A group led by Berkshire Hathaway’s MidAmerican Energy Holdings Co. said last Thursday it withdrew its application with the state of Alaska to build a $6.3 billion Alaska portion of a pipeline to deliver North Slope natural gas to the Lower 48 states. The news was the latest blow to the more than 30-year effort to build a long-line Alaska gas transportation system.

MidAmerican Energy subsidiary Alaska Gas Transmission Co. (AGTC) said it pulled out of the 4.5 Bcf/d pipeline project because of Alaska’s failure to agree to terms that would have allowed AGTC and its partners to move forward on an accelerated schedule with an exclusive five-year development period.

When the AGTC filed its application in January, “we requested a business partnership with Alaska that would have aligned us with the state on an exclusive basis in recognition of MidAmerican’s willingness to fund development of an independent pipeline and to do so on an accelerated basis,” said MidAmerican Chairman David Sokol.

“We are extremely disappointed the state of Alaska rejected this approach, which we had clearly discussed with Gov. [Frank] Murkowski before filing our application. Our inability to obtain an agreement does not diminish our continuing view that the Alaska gas pipeline is extremely important to natural gas markets in the Lower 48, and passage of federal energy legislation supportive of the project is essential,” he said.

“AGTC was willing to take significant up-front risk during the next three years to bring this project to the construction phase. We believe our request to be the state’s sole development partner for the initial project development period was reasonable, given the magnitude of the risk involved…Since we do not own any North Slope reserves, it appeared to us it would be in the state’s best interest to have an independent owner of the pipeline,” noted AFTC President Robert L. Sluder.

Gov. Murkowski said he sent a letter to MidAmerican early last Thursday suggesting a way for the state to accommodate the company’s request for a five-year exclusivity right in the developmental phase of the project, and that MidAmerican may not have received the letter before it announced its decision to pull the application. “The letter may have crossed in the mail with [the] press release from MidAmerican stating the company was withdrawing its application,” the governor said in a press statement.

“The letter was received before the press release. Our position has not changed,” said Susan Flaim, director of administration for AGTC, on Friday. The company insisted on sole partner status during the development phase because it expected to spend up to $100 million on permitting, environmental studies, commercializing the project, placing orders for materials, and working with TransCanada PipeLines Ltd. to further define the tariff for the pipeline, she said.

The decision to pull the application was backed by other members of the project sponsor group — CIRI, an Alaska Native corporation; and Pacific Star Energy, a consortium including Alaska Native corporations, said Des Moines, IA-based MidAmerican, the lead partner in the group.

AGTC noted that it officially suspended negotiations with the state of Alaska last Monday after it “became evident a contract resolution would not be reached.”

The AGTC application called for the construction of a 745-mile, 48-inch diameter pipeline from the North Slope area near Prudhoe Bay southward to the Alaska Yukon border, placing the line in service by the end of 2010. The Alaska portion of the line would have connected with a new, companion pipeline to be built in Canada either by TransCanada PipeLines or others, which would have provided a gateway for Alaska gas to be delivered to virtually every market center in Canada and the Lower 48 states.

TransCanada PipeLines, disappointed but refusing to be discouraged after decades of trying, declared itself still ready to collaborate with any credible new contender to build the American half of the Alaska natural gas megaproject after Warren Buffett’s Berkshire Hathaway withdrew its entry.

“We continue to support the project,” TransCanada spokesman Kurt Kadatz said following the retreat by the AGTC group. “We stand ready to work with any credible partner in Alaska that recognizes our entitlement to build the Canadian section.”

Kadatz said TransCanada also continues to support the state government’s efforts to advance the pipeline plan. As owner of Foothills Pipe Lines Ltd., TransCanada is heir to 1970s treaties and regulatory approvals covering the Canadian portion of the international gas megaproject.

TransCanada agreed to co-operate when MidAmerican launched its proposal in January. TransCanada predicted the 1,000-mile Canadian leg in the project could be built for $5-$6 billion and fill vacant capacity developing on its own system as Alberta gas fields age and their output drops.

In a recent interview, TransCanada president Hal Kvisle pledged to go to bat for the Alaska project in his second role as 2004 chairman of the Interstate Natural Gas Association of America, whose members include the major Canadian gas transporters.

Kvisle said that as INGAA chairman, he will seek approval in Washington for a formula intended to break the Alaska logjam by ending the pipeline project’s reliance on producers BP, ConocoPhillips and ExxonMobil to finance it. Kvisle hopes to persuade U.S. authorities, including the Federal Energy Regulatory Commission, to let gas distribution companies book long-range capacity on an Alaskan line and pass on the costs of the transportation contracts to consumers as the price of supply security.

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