When Alaska Gov. Frank Murkowski was defeated in his bid for reelection last year, many knew it was game over for the old-line producers that had been negotiating behind the scenes on building a natural gas pipeline across the state. With the arrival of new politicians, however, new industry players also are arriving on the scene, and two this week offered their support for Gov. Sarah Palin’s revamped pipe proposal.
Executives with London-based BG Group plc and Chevron Corp., two companies that were not part of the long-term negotiations with Murkowski last year, testified Wednesday before a joint hearing of the Alaska Senate and House oil and gas committees.
BG Vice President David Keane told lawmakers his company is encouraged by Palin’s proposal, which would require energy companies to establish project criteria in exchange for pipeline inducement incentives (see Daily GPI, March 5). The Alaska Gasline Inducement Act (AGIA) sets the framework for what incentives would be offered to potential pipeline builders in exchange for their commitment to move Alaska’s gas to market.
“It’s the right way to go,” BG vice president David Keane told lawmakers. “Having a solid approach that includes all of the participants is very, very important. Something like this moves the process forward more properly than what’s been done in the past.”
Keane said BG does not want to build the pipe, but the company wants to be among those that transport gas in it. BG is the biggest liquefied natural gas (LNG) transporter to the United States, and it now is emerging as a player in Alaska after drilling its first North Slope well in February. BG has an exploration stake in more than two million acres in the North Slope, along with partners Anadarko Petroleum Corp. and PetroCanada.
“We want to be able to gain access to pipeline capacity and want to be able to move our gas to market once we find some,” Keane said. “We feel much more confident today that BG will have access to the pipeline’s capacity than we felt a year ago” Keane said.
Chevron has been an Alaska producer for more than 50 years, Vincent J. LeMieux, manager for Alaska’s new ventures, told lawmakers. He noted Chevron plans to spend about $170 million in the state this year. But he said the oil major wants more detail about the gasline before it makes a commitment.
“It will be the major challenge to manage the risk of aligning all the participants together,” he said.
LeMieux said the inducement act was a “firm step in the right direction.” However, he said Chevron has “few hard positions at this time” about the proposed gasline. Chevron wants more certainty about the overall costs of the pipeline, as well as more information about tax and royalty issues, tariff structures and transport costs.
“I’m surprised there hasn’t been more discussion about the cost of building the pipeline because it’s a critical point I personally am worried about,” LeMieux said.
“How the value is going to be shared between a shipper, a producer and the state…the impact on royalties…the uncertainty around that is huge at the moment,” said LeMieux. “That is going to be a real challenge in terms of being able to say, ‘here is my commitment, this is how I’m going to move forward on it.’ These are the areas in which I’m looking for and trying to evaluate information to establish a position.”
Industry testimony continues Friday, and executives from the North Slope’s top producers — ExxonMobil Corp., BP plc and ConocoPhillips — are expected to testify. The three had clinched a deal in principle during private negotiations with Murkowski last year, but the contract negotiations fell through after Murkowski was defeated by Palin in the Republican primary last August (see Daily GPI, Nov. 9, 2006; Sept. 26, 2006).
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