|
YPC right-of-way renewal denied by DNR Yukon Pacific loses 20-year-old conditional ROW for the trans-Alaska gas system for lack of progress required under the lease Kristen Nelson Petroleum News
At one time a gas pipeline from the North Slope to a liquefaction plant at Valdez seemed the answer to commercializing Alaska’s natural gas.
Yukon Pacific Corp., an early LNG project proponent, obtained a number of permits for the project including, in 1988, a conditional right of way for that line from the Alaska Department of Natural Resources. The right of way was renewed in 1998, but this year DNR Commissioner Tom Irwin denied a renewal request, citing lack of progress on project plans or programs required in the conditional lease.
The original conditional right-of-way lease allowed the commissioner to renew the lease as long as the lessee was in full compliance with the provisions of the conditional lease and state and federal laws.
When the lease was renewed in 1998, however, the renewal clause was amended to require that the lessee demonstrate that “substantial progress has been made” toward a determination that the lessee “is fit, willing and able to perform the transportation or other acts proposed in accordance” with state law.
Fit, willing and able The Alaska Right-of-Way Leasing Act requires the commissioner to determine “whether an applicant is fit, willing, and able to perform the transportation or other acts proposed in a manner that will be required by the present or future public interest,” Irwin said in his decision.
A conditional right of way may be granted under conditions “that will ensure that the applicant will, within a prescribed period of time not exceeding 10 years, establish that the applicant is fit, willing, and able, under (a) of this section, to perform the transportation or other acts that will be required by the present or future public interest.”
Irwin said YPC addressed “some, but not all of the applicable provisions of the conditional lease” in the renewal request.
The commissioner found in his decision that the proposed pipeline route “is not delineated sufficiently to determine if the project will unreasonably conflict with existing uses of the land involving a superior public interest.”
YPC had not requested authorizations to proceed — other than two work permits which have now expired — and “has not demonstrated substantial progress toward a determination that YPC is fit, willing and able to perform the transportation or other acts” provided for in the conditional lease, he said.
Ability to protect property Consideration of the applicant’s “technical capability to protect state and private property interest” is required under the Right-of-Way Leasing Act. Irwin said YPC’s 2008 renewal request included a number of items under the discussion of progress toward a fit, willing and able determination.
YPC said several items had not been submitted to the state because of confidentiality considerations, including plans for a gas conditioning plant, but, Irwin said, “YPC does not indicate whether or not they will construct a gas conditioning facility and does not indicate the means by which YPC will obtain gas for transport.”
Both a determination of whether a gas conditioning facility will be constructed and determination of how gas will be obtained are requirements of the conditional lease.
On the pipeline route, Irwin said YPC’s request indicated the route description had been updated, but he said the conditional lease required YPC to submit technical information on the project including a project development schedule. “No record was found in the case file that YPC submitted a project development schedule during the period of time since the last renewal of the conditional lease,” the commissioner said.
YPC suspended a review of a pipeline route revision in 2003 “and thus severely hampered” DNR’s ability to determine if YPC had the capability to protect state and private property interests along the route.
YPC also had not submitted project performance standards required in the conditional lease, the commissioner said. And while the renewal request said YPC has designed “a comprehensive construction plan” for the pipeline, “... YPC does not state that the construction plan was submitted to DNR for review and approval.”
AGPA option has expired YPC told DNR it executed an exclusive option in 2004 with the Alaska Gasline Port Authority and that the option expired in 2008.
The commissioner said the conditional lease provided that YPC would not “transfer, assign, pledge, or dispose of in any manner, directly or indirectly, or by transfer of control of YPC’s interest” without a written finding by the commissioner. He said YPC said in its 2008 renewal that there had been no change of ownership or control since 1998.
YPC did not appear to have obtained authorization from the commissioner to execute the option with the port authority. “It is unclear whether YPC’s execution of an exclusive option to AGPA would constitute an indirect pledge to transfer control of YPC’s interest,” Irwin said. “However, as YPC indicated that the option with AGPA has expired, it will not be further evaluated in this decision.”
Full lease requirements To convert a conditional to an unconditional lease, the applicant must provide documentation showing it “is technically and financially capable of constructing and operating the gas pipeline,” the commissioner said. “YPC has not provided evidence of technical and financial capability to protect the state and private property interests” as described in the conditional lease.
The conditional lease requires evidence of financial commitment to design and construct the pipeline, including “letters of intent for gas sales, letters of intent for gas purchase and written preliminary commitments for construction financing.”
The commissioner said that since the 1998 renewal YPC has not complied with the requirements of the conditional lease and the information provided by YPC is not enough to allow for such a determination.
“As the status of this determination has not changed substantially since 1998 renewal of the conditional lease, YPC has not demonstrated substantial progress” toward a determination that it is “fit, willing and able to perform the transportation or other acts” listed in the conditional lease.
YPC downsized in 2001 Yukon Pacific Corp. was founded in the 1980s after the original proposal to take Alaska North Slope natural gas to market through Canada collapsed due to rising costs and dropping Lower 48 natural gas prices.
When the conditional right-of-way lease was renewed in 1998, YPC, by then a subsidiary of CSX Corp., held permits for an all-Alaska LNG project bringing North Slope natural gas to Valdez and liquefying it there for shipment to the Far East, along with authorizations from the President of the United States and the U.S. Department of Energy to market Alaska-produced LNG to Asian buyers.
Jeff Lowenfels, then president of YPC, told Petroleum News in 1998 that the state right of way was the only one of the company’s permits that needed to be renewed.
In December 1998 YPC was also a member of the Alaska North Slope LNG Project, a consortium of companies formed earlier that year by ARCO Alaska to work on an LNG project to deliver Alaska North Slope gas as LNG to markets in the Far East.
In the summer of 1999, YPC withdrew from the ANS LNG Project to focus on the Valdez route for which it had permits. (The producer-led LNG study group wound up its work in the fall of 2001, concluding an LNG project was not commercial.) Later in 1999 YPC discussed a management role in the Alaska Gasline Port Authority, to be voted on that fall by Valdez, the Fairbanks North Star Borough and the North Slope Borough. AGPA later took an option on the YPC permits.
In the fall of 2001 YPC was downsized, with CEO Jeff Lowenfels going to part-time consulting status and then leaving the project entirely. The following year the company downsized the project, going from a 36-inch line to a 30-inch line, and said it would look to either the natural gas owners, pipeline companies or the state development authority to build the project.
| 