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ConocoPhillips responds to governor Addresses concerns in Palin’s letter rejecting company’s alternate gas line proposal; asks for sit-down meeting on proposal Kristen Nelson Petroleum News
ConocoPhillips has responded to Alaska Gov. Sarah Palin’s Jan. 9 letter rejecting the company’s alternative (outside of the Alaska Gasline Inducement Act) proposal for an Alaska gas pipeline.
In a Jan. 24 letter to the governor, Jim Bowles, president of ConocoPhillips Alaska, addressed comments and concerns in the governor’s letter and reiterated the company’s willingness to work with the state to advance a gas pipeline.
ConocoPhillips has posted the letter, and earlier posted its proposal, at: http://ansnaturalgaspipeline.com/.
Bowles said the company was “surprised and disappointed” by the governor’s “negative response” to the company’s proposal to work collaboratively with the state.
“As you know,” Bowles said, “we do not require a ‘license’ from the State of Alaska to advance our gas pipeline project.”
What the company is seeking, he said, is the assistance of the administration and the Legislature “to establish a gas fiscal framework that will allow us to conduct a successful open season for the gas pipeline project, which is critical to the ultimate success of the project.”
Financing requires shipping commitments Bowles said ConocoPhillips sees two key issues as threatening advancement of a pipeline.
The first is the lack of a predictable gas fiscal framework.
ConocoPhillips estimates that the pipeline project will cost between $25 billion and $42 billion, “but it may ultimately cost much more.”
Financing won’t be available without shippers, he said, and at an open season the North Slope producers “will be faced with the decision of taking on unprecedented long-term risks,” including a firm transportation commitment of $100 billion to $150 billion; commitments lasting two decades or more, “regardless of whether the costs of the project — and thus the transportation fees — increase substantially over current estimates”; and the risk of making firm transportation commitments regardless of the availability of all of the gas required, whether the project is delayed and whether prices of natural gas over the next 30 years will cover costs of finding, developing, producing and transporting the natural gas.
“No commercially reasonable party will take these unprecedented investment risks until a number of conditions have been met, including the establishment of a predictable gas fiscal framework, the additional expenditures of hundreds of millions of dollars to refine and better understand the project’s cost estimates, and the holding of an open season by parties with sufficient creditworthiness and credibility to assure the completion of the pipeline construction on schedule and on budget,” Bowles said.
He said ConocoPhillips is prepared to discuss “a new framework for gas” with the administration, but has “made no attempt to dictate a specific discussion protocol or terms, because we believe that a jointly developed solution will most likely lead to a successful project.”
Since the administration has requested more detail, Bowles said, “ConocoPhillips has prepared a proposal on a gas fiscal framework that we will share with you and your commissioners or other appropriate parties, including designated legislators, whenever the authorized group is ready to enter into a good-faith dialogue.”
Withdrawn partner claims also a concern Bowles said ConocoPhillips’ second concern is the liability of TransCanada to withdrawn partners from the earlier Alaska gas line proposal. (See story in this issue on TransCanada’s response to administration questions about the withdrawn partner issue.)
“We view TransCanada as a strong potential co-venturer on this project as outlined in our proposal,” Bowles said. ConocoPhillips is concerned that the obligation, listed as $8.9 billion in documents filed with the Federal Energy Regulatory Commission, and growing at 14 percent a year, “will constitute an insurmountable risk for potential shippers on a TransCanada project, for potential new associates advancing a project with TransCanada, for potential financiers of a TransCanada project, and for the State of Alaska.”
Bowles said ConocoPhillips has asked Kirkland & Ellis to prepare a memorandum for the administration identifying many of the withdrawn partner liability risks and asks that the administration share with ConocoPhillips “any information or assurances developed by the State and/or TransCanada which would eliminate these risks.”
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