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TransCanada application out for comment Public has 60 days to review; some of the suggestions in the application are responses to state’s request for creative solutions Kristen Nelson Petroleum News
TransCanada said in its Alaska Gasline Inducement Act application that assuming 4.5 billion cubic feet a day of gas is committed at an initial open season, the Alaska portion of the project would be a 750-mile long 48-inch diameter line with six compressor stations and five delivery points in Alaska. The Canada section would be some 965 miles of 48-inch line with 10 compressor stations and eight intermediate delivery points in Yukon and to the principal delivery points at the Alberta Hub.
TransCanada said the project “would connect natural gas from the North Slope of Alaska to all major markets in North America via the existing Alberta Hub,” thus meeting the AGIA requirement of taking North Slope natural gas to market.
Expansion capacity would be up to 5.9 bcf a day through addition of 16 compressor stations, seven on the Alaska section and nine in Canada. “Further expansions would include a combination of additional compression and pipeline looping,” the company said.
TransCanada said it does not expect to have to build additional line out of Alberta. Current natural gas projections for the Western Canada Sedimentary basin indicate “sufficient capacity should be available to transport available Alaskan production from the Alberta Hub to consuming North American markets without any significant additional downstream construction.”
The company said it is exploring options to move the Alberta system receipt point upstream of Boundary Lake to Fort Nelson, British Columbia, to deliver toll savings to Alaska shippers “by providing them an equivalent toll from Fort Nelson to the Alberta Hub.” It would be, TransCanada said, as if the pipeline system from Fort Nelson to Boundary Lake were integrated into the Alberta system.
Schedule begins when license issued TransCanada said that if the AGIA license is issued in April, the project development phase would begin in the second quarter of 2008 and run through August 2013 with the issuance of FERC certificates of public convenience and necessity authorizing the construction and operation of the Alaska section.
The first sub-phase of development includes front end engineering design work, including refinement of cost estimates. The second sub-phase would begin at the conclusion of the open season and end when a decision to proceed is made.
TransCanada estimates the development phase at about $625 million and 3.75 million labor hours. The company said some 450 personnel would be assigned fulltime to the project by the end of the development phase, including TransCanada personnel, new hires of qualified personnel in Alaska and Canada and external contractor employees.
Open season within 18 months TransCanada said it has committed to concluding an initial binding open season within 18 months of the AGIA license being issued, 18 months earlier than AGIA requires. The schedules the company provided are based on license issuance in April 2008.
Based on an April 1 license issuance, the open season would occur in the first through third quarters of 2009, with FEED, front-end engineering design work, beginning in the fourth quarter of 2009.
Project execution would begin at the end of the development phase in August 2013 and conclude in November 2017 when the pipeline is loaded and commercial operations begin. Commercial startup of operations is shown as Nov. 1, 2017.
The first non-binding open season would be in 2011 and non-binding open seasons would occur every two years.
LNG an option
TransCanada said that it has not proposed a liquefied natural gas project, but in the event a project through Canada does not attract sufficient volumes in the initial binding open season, or if shippers commit enough gas for both a pipeline through Canada and an LNG project, “TransCanada is willing to offer gas treatment and pipeline transportation services from Prudhoe Bay to Delta Junction or Valdez” if a shipper requests those services.
Equity participation TransCanada said it is prepared to offer equity participation to attract shippers in the initial open season. A threshold volume would be required. The company said it envisions an alignment of interests among the State of Alaska, the Alaska North Slope producers and other shippers and TransCanada.
The company said it would offer rolled-in rates, including fuel costs, for capacity expansions on the pipeline. All Canadian expansions will be based on full rolled-in rate principles; in Alaska, rolled-in rates will apply up to 115 percent of initial rates. Any expansion costs above that would be recovered on an incremental basis.
Subject to sufficient volumes being committed to the Alberta hub to allow project construction, TransCanada said it would commit to offer firm transportation service within Alaska as part of the tariff regardless of whether any shippers bid successfully for firm transportation delivery to in-state points in the open season. The service would require long-term transportation contracts to in-state delivery points. A distance-sensitive rate would be provided for in-state deliveries, and if acceptable to FERC, TransCanada said it would propose to FERC a single in-state zone based on weighted average volume to represent all in-state deliveries.
