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Alaska Gasline Licensee Hints at Upping Loan Guarantees

Less than a week after the award of a license giving his company the concession to construct an Alaska North Slope gas pipeline to the Lower 48, the chief executive of TransCanada Corp. has called attention to potential cost hikes with remarks suggesting that the company might seek increased federal loan guarantees for the project.

In a recent interview TransCanada CEO Hal Kvisle remarked that he hoped loan guarantees available to the project, currently about $18 billion, could be increased. The guarantees were authorized by Congress in 2004 with the intent they would make it easier for a project developer to secure financing. The guarantees would cover cost overruns. As the guarantees are adjusted for inflation, they are now estimated to be worth about $20 billion.

State Sen. Charlie Huggins (R-Wasilla) said the comments were "inappropriate" and that their timing was bad, noting the crisis in financial markets and recent government bailouts. Huggins has been a critic of the pipeline agreement with TransCanada.

As the licensee under the Alaska Gasline Inducement Act (AGIA), TransCanada is in line for up to $500 million of subsidies to help pay for development of the project to an open season and then to licensing by the Federal Energy Regulatory Commission and Canada's National Energy Board. TransCanada Alaska (TC Alaska) and TransCanada unit Foothills Pipe Lines Ltd. were awarded the gasline concession this past summer (see NGI, Aug. 4). The license was signed earlier this month.

Whether TransCanada will pursue a hike in the loan guarantees remains to be seen. Tony Palmer, TransCanada vice president for Alaska business development, told the Anchorage Daily News the company "may do that in the new year," the paper reported Thursday. Palmer said costs for oil and gas projects are rising faster than general inflation. "It would be helpful if the inflator were equal to actual increases in oil and gas projects," he told the paper.

Palmer was unavailable to speak with NGI on Friday.

When Alaska Gov. Sarah Palin was on the Republican presidential ticket this year her progress in moving the Alaska gasline forward was widely touted, with some reports suggesting that the project is a done deal. That, however, is not the case (see NGI, Oct. 27). It also remains to be seen whether producers will sign on to the TransCanada project (see NGI, Nov. 3) or stick with their own pipeline proposal, which is called Denali and is backed by BP and ConocoPhillips (see NGI, Aug. 11).

Palin is counting on the producers signing on to pipeline development efforts, but that's far from a sure thing, according to Andrew Halcro, a former gubernatorial candidate and vocal critic of Palin.

"Since AGIA does not allow the administration to negotiate with the producers outside the process that has led to the TransCanada agreement, the state's options are limited. Thus, Palin and her gas line team's fairy tale ending that the producers and TransCanada will hold hands and walk off into the sunset building a pipeline are just that; a fairy tale," Halcro wrote in a blog on his website under the title "TransCanada: Milestone? More like millstone."

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