver gas to south-central Alaska where it is sorely needed (see NGI, Oct. 1).
TransCanada has maintained that it has the right to build the Canadian portion of the pipeline under a 1970s international treaty. Its application is for the entire project.
BP spokesman Steve Rinehart told NGI the company could not meet the terms of AGIA. He said BP is reviewing the ConocoPhillips proposal and keeping its options open for “being part of a successful gas project.” An Enbridge Inc. spokesperson told NGI Friday afternoon that the company would not submit an application under AGIA but that it was still interested in being part of a consortium that includes gas producers. ExxonMobil and BG Group did not provide comment Friday.
“With five good companies investing a lot of money just for the opportunity to compete for the exclusive $500 million AGIA license, they have shown how profitable a project [such as] this can be for them and how Alaska has created a positive environment in which to do business,” Palin said.
AGIA was passed by the state’s legislature in May and prescribes three fundamental requirements of a gasline. Any project must protect Alaska’s interests with reasonable commercial terms, meet the needs of Alaskans with in-state gas and labor opportunities, and allow for a timely open season for capacity on the line. “This is truly an open-access pipeline,” Palin said. “Our long-term financial interests are protected by these must-haves.”
The state has said that companies can pursue pipeline projects outside of the AGIA process, which is what ConocoPhillips appears to be doing, choosing to forego $500 million in matching funds offered by the state. The company described the initial focus of its project as “a gas transmission system from the ANS [Alaska North Slope] to the border of British Columbia and Alberta in Canada. From there, the natural gas will be transported to markets throughout North America by utilizing a new-build pipeline to Chicago, spare capacity available at the time on then-existing pipelines, or expanded capacity on then-existing pipelines.”
Components of the project would include a:
“As an alternative to new construction, an interconnect with the existing Nova Gas Transmission Ltd. system in Alberta for some or all of the ANS natural gas volumes may provide a cost-effective way to access the Alberta gas hub and the other pipelines that connect to that system for transport to the Lower 48 markets,” the company said. “There may also be opportunities for ANS natural gas shippers to utilize excess or expanded capacity on the Westcoast or Alliance pipelines.”
ConocoPhillips said it is prepared to make “significant investments, without state matching funds,” to advance its project. “We desire to work directly and purposefully with the state of Alaska and the Legislature to advance this project as quickly as possible,” said CEO Jim Mulva. “We also expect to approach other parties to explore ways through which their participation could add value to this effort.”
Details of the proposal are available from a website established by the company at www.ansnaturalgaspipeline.com/.
AGPA backs a combined pipeline and natural gas liquefaction project that had been essentially shut out of talks by former governor Frank Murkowski (see NGI, Sept. 11, 2006).
Kirk Morgan, president of MidAmerican’s Kern River Gas Transmission Co. told lawmakers in May that the North Slope producers would be unlikely to withhold their gas reserves from a south-bound pipeline, lest they be accused of antitrust behavior (see NGI, May 7). MidAmerican spokesman Allan Urlis told NGI the company would not comment on any of the project proposals until they had been reviewed by the state.
Based on a settlement some years back, the companies that are now ExxonMobil, BP and ConocoPhillips agreed on ownership shares and operation of the North Slope Prudhoe Bay unit. ExxonMobil has a 36.8% equity interest, ConocoPhillips has a 36.5% equity interest and BP has a 26.7% interest. BP was designated the operator (see NGI, April 17, 2000).
Earlier this year Martin Massey, joint interest manager for ExxonMobil, told members of the Alaska state finance committee AGIA does not account for the upstream risks faced by producer shippers. It is the shippers that will be underwriting the project by making long-term capacity commitments. The project will be built “directly on the backs of long-term transportation commitments,” Massey said, and the upstream and pipeline economics must be integrated.
The producers can handle the geologic risk, the risk of cost overruns and the risk of volatile natural gas prices, he said, but they cannot cope with changing fiscal rules imposed by the state. The rules for taxes and royalties need to be “durable and predictable before producers commit to the long-term contracts necessary to get the project financed.” The rules laid out in AGIA for companies to bid to construct the pipeline are too prescriptive, Massey said. The producers recommended that the project rules be more flexible to allow project sponsors to develop viable plans (see NGI, May 7).
The state said the gasline team will use public comment on the applications to determine which application “maximizes the benefits to the people of the state.” Commissioners of the departments of Natural Resources and Revenue will provide a recommendation for a single licensee, and the legislature will then have 60 days to approve the commissioners’ proposed action.
“The sooner we proceed to the licensing phase of the AGIA process and the sooner we get this line constructed, the sooner Alaskans will reap its benefits,” Palin said.
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