Commercial challenges TransCanada said commercial challenges have prevented development of the project “for nearly 30 years. The combination of complexity, scope, cost, and long development time entails significant risk for project participants.”
“TransCanada believes that because of this risk, and the corresponding uncertainty of whether there will be sufficient economic rewards, despite the current and projected demand for natural gas, ANS producers have been reluctant to commit the proven reserves they currently control to the project. As a result, the project has not been able to obtain credit support to date,” the company said.
TransCanada said it believes its proposal successfully addresses the majority of the commercial challenges the project faces.
The company said rate elements in its proposal include the “ability and willingness to set initial tolls as low as possible, to share risk through rate of return penalties, and to offer rolled-in rates for system expansion.”
TransCanada said it would work with the state “to jointly seek authorization to use the federal loan guarantee” available to the project “to fund any construction cost overruns.” Shippers could pay those loans back through a toll surcharge which would only kick in above certain gas prices, providing shippers “with the certainty that their netbacks will never fall below a specified level because of pipeline toll requirements.”
The bridge shipper concept TransCanada said it would also seek, in partnership with the state, to establish a mechanism whereby the federal government would assume “some or all of the initial risk” by acting as a bridge shipper. This would presumably meet concerns TransCanada’s expressed during legislative hearings on AGIA about going forward beyond a failed initial open season to obtain a FERC certificate. The company said at that time it would rather work with shippers to resolve issues than move forward with a FERC certificate if an initial open season failed.
TransCanada said a bridge shipper concept would have benefits for shippers, not just for the pipeline.
The company said the bridge shipper mechanism would allow for an “identifiable in-service date” and the certainty of timing “should induce resource explorers to prove and develop new Alaska gas supplies and create greater predictability for all resource lessees of the cost of the infrastructure, and, therefore, the ultimate return on their gas.”
The government’s obligation would terminate once full shipping capacity was under contract. “As part of this alternative credit concept, TransCanada commits to file its FERC application for certificates of public convenience and necessity and to advance towards the necessary Canadian approvals, even if sufficient shipper commitments are not obtained during the open season,” the company said in its application.
Rutherford: no conflict with AGIA AGIA requires commitment to obtaining a FERC certificate, irrespective of the results of an initial binding open season.
TransCanada’s proposal that the federal government act as a bridge shipper raised some questions about the application’s adherence to AGIA requirements: did the company mean it wouldn’t move forward to a FERC certificate without either a successful open season or having the federal government as a bridge shipper?
Deputy Commissioner of Natural Resources Marty Rutherford told Petroleum News Jan. 10 in an e-mail that TransCanada has committed to all of the AGIA requirements in its application.
Rutherford said the bridge shipper concept was TransCanada’s suggestion for an alternative means of obtaining financing, “allowing the project to go forward even if the major North Slope producers refuse to participate in an open season for the project’s capacity.” As described in the company’s executive summary, TransCanada proposed to work with the state to persuade the federal government to assume some or all of the project’s initial risk by acting as a bridge shipper.
She said TransCanada’s application “repeatedly provides TransCanada’s unconditional commitments to each of the AGIA requirements, and does not put any conditions or contingencies on those commitments.”
The state asked potential applicants “to think creatively about how to deal with the project risks, but they were NOT allowed to condition the AGIA requirements,” she said.
The bridge shipper concept was a response to that request for creative thinking, Rutherford said, but TransCanada did not “condition its commitments to go forward with the project on a ‘bridge shipper’ concept.”
Rutherford said all five of the AGIA applications were run through three teams: commercial, technical and legal.
And all three of those teams, she said, “independently determined” that the TransCanada application “was compliant, which means that it unequivocally committed to each of the AGIA ‘must haves’ (and was not conditioned).”
Rutherford said “any assertion that TransCanada has conditioned its commitments on the ‘bridge shipper’ idea mentioned in its application … is incorrect and mischaracterizes TransCanada’s application.”
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