Potential sponsors who have been working behind the scenes got a huge shot in the arm this week when departing lawmakers slipped an $18 billion loan guarantee and authorizations for a mega-natural gas pipeline from Alaska’s North Slope to the Lower 48 states into last-minute appropriations and tax measures.

The enabling legislation “has gone a long way in reducing the economic risk” of the $20 billion pipeline project, said Ian La Couvee, a spokesman for Calgary-based Enbridge Inc, which is seeking to build the in-state portion of the Alaska pipeline from Prudhoe Bay to the Alaska-Yukon border. The measures “will facilitate a more timely development of the project.”

The project to add roughly 3,500 miles of pipeline to the already existing infrastructure to deliver 4.5 Bcf/d to U.S. markets in the West and Midwest still has a long way to go, but the enabling measure and tax credits approved “provide us with what we need from the U.S. Congress for this project,” said Dave MacDowell, a spokesman for the Alaska operations of BP, one of the three major Alaska gas producers interested in building the line.

The legislation provides the impetus for the project to gain sponsors, seek financing, complete engineering studies and pursue the necessary permits and authorizations along the pipeline route from north of the Arctic Circle through Alaska, the Yukon and Alberta.

“After working for more than 20 years…we have finally taken steps to make the Alaska natural gas pipeline happen,” Sen. Ted Stevens (R-AK) said, of the authorizing measure that was added to the conference report on the fiscal 2005 military construction appropriations bill (H.R. 4837). The proposal unanimously cleared both houses before lawmakers adjourned to campaign for November elections.

It’s not a quick fix, since the proposed pipeline is expected to take at least 10 years to permit and construct, but down the road it will help cut the increasing U.S. dependency on foreign gas and imports of liquefied natural gas (LNG), generate more than $40 billion in revenues for the federal government and create more than 400,000 jobs, according to Stevens.

The enabling legislation for the mega-gas pipeline, potentially the largest private construction project ever undertaken in the United States, authorizes the secretary of the Department of Energy to enter into agreements with builders of the long-line system to provide loans not to exceed 80% of the total capital costs of construction, to be capped at $18 billion. The language was lifted from the failed energy bill of 2003.

It directs the Federal Energy Regulatory Commission to quickly permit the proposed Alaska pipeline once certain requirements have been met; designates FERC as the lead agency for the National Environmental Policy Act process; creates a federal coordinator within the executive branch to coordinate the federal agencies involved with the pipeline; requires a single environmental impact study; and expedites judicial review and allows for future expansions.

At the same time, language included in the corporate tax cut bill, passed by the Senate Monday, calls for a seven-year depreciation for certain Alaska pipeline property placed in service after 2013, and an extension of the enhanced oil recovery credit to Alaskan gas treatment plants.

Two of the three major producers of Alaska gas, ExxonMobil Corp. and BP Alaska, which have long eyed the construction of the Alaska pipeline to tap their Prudhoe Bay reserves, view the legislative developments as “positive,” according to company spokesmen. But both noted that more needs to be done before construction of the 3,500-mile system can begin. The third producer, ConocoPhillips, has said in the past the Alaska pipe project would need government floor price guarantees for the gas to move forward.

The project would tap into estimated recoverable reserves of 38 Tcf, with potential resources of 63.5 Tcf. The energy companies have been producing oil from Alaska’s North Slope for a number of years, reinjecting the associated gas to increase oil production.

ExxonMobil spokesman Bob Davis said the company backed the enabling legislation for the Alaska pipeline because it “addresses an accelerated permitting process and lays out dispute resolution,” which he noted “will reduce the chance of delays” once construction gets under way.

But the enabling legislation is just the first step. The three Alaska producers still must complete their fiscal negotiations with the state of Alaska to win “favorable and certain terms” with respect to tax and royalty issues, Davis noted. The producers also want to reduce the overall cost of the massive project, which at an estimated $20 billion would seriously cut into their netbacks. And lastly, “because [the pipeline] could go through much of Canada, we need regulatory certainty in Canada.”

Davis could not say when the producers’ negotiations with Alaska would be completed. “We have been at it for the better part of this year,” he said, adding that parties have made “good progress” in the discussions. He declined to even venture a guess when construction of the pipeline would begin.

The legislation “brings us one step closer to the next phase of engineering and permitting,” which will cost about $1 billion, according to BP’s MacDowell. However, producer negotiations with Alaska will have to be concluded, and the regulatory process in Canada will have to be more efficient before producers can move to the engineering/permitting phase. Once this phase is concluded, it will take about 10 years before the first natural gas flows on the pipeline, MacDowell estimated.

Meanwhile, for TransCanada Corp., one of the main proponents of the project, the authorizing legislation “was a positive move in the right direction,” agreed spokeswoman Heidi Feick.

TransCanada, owner of some already constructed segments of the Alaska Natural Gas Transportation System (ANGTS), filed an application with Alaska earlier this year to win certificates for right-of-way (ROW) on state lands to build a pipeline along a 745-mile corridor from the North Slope to the Alaska-Yukon border. The line would continue through the Yukon into northwest Alberta and connections with Foothills Pipeline, a TransCanada subsidiary, which runs the two so-called “pre-build” legs of the project in Canada.

The southern “pre-build” legs, from northern Alberta to the U.S. border, and continuing south of the border to the Midwest as Northern Border Pipeline, and to California as Gas Transmission Northwest, were constructed in the early 1980s. The northern portions of the ANGTS project, which had been approved by both the Canadian and U.S. governments in the late 1970s, were put on hold since the Lower 48 market at that time would not support the delivered prices.

TransCanada also is a part owner of Northern Border Pipeline and has an agreement to purchase Gas Transmission Northwest. But the Canadian pipeline owner has said options are wide open for assembling a sponsor consortium to complete the Alaska system that could include gas producers, other pipelines and aboriginal corporations to participate in any or all of the pipeline construction..

Enbridge, which is in discussions with producers and negotiations with Alaska on the “commercial principles” with respect to the development of the 750-mile in-state segment of the pipeline, sees itself as being in competition with TransCanada, said Enbridge’s La Couvee. “We have made it very clear in the past that the project will involve more than one player” to construct, but “we want to be at the front end of that consortium,” he told NGI.

Some have argued for further measures such as price supports, but “ExxonMobil has never been in favor of prices supports” for the project, Davis said. “The project should stand on its own economically.” Price supports would “distort the economics of the project.”

A production tax credit “would help to reduce some of the massive risk” associated with the proposed pipeline, MacDowell conceded. But in the end, the enabling measure for the Alaska gas pipeline and the separate bill on energy tax credits “provide us with what we need from the U.S. Congress for this project.”

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