Republican lawmakers in Alaska have introduced a bill intended to light a fire under efforts by TransCanada Corp. to construct a natural gas pipeline from the North Slope to serve Lower 48 markets. While the legislation's backers are growing impatient, pipeline faithfuls claim that the measure could derail the project and signal that Alaska is closed for business.
HB 142 would create a rebuttable presumption that the TransCanada project, which was licensed under the Alaska Gasline Inducement Act (AGIA), is uneconomic because it failed to garner sufficient firm transportation commitments during its first open season, which ran from April 30 to July 30, 2010 (see Daily GPI, Aug. 3, 2010).
In other words, it would give the state an out from its contract with TransCanada by triggering an abandonment clause in AGIA. Under the agreement the state is on the hook for up to $500 million in cost reimbursements for the first phases of the project (see Daily GPI, Feb. 25, 2008; Jan. 28, 2008).
The lawmakers said the legislation would "provide a date-certain timeline for information being made available to the legislature and public to allow a determination" on whether the project should move forward.
The bill creates a benchmark at which the legislature would expect to receive evidence of progress under the state's $500 million financial commitment under AGIA. TransCanada would have until July 15 to disclose to the commissioners of the state Department of Revenue and Department of Natural Resources whether firm transportation commitments were made sufficient to support construction of the project.
If not, the presumption takes effect. The commissioners would have until Aug. 1 to notify the legislature whether the results of the first open season were disclosed by July 15, and whether those commitments are sufficient to support construction of the project licensed under AGIA. If the presumption is raised, the commissioners would have until Aug. 15 to rebut it to the legislature. The commissioners are not required to rebut the presumption if they believe the evidence is lacking.
If the presumption is not rebutted, the project would be considered uneconomic. AGIA includes provisions for dissolving the relationship between TransCanada and the state if the project becomes uneconomic. The arrangement could go to arbitration if TransCanada does not agree to the uneconomic status of the project.
"The public and the legislature have a right to know if we're simply throwing good money after bad," said state Rep. Mike Hawker, R-Anchorage, one of the legislation's sponsors. He was joined by House Speaker Mike Chenault, R-Nikiski; Rules Chair Craig Johnson, R-Anchorage; and Labor & Commerce Chair Kurt Olson, R-Kenai.
However, Gov. Sean Parnell urged patience for the project and the AGIA terms. "I share Alaskans' sense of urgency to get a pipeline project under way," he said. "However, moving the goal posts and changing the game on a process established by law will lead to delays and ultimately end our opportunity to build this pipeline. This bill will have a chilling effect on businesses looking to invest in Alaska. Legislators ought to focus on creating opportunities rather than killing them off."
AGIA was claimed to be the crowning achievement of former Gov. Sarah Palin; however, it has become almost as controversial as the former governor herself.
Arguing that deadlines make for progress, the sponsoring lawmakers said they are just trying to move things along.
"The bill simply adds something that was overlooked in the initial AGIA legislation -- a deadline," they said. "That's something Alaskans have a right to expect. Let's get this project started or get on with something else. If AGIA leads to a viable project, this bill assures work is launched quickly. If AGIA is not going to work, this bill sets a reasonable deadline for the administration to tell Alaskans."
A major factor contributing to the sense of urgency felt in Alaska over the gasline is the growth of gas supplies from shales in the Lower 48. The shifting economics of Lower 48 gas supply -- read low prices -- are thought by some to have made the Alaska gasline uneconomic. Denali, a project competing with TransCanada's, is backed by BP plc and ConocoPhillips. Recently, ConocoPhillips CEO Jim Mulva expressed doubts about his company's participation in Denali (see Daily GPI, Sept. 29, 2010).
Meanwhile, Alaskans in the state's Southcentral region are starved for gas and are eyeing their own options for a intrastate line from the North Slope (see Daily GPI, Dec. 28, 2010; Aug. 11, 2010). And the long-murmuring chorus for developing additional liquefied natural gas (LNG) export capability to send Alaskan gas to Asian markets in the form of LNG is growing louder (see Daily GPI, Jan. 27).
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