Alaska Gov. Frank H. Murkowski signed into law last week a renewal of Alaska’s Stranded Gas Act, HB 16, which authorizes the state to enter into negotiations with industry on the cost and terms of a natural gas pipeline project to move North Slope gas to markets in the Lower 48 states. Murkowski said the legislation is an important step toward getting the pipeline process moving on a faster track.

“The main point is that the producers have agreed to move quickly once this legislation passed to evaluate the opportunity to have this project go forward,” he said regarding the expected $20 billion gas pipeline, which could stretch about 2,100 miles. “We expect to begin negotiations very soon with qualified sponsor groups. Our plan is to favorably conclude those negotiations before the end of the year.”

Murkowski said he would work with project sponsors ExxonMobil, BP, ConocoPhillips and potentially other companies this year to find ways to provide “fiscal certainty for a gas pipeline project, to find ways to lower the cost of the project, and to establish fiscal terms that enhance project feasibility.” He said the three major Alaska producers have assured him that they plan to submit applications to build a pipeline.

The bill made several changes to state law. It lowered the bar in capital net assets and lines of credit, which broadens the potential for more companies to participate, including some in Alaska. It extended the expiration date of the Act to March 31, 2005 and gave the Alaska Department of Revenue the ability to use more than one independent contractor to assist the state in evaluating an application or developing contract terms.

Last week on Capitol Hill, the Senate Finance Committee also gave the pipeline project a boost when it reported out an incentive package that includes a commodity risk provision and accelerated depreciation on the main Alaska pipeline.

“The gas pipeline incentives included by the Senate Finance Committee are the kind of package the North Slope producers will need to take some of the risk out of a project that could cost $20 billion,” Murkowski said in an earlier statement. “This will allow them to obtain the private capital investment it will take to finance the project. The commodity risk provision doesn’t impact federal revenues because it is highly unlikely the price of natural gas will ever fall low enough to trigger it. The depreciation is accelerated to seven years, instead of 15.

“When the fiscal incentive package is combined with other provisions now moving through Congress to facilitate construction, the pipeline will have an excellent basis of support in federal law.”

In the House version of the energy legislation, there are no special incentives, but there is a mandate that the pipeline follow the Alaska Highway route. The gas pipeline would move more than 35 Tcf of gas to markets in the Lower 48 states over a projected 50-year lifetime. Increasing demand, depletion of known reserves and rising prices for natural gas have made the Alaska gas pipeline an important component of U.S. energy policy, Murkowski said.

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