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Sempra Drops Out of 'All-Alaska' Gas Pipeline/LNG Project

Indicating that it believes competitive Western natural gas market opportunities require swift and unequivocal political and regulatory action, Sempra Energy late last month dropped out of a proposal for an all-Alaska gas pipeline and liquefied natural gas (LNG) project for bringing North Slope supplies to the Lower 48 states.

Sempra's top LNG executive wrote the Alaska Gasline Port Authority (AGPA) about its decision to drop out of the project, citing "little or no progress" being made with key players in the development process.

Earlier reports last month positioned the Sempra-AGPA project as doubtful, given uncertain regulatory processes and competition from various other proposals (see NGI, May 16).

In formally giving Sempra's notice of withdrawal, Sempra LNG President Darcel Hulse speculated that it did not look like North Slope producers would ever opt to send their supplies to West Coast markets directly, and with the withdrawal Sempra expected a $6.25 million promissory note to cover the sum of its option payments made prior to the termination. The payment of the note's principal is due upon "any financial closing of a project, and the note should contain such other terms as may be mutually agreed to between Sempra and AGPA.

"Protracted political wrestling within the state" led Sempra to decide to drop out, said a San Diego-based Sempra spokesperson. "It was proving too costly and time-consuming for the project, which is called the 'All-Alaska Project'. The legislative support we had hoped to attain by the end of May when Alaska's legislature adjourned didn't materialize."

Sempra left the door open to "marketing gas" if a solution is found to the political wrestling now ongoing, Hulse stated in the termination letter.

News media reports out of Anchorage Thursday characterized Sempra's decision as a "blow to the project," which is being pushed by the AGPA, a coalition of municipalities along the pipeline route. Under the proposal, North Slope natural gas would be shipped via pipeline to the southern Alaska port of Valdez where it would be liquefied for tanker shipment to receiving terminals along the West Coast.

Sempra's Hulse said the company made a "careful assessment" of the Alaskan project's progress and concluded that "despite every reasonable effort having been made," the project was languishing. "Our conclusion is that, little if any progress can be ascertained with the most important players in the process, namely Gov. [Frank] Murkowski, Sen. [Ted] Stevens and the North Slope producers," Hulse wrote to the Alaska Gasline coalition.

While the political maneuvering was continuing in Alaska, Hulse said "the West Coast market is being actively pursued by others. It is our view that the North Slope producers will not make a decision to send gas to the West Coast," and if they ever did, "it would be much to late for the market to accept the needed volumes to make the project economic."

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