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Two of 3 Candidates for AK Gov. See Open Pipe Competition Ahead

As Alaska Gov. Frank Murkowski prepares to pass along to the next governor the results of two years of work on a gas pipeline contract with major producers BP, ExxonMobil and ConocoPhillips, at least two of the three candidates, Republican Sarah Palin and Democrat Tony Knowles, indicated they will start the process with an open competition among multiple pipeline project proposals. The third candidate, Independent Andrew Halcro, favors using the Murkowski negotiated deal as a base but with significant modifications.

Murkowski lost in the Republican primary on Aug. 22 to Palin, former mayor of the city of Wasilla and former chair of the Alaska's Oil and Gas Conservation Commission. He will leave office Dec. 4. Pursuit of a gas pipeline now will fall to Palin, Knowles or Halcro and all three candidates have made it a top issue in the election.

If he's elected, Knowles, a former Alaska governor, said Thursday that he'll ask for any group interested in building a gas pipeline to submit a proposal by Jan. 31. "Competing proposals will be encouraged, compared and assessed," he said. "That's how we'll get the best deal for Alaska.

"Negotiations will be transparent, tough -- yet fair -- and the Knowles-Berkowitz administration will not bow to pressure," he said. Ethan Berkowitz is Knowles' candidate for Lieutenant Governor.

However, Knowles indicated he thinks the current gas contract could form a solid base for negotiations. "We do not need to start from scratch," he said. "A lot of work has been done already. We will get the best deal for Alaska ASAP so we can get this project moving. High gas prices and high market demands have created new opportunities to get this deal done."

Nevertheless, Knowles said any pipeline that is built should serve the south-central part of the state. He also said oil taxes should not be a part of the negotiations.

Palin on Thursday noted that current high gas prices mean the Alaskan gas on the North Slope is no longer stranded, which frees any pipeline negotiations from being under the umbrella of the Alaska's Stranded Gas Development Act. "The door to competition is wide open," she said.

"The free market will work if we want it to. This market will include, but not be limited to, BP, ExxonMobil and ConocoPhillips. However, I will not allow them a monopoly, nor will I accept that huge concessions are the only way to get the line built."

Palin acknowledged that in the past at least four independent companies applied to build the Alaska pipeline but were not allowed to participate in the negotiations. "In my administration, all qualified entities will have the right to compete, and there will be no preferences," she said.

Palin noted that the producer project to the Lower 48 states may end up being the right project. "An LNG route might also prove to be the most viable option," she said referring to the Alaska Gasline Port Authority's (AGPA) All-Alaska gas pipeline proposal and liquefied natural gas (LNG) export terminal. AGPA's project includes an 800-mile, 1.2 Bcf/d pipeline from the North Slope to an LNG export terminal in Valdez.

If elected, Palin said in January she would submit a bill to the legislature seeking a "law of general application" that will set forth the basic requirements of a gas pipeline and provide "attractive incentives for quick commencement" of the project. She said oil taxes would not be a part of the negotiations for any project. However, the contract would include some tax incentives, options for direct investment by the state, commitments for infrastructure support and other benefits to the sponsors.

Halcro posted his pipeline plan on his campaign web site on Aug. 31. He generally supports the plan set forth by Murkowski and the producers but would seek some significant modifications. Those changes include:

Halcro blasted AGPA's All-Alaska pipeline and LNG proposal as being based on a number of false assumptions. Last week AGPA touted the results of a recent study by California consulting firm EconOne that concluded the All-Alaska pipeline plan would have an economic advantage over the producer-based proposal because the All-Alaska project would enter service at least three years sooner than the $25 billion producer pipeline. The study was presented to the Alaska Senate Special Committee on Natural Gas Development on Aug. 24.

Econ One economist Anthony Finizza told the Alaska Senate committee that although the producers' 4.3 Bcf/d Alaska highway line may produce a higher netback to the state, that benefit would be more than offset by the increased net present value of monetizing the gas earlier with the AGPA's LNG project.

APGA's project would require only a four-year construction window. It would include a gasline from Prudhoe Bay to a liquefaction terminal in Valdez where the gas would be put in LNG tankers bound for the North American west coast. AGPA currently is negotiating for capacity at six proposed regasification projects, including Sempra Energy's Energy Costa Azul terminal, which is under construction in Baja California, and the proposed LNG terminal in Kitimat, BC.

AGPA's pipeline also would be built to accommodate an extension to Canada for the producers' project. To assist the producer's Alaska highway project, AGPA has proposed to pre-build a larger capacity line from Prudhoe to Delta Junction. The project also would accommodate spur lines for in-state gas usage.

AGPA said last week its project would be the one left standing when the dust settles from the political upheaval in the state, including the elections and the turmoil stemming from an FBI investigation into allegations of improper legislative influence by oil field service company Veco, a major arctic pipeline developer.

However, Halcro said there are too many factors stacked against the All-Alaska project, such as the assumption that oil and gas companies would provide gas for the line within three years and that the line would qualify for billions in federal loan guarantees. He said the loan guarantees require any project to be regulated by the Federal Energy Regulatory Commission, but AGPA's project supposedly would be an intrastate line under state jurisdiction.

"While the current contract [with the major producers] has come under public criticism, it clearly represents the best foundation from which to provide Alaska's next generation with the revenue they'll need to continue to grow a healthy Alaska," said Halcro. "While the contract isn't perfect, the legislature, not the governor, clearly has the final say on what gets approved."

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