May 20, 2005 --- Vol. 11, No. 48May 2005

Port authority has 3 months to buy gas or get financial backing

The Alaska Gasline Port Authority has until Aug. 5 to show the State of Alaska it has access to natural gas for its LNG project, or to provide a financial guarantee of its performance, in order to be eligible to negotiate with the state for a fiscal contract under the Alaska Stranded Gas Development Act.

Alaska is in two sets of negotiations under the act — with the North Slope producers (BP, ConocoPhillips and ExxonMobil) and Canadian pipeline company TransCanada — for fiscal terms in lieu of taxes for a North Slope gas project.

On March 30 the port authority resubmitted its application under the act for a project which includes a pipeline to Valdez and a liquefaction plant there, with liquefied natural gas to be shipped to the West Coast.

On May 5, Commissioner of Revenue Bill Corbus conditionally accepted the authority’s application, subject to further review by the Department of Law.

Corbus said the state does not believe the port authority is a qualified applicant under the stranded gas act (AS 43.82.110) because it does not meet the criteria under the statute.

“However,” the commissioner said, “based on your offer to purchase gas from ExxonMobil, BP and ConocoPhillips,” the port authority could qualify under the criteria of having the right to purchase at least 10 percent of the stranded gas, or by “a qualified entity providing a financial guarantee” of performance equal to 15 percent of the estimated cost of constructing a qualified project.

Corbus said that for the conditional approval of the application to stand the port authority would need to show, “within the next three months,” proof of either a “firm purchase contract” for at least 10 percent of the gas, a financial guarantee from a qualified entity or meet another qualification criterion under the stranded gas act.

The port authority would also need “a favorable letter ruling from the IRS and a permanent exemption from the Jones Act,” Corbus said. And, he said, conditional acceptance of the port authority application “does not limit, in any way,” the state’s ability to execute a contract under the stranded gas act with any other party.

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