Alaska’s natural gas producers and TransCanada Corp. gave high marks Tuesday to Congress for pushing through legislation to award $18 billion in federal loan guarantees for the construction of a mega-gas pipeline from the North Slope to the Lower 48 states, to provide tax incentives for the pipeline, and to expedite and streamline the permitting process (see Daily GPI, Oct. 12).

Spokesmen for ExxonMobil Corp. and BP Alaska, which along with ConocoPhillips Co. have long eyed the construction of the Alaska pipeline to tap their Prudhoe Bay reserves, said the two legislative measures passed by Congress before adjourning for the elections were “positive” developments for both the pipeline and Alaska. But both noted that more needs to be done before construction of the 1,800-mile system can begin. The project would tap into estimated recoverable reserves of 38 Tcf, with potential resources of 63.5 Tcf.

The legislation authorizing the Alaska pipeline “was a positive move in the right direction,” agreed Heidi Feick, a spokeswoman for Calgary-based TransCanada, which has been involved in the project for 25 years.

The Alaska pipe proposal, which was sponsored by Sen. Ted Stevens (R-AK), was added to the conference report on the fiscal 2005 military construction appropriations bill over the weekend (H.R. 4837). The House and Senate approved the conference report, and the bill has been sent to President Bush for his signature. Congress also passed a sweeping corporate tax cut bill, which includes tax credits and incentives for the Alaska pipeline and other energy items.

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.”

Feick said TransCanada 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 (see Daily GPI, June 22). The line would continue through the Yukon into northwest Alberta and connections with Foothills Pipeline, a TransCanada subsidiary, which runs the two pre-build legs of the project to the U.S. border.

Transcanada also is a part owner of Northern Border Pipeline, the eastern U.S. leg of the pre-build that connects with Foothills at the Saskatchewan border and runs into the Midwest, and it has an agreement to purchase Gas Transmission Northwest, the western leg that runs from Canada to the California border (see Daily GPI, April 30). The “pre-build” is that part of the Alaska Natural Gas Transportation System that was constructed when the rest of the project was put on hold in the 1980s. The Canadian pipeline owner has said options are wide open for assembling a sponsor consortium that could include gas producers, other pipelines and aboriginal corporations to participate in any or all of the pipeline construction (see Daily GPI, May 5).

ExxonMobil’s 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,” according to Dave MacDowell, a spokesman for BP’s Alaska operations. The phase will cost about $1 billion. He said, however, that 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 said.

Producers appear to be split over Congress’ decision not to provide a production tax incentive as a “carrot” to encourage the construction of the pipeline. “ExxonMobil has never been in favor of prices supports” for the project, said ExxonMobil’s Davis. “The project should stand on its own economically,” he noted, adding that 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,” he said.

ConocoPhillips has been a strong and vocal supporter of production tax incentives, but it did not publicly comment on their absence in the current legislation. It did say, however, “ConocoPhillips is pleased with the success the Alaska delegation had in getting the pipeline provision package passed before Congress adjourned. We think that this…will play a significant role in advancing this project. We also look forward to successfully completing negotiations with the state of Alaska on the state fiscal terms that will also be needed to advance the project.”

In the 2003 energy bill, ConocoPhillips supported a proposal to create a floor price of $1.35/MMBtu at the wellhead for gas transported over the proposed Alaska gas pipeline, providing Alaska gas producers with a “penny-for-penny” credit up to a maximum of 52 cents if wellhead prices should fall below the established floor.

A Capitol Hill aide said “the most important provision [production tax credit] was left out” of the latest Alaska pipe measure. Producers said this “was essential for them to go ahead with the pipeline,” he noted. “I can only go by what they [producers] say.” He did not identify which producers.

Although the White House has been a big backer of the construction of an Alaskan pipeline, it is “very resistant to that [tax credit] provision,” the aide told NGI. “It’s worried about how much it could cost down the road.”

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