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August 2012

Vol. 17, No. 32 Week of August 05, 2012

TransCanada seeks interest

Non-binding solicitation measuring desire for pipeline and processing capacity

By Eric Lidji

For Petroleum News

The Alaska Pipeline Project is throwing its line into the water again.

The joint venture between TransCanada Corp. and Exxon Mobil Corp. plans to conduct a solicitation of interest to find parties that might be willing to make future capacity commitments on a North Slope natural gas pipeline, TransCanada announced on July 30.

The non-binding solicitation will run from Aug. 31 to Sept. 14.

The solicitation is not an open season.

It is an early attempt to gauge the desire for firm gas transportation and treatment capacity and to find parties interested in future open season discussions. The solicitation will gauge interest in a gas pipeline system from the North Slope of Alaska “to a gas liquefaction terminal at a tidewater location in south-central Alaska or to an interconnection point near the border of British Columbia and Alberta in Canada.”

The two routes are alternative proposals, and an additional goal of this and any future solicitations or open seasons is to select a route and begin cost and scheduling estimates.

The Alaska Pipeline Project conducted its first binding open season for a gas pipeline from April 30, 2010 to July 30, 2010, but eventually terminated the effort in May 2012.

Producers reportedly made conditional bids for firm capacity on a pipeline from the North Slope to Alberta, but after negotiations TransCanada determined the “producers are not prepared to make commercial commitments to the Alberta Project at this time.”

The state of Alaska licensed the Alaska Pipeline Project to TransCanada in late 2008 under the Alaska Gasline Inducement Act, or AGIA. ExxonMobil joined TransCanada in mid-2009. Under the AGIA license, TransCanada must assess market interest in a North Slope gas pipeline or potential expansions every two years following its first open season.

While the original plan focused on Lower 48 markets, last October Gov. Sean Parnell called for participants to unite around an LNG project focused on the Pacific Rim.

The state approved a project plan amendment this past May. The amendment called for TransCanada Alaska to complete initial work on an LNG project by September and conduct a comprehensive market solicitation by the end of the year, but unlike the original project plan for a pipeline to the Lower 48 it did not include specific timelines.

TransCanada must provide those figures to the state early next year.

Work on points three and four

With renewed movement, policymakers are again focusing attention on the five-point “roadmap” Parnell presented in his State of the State for getting a gas pipeline built.

The roadmap included resolving Point Thomson litigation and achieving alignment among the producers under AGIA in the first quarter, working to consolidate two state-sponsored gas pipeline projects and hardening numbers on the LNG project by the third quarter, and starting deliberations on gas tax legislation in the 2013 regular session.

On March 30, the administration announced both a settlement on Point Thomson and alignment among the CEOs of ExxonMobil, ConocoPhillips and BP toward an LNG project. But the settlement has since been subject to legal challenges and the alignment remains dependent on project details and on the state establishing stable fiscal terms.

“We’ve met the first two and were hopeful and working hard to meet the next two,” Alaska Department of Natural Resources Commissioner Dan Sullivan told the members of the In-State Gas Caucus in a three-hour discussion on natural gas issues July 30.

The solicitation is an early step toward those goals.

The state approved the project plan amendment even though it did not include specific cost and timeline information because it felt TransCanada needed a transition period to shift its focus from the Lower 48 project to the LNG project, according to Sullivan.

He said the state expects TransCanada to provide that information early next year.

The foundation for that update would be the “concept selection work” the state wants the parties involved in the project to submit by the third quarter of this year. Although Sullivan couldn’t say how much of that information would be made public, he said the state hopes the work is “quite specific” and offers a “much clearer sense” of the project.

The amount of detail, he noted, would guide future discussions on fiscal issues.

State “recalibrating” efforts

Those discussions promise to be complicated.

Not only does the state want a clear project on the table before it offers fiscal legislation, but it is trying to figure out how the AGIA license would operate for this new project.

For starters, an LNG project to the Pacific Rim would involve more parties and more complex relationships among those parties than an overland pipeline to North America, according to Deputy Commissioner of Natural Resources Joe Balash. “Because you have more parties involved in the chain from the upstream all the way to the end user, contracts are a much bigger part of the overall project coming together,” Balash said.

Those complexities have forced the state to “recalibrate” its thinking. For instance, certain upstream inducements in AGIA disappeared when the first open season failed to yield any firm transportation commitments. “We recognize the need to adjust a few things relative to those kinds of inducements for an LNG-focused project,” Balash said.

Asked whether the administration is working on fiscal legislation, Sullivan said “not in any specific detail,” but that conversations about “broad principles” are underway.

As if that all weren’t complicated enough, the Parnell administration still wants oil tax reform and believes the two fiscal systems are interconnected. But when Rep. Mike Hawker asked how, precisely, the administration viewed the relationship between the two systems, Sullivan said, “I think it’s a great question and I don’t have the answer to it yet.”

AGIA and AGDC coordination

Additionally, the state still needs to coordinate its efforts on the LNG project with concurrent efforts to build an in-state pipeline to serve the needs of Alaskans.

While asked on numerous occasions during the hearing about the 500 million cubic foot per day restriction AGIA places on a competing project, the administration noted that the statutory limitation continues to be well above the local needs to serve urban Alaska.

The issue most critics have with the limitation is that it makes an in-state pipeline less economic. Sullivan said that highlighted the need to coordinate or combine the projects.

Hawker asked Sullivan if those efforts — crucial to the roadmap — would yield “just a press release from somebody to say we’re going to continuing working together and go forward, or are we expecting something tangible we can show to the people of Alaska?”

“I can’t predict that by the end of the third quarter we’re going to have some big bang announcement that resolves any and all integration and consolidation efforts,” Sullivan said, but noted that discussions between state and industry officials are “looking at the best way to integrate and consolidate in the interest of the citizens of the state.”

One obstacle toward that goal, though, is confidentiality.

“We certainly don’t have the access that we would desire,” said Dan Fauske, president of Alaska Gasline Development Corp., the public corporation managing the in-state effort. “We’ve been able to share some stuff, but it’s been cumbersome. We’ve also been denied access to other items… Industry is very nervous about allowing access to their data.”

While he said he hopes the parties can come together around a single project this fall, he noted that utilities still can’t get long term supply contracts and “it’s time to get going.”

When talking about the gas pipeline, Fauske said he has taken to pointing out: “It took Moses less time to get the Israelites out of Egypt than it’s taken us to get a pipeline.”

Don’t forget Hawaii

While the LNG project is focused on the Pacific Rim, lawmakers asked the administration not to forget its close kinship to an island state far to the south.

“Could you please include Hawaii in your outreach?” McGuire asked Sullivan.

She said Hawaii legislative leaders have expressed an interest in buying Alaska gas and Alaska lawmakers have made sales pitches to Hawaii policymakers in recent years.






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