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TransCanada only interested in part of deal Pipeline company does not believe it worthwhile to move on to FERC certificate if initial open season fails to draw sufficient gas Kristen Nelson Petroleum News
TransCanada is interested in participating in the Alaska Gasline Inducement Act application process — but not as the administration is currently proposing that the AGIA process would work.
“We are concerned with regards to AGIA’s proposed obligation on the licensee to proceed to obtain a FERC certificate regardless of the outcome of an initial open season. Independent pipeline developers may not be prepared to participate in an AGIA RFP if this requirement is not amended,” Tony Palmer, vice president of Alaska business development for TransCanada, told Senate Resources March 26.
TransCanada, an independent pipeline company, is the holder of the rights granted for the original North Slope gas pipeline and as such has a 30-year history with the project, Palmer said.
The AGIA bill being considered by the Legislature requires that an applicant commit to hold an open season for a pipeline and then continue on to a Federal Energy Regulatory Commission certificate for the line — whether or not the open season is successful.
Palmer said TransCanada “is concerned that a private pipeline developer will be reluctant to commit money to pursue a FERC certificate if the initial open season has not attracted enough gas commitments to make the project viable.”
TransCanada recommends, he said, that AGIA be amended to remove the requirement for the licensee to continue toward a FERC certificate without “adequate shipper commitments or an alternate source of credit.”
Palmer said that while obtaining a FERC certificate could save time “if customers are ultimately found, these monies are truly at risk if the project does not proceed. The cost of pursuing a FERC certificate and the time will be substantial and those activities will not directly lead to obtaining customer commitments,” he said.
Palmer told legislators that TransCanada believes a compromise must be reached between the producers and the State of Alaska. “TransCanada believes the most expeditious and equitable path forward for the project is a collaborative arrangement between the state and the producers, the state and TransCanada,” Palmer said.
He said TransCanada’s decision to participate in an AGIA request for applications will depend both on the final AGIA bill and on the actual terms of the request for applications. “At present, we will continue, as we have for many years, to work towards a five-party arrangement” between the producers, the state and TransCanada.
Issue: hundreds of millions Palmer said TransCanada believes it can get to an open season in a matter of months for an amount in the tens of millions of dollars but said TransCanada doesn’t think it would be appropriate to pursue a FERC certificate after a failed open season “because in that case we think we’re talking in the hundreds of millions of dollars.”
The original Alaska Highway gas pipeline project, under the Alaska Natural Gas Transportation Act, holds a FERC certificate. “It is a conditional certificate, but there has been a FERC certificate for this project for 30 years,” Palmer said. “It’s customers this project has lacked.”
He said TransCanada would prefer that if the initial open season fails, the focus be on obtaining customers “as opposed to doing the engineering and regulatory and legal work to capture a FERC certificate.”
Even though the state is offering a cost-share match of up to 80 percent for the FERC certificate (the share is 50-50 through the open season), Palmer said TransCanada would prefer not to pursue the certificate “until we had customers or credit.” Told that fellow Canadian pipeline company Enbridge had told legislators “no producers, no pipeline,” Palmer said in his view it is “no customers, no credit, no pipeline.”
Galvin: AGIA appeal to a number of parties Asked by the committee to comment on TransCanada’s testimony, Commissioner of Revenue Pat Galvin said there are “a number of different commercial participants in this who have different positions that they’ve staked out over the years that represent what they see as the value that they bring to the project and … they clearly have an interest in protecting those interests and in maximizing the value that they expect to receive for those.”
The administration’s goal with AGIA is “to provide an opportunity for as many players to participate in this process as possible and to bring … new energy to this project because frankly we have hit a stalemate,” he said.
Palmer said TransCanada thinks the key issue is attracting customers, “obtaining customers to advance the project.” He noted that TransCanada has a difference of opinion with the state on whether or not the licensee should be required to proceed to a FERC certificate if an initial open season fails to attract a sufficient volume of gas.
Galvin: goal is competition Galvin said the state is trying to “set up a sense of competition” with AGIA. “TransCanada isn’t the only third-party pipeline that we’re trying to attract to this competitive arena,” he said, so the administration is not trying to shape AGIA to meet the requirements of any particular applicant.
The focus of the open season, he said, is to get a question clearly stated to the producers: “Will you sell your gas at a certain price? Or will you accept a certain tariff rate and agree to commit your gas?
“That question hasn’t been put to them yet. And there’s tremendous value for us in knowing what their answer to that question is.”
If the producers say no, they’re not ready to commit at that price, it may be because they feel the project “hasn’t been fully fleshed out to where the uncertainty associated with the tariff has been reduced to the point where they’re comfortable.”
So the next step is to move to a FERC certificate, Galvin said, where the project will be better defined. At that point the question will be different than at the initial open season. With different parameters, different risk components after a FERC certificate, the question then is will the producers commit to “the best project that we’ve got, the most certainty that we can provide — is this something that you’re willing to participate in?”
If the answer is still no, then either the project is no longer economic, or it was never economic or there’s something missing from the picture, Galvin said.
The administration does need to explore why it sees value in going beyond a failed initial open season and TransCanada doesn’t, Galvin said.
But the goal is a successful open season.
“And the question is, if we have that initial open season and we don’t get the commitment, is that the point where we say OK, we’ll, try something else? We’re not ready to say that at this point,” Galvin said.
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