With only one official North Slope gasline proposal to consider and many questions yet to be answered, at least one Alaska lawmaker is losing faith in the Alaska Gasline Inducement Act (AGIA) process, he told NGI last week.
Sen. Charlie Huggins, Republican chairman of the state Senate Resources Committee, said the AGIA process was apparently tailored for its one qualifying applicant, TransCanada, and nonapplicant MidAmerican Energy, both pipeline companies. Huggins faulted the administration of Gov. Sarah Palin in its work leading up to AGIA bidding for conferring with these companies when it could not have known who the other applicants under AGIA would be and, hence, could not give them a similar opportunity to provide input.
As it happened, five groups applied to construct a solution to commercialize Alaska's vast North Slope reserves (see NGI, Jan. 7), and all but TransCanada failed to qualify under the AGIA rules, Huggins said. MidAmerican never even made it to the starting line, and now the single conforming proposal from TransCanada may have developed a fatal flaw.
"It's sort of a sad climate in the respect that when I voted for AGIA I said it's a risk worth taking," Huggins said. "I'm becoming more reluctant on my enthusiasm for taking that risk. Having said that, it was portrayed as a competitive process. Now we essentially have one candidate. None of the others were even competitive to be evaluated beyond whether they were in compliance. I'm concerned about that."
The senator said one provision of AGIA, a $500 million inducement from the state for the successful licensee, was tailor-made for TransCanada and MidAmerican following discussions those companies had with the state.
"I feel perfectly confident, that the $500 million -- it's described as an inducement -- came out of discussions with a couple of organizations, one being MidAmerican primarily and the other being TransCanada," he said. "I told the administration right up front that I do not think governments should get in the business of going out and talking to select, select, potential bidders and not everyone. Because you never know who everyone is, which means you shouldn't do that."
Huggins said he would like to be able to contrast TransCanada's proposal against others and he asserted the state could be much further along to its pipeline goal if the Palin administration had a better relationship with the three major producers active in Alaska: BP plc, ExxonMobil and ConocoPhillips. "Let's just call them our business partners; we get 90% of our revenue from them...It's popular in some circles to demonize producers...but by the same token, they have the gas."
If the producers refuse to play ball with the state and develop their gas reserves, taking back the leases is always an option, Huggins conceded, but he said he hoped "we have some more rational approaches because [taking the leases back]...would cost a lot of money and, most important, it would take a long time and our state doesn't have a long time to get a gas pipeline."
It was revealed this past week that TransCanada, which has submitted the only Alaska gasline proposal deemed complete by the state, has a $9 billion albatross around its neck when it comes to developing its project. The financial liability makes a partnership with North Slope producer ConocoPhillips a "nonstarter," a ConocoPhillips executive told Alaska lawmakers Wednesday.
ConocoPhillips Vice President Brian Wenzel told the Senate Resources Committee last Wednesday that a 1970s-era proposal to build an Alaska gas pipeline (see NGI, Jan. 7, 2002) puts TransCanada on the hook for $9 billion if it wants to develop a new project today. It is a stumbling block for ConocoPhillips and also could discourage any other potential partner, Wenzel said.
However, Tony Palmer, TransCanada vice president of Alaska operations, has said the liability is not an issue for the company's current pipeline proposal.
Dissolution of the partnership behind an earlier project provided that TransCanada would owe former partners for their investment if it went forward with a project in the future. With interest, the obligation is said to have grown to around $9 billion. But TransCanada contends the liability really does not exist and would not affect current gasline plans even if it did.
Palmer told NGI, "There's no $9 billion liability today because there's no [pipeline] asset today. Palmer said even if the company does face a liability, the cost of that liability would not be borne by shippers on any gasline it develops in the future. Huggins said Alaska's attorney general is examining the potential for a liability on TransCanada and whether any such liability would affect its gasline project.
But, "at the moment we're very concerned the liability is a stumbling block.This is a nonstarter," Wenzel said. "There is uncertainty about the liability impacting on a partner. We don't understand how we could be protected from ending up sharing some of that debt liability." ConocoPhillips is in favor of having a pipeline partner be part of the project and has been in discussions with a number of pipelines. He named TransCanada and Enbridge.
Meanwhile, ConocoPhillips has aired its own proposal for a natural gas pipeline, independent of the competition under the state's Alaska Gasline Inducement Act (AGIA) process (see NGI, Dec. 3, 2007). This proposal was recently rejected by Gov. Sarah Palin in favor of the TransCanada proposal, which was submitted under AGIA (see NGI, Jan. 14). However, Alaska lawmakers have said they want to consider the details of the ConocoPhillips proposal as well as any others. And ConocoPhillips recently appealed to the state for "fair and thorough" consideration of its $30 billion proposal for the 4 Bcf/d pipeline.
ConocoPhillips also is making presentations in various public forums around the state about its proposal. The main thing the producer wants to see as part of the deal is a tax system stability with a duration to match the 20 to 25 year transportation contracts that will have to be signed. If there are to be $150 billion in financial commitments, "we need to know the costs." There won't be a successful open season without a gas fiscal framework , Wenzel said, adding that he is ready to sit down with state officials to discuss what that will be.
Also appealing to the state for a second chance is disqualified AGIA applicant the Alaska Gasline Port Authority (AGPA), which has alleged that its application was harmed by undue pressure to back out of the AGIA process (see NGI, Jan. 21).
Huggins said lawmakers on Monday will hear from Drue Pierce, federal coordinator of Alaska natural gas transportation projects "about what she thinks she can do to facilitate operations between state and federal government.
"I'm concerned," Huggins said. "I'm not so sure [AGIA] was a risk worth taking. I'm a cheerleader for the pipeline. I'm very concerned for the future of the state and the pipeline as it's evolving."
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