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All-Alaska Gas Pipeline Group Files Antitrust Lawsuit Against ExxonMobil, BP

The Alaska Gasline Port Authority (AGPA), which is touting an "All-Alaska Gasline" route to move North Slope natural gas to the Lower 48 states via a pipeline and liquefaction terminal, last week filed a federal antitrust lawsuit charging ExxonMobil Corp. and BP plc with conspiring to refuse to sell gas from the resources they control on the North Slope.

The AGPA's lawsuit followed the announcement on Dec. 16 by Alaska Gov. Frank Murkowski to suspend talks until early next year between the state and BP, ExxonMobil and ConocoPhillips -- the three largest North Slope producers. The state and the producers are hammering out a financial agreement and the details of pipeline project that would deliver gas from the North Slope through Canada and into Midwest markets (see related story). ConocoPhillips, which was not named in the lawsuit, is the only one of the three producers to agree on some base fiscal terms for a deal with the state.

The AGPA is not part of the current negotiations between Murkowski and the producers. However, it has stepped up its efforts in the past few months to convince lawmakers to choose its alternative pipeline route. The quasi-governmental body was created in 1999 by three Alaska municipalities: the Fairbanks North Star Borough, the City of Valdez, and the North Slope Borough. It is tax exempt, founded with the express purpose of bringing Alaska's gas to market.

The AGPA currently has building permits and $18 billion in federal guarantees to build its pipeline, which would run from the North Slope to Valdez, AK parallel to the Trans-Alaska Pipeline System. From Valdez, the gas would be transported by liquefied natural gas (LNG) tankers to LNG receiving facilities on the Pacific Coast, and from there, via pipeline to markets in the United States and Canada. The All-Alaska Gasline also would include a spur line from the North Slope to provide gas to the south-central Alaska gas grid.

To pursue its All-Alaska Gasline, AGPA has been attempting to strike a supply agreement only with the state for its royalty gas, which would leave the majors out of the process (see NGI, Sept. 5). It claims it has been attempting to negotiate to purchase gas from the producers for several years, "but the defendants have refused to engage in any discussion of the price or terms for the sale of their North Slope gas."

In the lawsuit, AGPA alleges that ExxonMobil and BP, "which together control a dominant share of the gas found on the North Slope, violated Sections One and Two of the Sherman Act and Section Seven of the Clayton Act by a series of illegal agreements, mergers and acquisitions that enabled them to jointly prevent the marketing of any natural gas from the North Slope. The result of their illegal conduct has been to artificially restrict the supply of natural gas and thereby artificially inflate the price of natural gas both in Alaska and in the Lower 48 states."

The lawsuit, filed in the U.S. District Court in Fairbanks, AK, notes that the price of gas has been rising sharply, but "at the same time, ExxonMobil and BP are sitting on at least 35 Tcf of gas that they control in the Prudhoe Bay and Point Thomson units, as well as other holdings on the North Slope." The AGPA alleges that the producers violated federal antitrust laws "in a number of ways," by conspiring to eliminate competition for the purchase of North Slope gas and to keep the North Slope's 35 Tcf of proved gas resources off the market, which in turn increased gas prices and BP and ExxonMobil's revenues and profits.

The AGPA's lead counsel, David Boies, who has in the past represented former Enron Corp. CFO Andrew Fastow and former presidential candidate Al Gore, said, "The defendants have used a variety of illegal means to restrain competition and block the marketing of Alaska North Slope natural gas. Their concerted refusal to market this gas results in higher gas prices that hurt consumers and businesses throughout Alaska and the rest of the United States. This cannot be allowed to continue. This action is intended to unlock the gas and get it to consumers."

On the Prudhoe Bay Unit, AGPA contends that operator BP is currently reinjecting 8 Bcf back into the reservoir every day. "And, despite being designated the unit operator of the Point Thomson Unit more than 25 years ago, ExxonMobil has done nothing to bring the 8 Tcf of gas in the Point Thomson Unit to market." The lawsuit alleges "the defendants, along with certain subsidiaries, conspired to keep this North Slope gas from the market with the purpose and effect of restricting supply and raising prices and extending the defendants' control over the industry and ability to block competition. The effects of this conduct are being felt and will continue to be felt both in Alaska and throughout the Lower 48 states."

In addition to the federal antitrust claims, the lawsuit also alleges violations of Alaskan law, alleging that BP violated the charter it signed with the state as a condition of approval of BP's merger with Atlantic Richfield Co. in 1999 (see NGI, April 5, 1999). In the charter it signed six years ago, BP agreed to negotiate in good faith with the AGPA and others for the sale of natural gas, an obligation that it allegedly breached, according to the lawsuit.

"America needs natural gas and Alaska needs a pipeline to get it there," said AGPA board Chairman Jim Whitaker. "Gas prices are at record highs, and the big oil companies still won't move the gas to market. For a quarter century we have tried to work productively with the defendants to help consumers, but it simply hasn't worked." The Fairbanks North Star Borough mayor added, "That's why we're in court today."

Boies' co-counsel Bill Walker said ExxonMobil's refusal to develop the massive Point Thomson field is one of the key reasons for the lawsuit. "ExxonMobil cannot just warehouse 8 Tcf of gas, and the Alaska Department of Natural Resources has told them that. If they are not going to produce gas, they should not and may not retain the leases."

Former Alaska Gov. Walter J. Hickel, who also is a former secretary of the Interior, threw his support behind AGPA's complaints, saying "This historic lawsuit reveals a story of extreme corporate greed that has abused Alaska and punished the American consumer. By opposing an All-Alaska Pipeline, the producers have conspired for years to delay the export of Alaska LNG. The people who have followed this issue thank the Alaska Gasline Port Authority for their courage in unmasking it. Once the judicial system reviews the facts, I have total confidence it will bring this suit to a prompt and just conclusion."

BP spokesman David MacDowell said the producer is working to obtain a "clear and durable fiscal contract" with the state to move the gasline project from the North Slope through Canada to the next stage. And he called the LNG idea proposed by AGPA an idea that BP had found unworkable. ExxonMobil said it could not comment in an ongoing lawsuit, but a spokesman said the lawsuit is "frivolous."

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