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TC Alaska passes House Go with highway line, but don’t forget LNG, legislators say in letter of intent By Kristen Nelson Petroleum News
The Alaska House has given the administration somewhat schizophrenic support for granting an AGIA license to TransCanada Alaska: The House voted to approve the license 24-16 on July 22, but on reconsideration July 23 the immediate effective date did not pass — and the House then voted unanimously to approve a letter of intent to accompany the bill, urging the executive branch to continue “to aid project proposals in addition to just a TransCanada pipeline into Canada.”
“It is the intent of the Legislature that an AGIA license will enable and encourage an All Alaska gas line/liquefied natural gas (LNG) project within the TransCanada project,” the letter said.
Since the House voted 39-1 to approve AGIA last year, the BP-ConocoPhillips Denali pipeline project has been announced, providing an alternative to an AGIA-licensed project.
Probably more important, significant increases in the price of oil and natural gas, while benefitting state government, have driven up fuel and gasoline prices paid by Alaskans, producing a call for in-state access to the state’s natural gas.
The governor responded to that call by proposing an Enstar Natural Gas Co.-Alaska Natural Gas Development Authority small-diameter gas pipeline to take Cook Inlet gas to Fairbanks, but ultimately — if Cook Inlet does not meet fuel needs in Fairbanks — to connect with Foothills natural gas currently being explored by Anadarko Petroleum.
The goal is to complete a small line in advance of a mainline taking North Slope gas to market, and ultimately tie the small line in with the mainline and reverse it to bring North Slope natural gas to Southcentral.
The administration has also proposed measures to help cope with the cost of fuel and gasoline, and the Legislature is debating those bills in this special session, along with its consideration of the TransCanada Alaska AGIA license.
Amendments raise issues It’s a combination which has brought a stew of emotions to the AGIA license debate, driven by issues including concerns about TransCanada vs. the producers, the proper role of government and how to get gas to Alaskans. That last issue is intertwined with the Alaska Gasline Port Authority’s project to take gas to Valdez and liquefy it there for sale to Far East markets, or West Coast markets should that opportunity be available.
Amendments on the floor, all defeated, focused on some issues of concern.
The first was on whether there is enough gas for an economic line without gas from Point Thomson. There is ongoing litigation between the Point Thomson unit owners and the Department of Natural Resources after DNR terminated the unit for failure to submit a plan of development which resulted in production.
An amendment by Rep. Craig Johnson, R-Anchorage, to require resolution of the Point Thomson dispute and have Point Thomson gas committed to the project before any reimbursement could be made of qualified expenditures, was defeated 9-30.
Johnson said resolution of Point Thomson was in the hands of the administration, and that the gas needed to be available for an open season.
Rep. Paul Seaton, R-Homer, said the availability of Point Thomson gas was in the hands of the Alaska Oil and Gas Conservation Commission, not the administration.
Rep. Carl Gatto, R-Palmer, argued that the Legislature has the right to approve or disapprove the license, but not to change it.
House Majority Leader Ralph Samuels, R-Anchorage, said he had mixed feelings about the amendment, but had a legal opinion that said the Legislature, as a separate and equal body of government, could amend the bill.
The in-state gas issue A second amendment was triggered by the need for affordable fuel in the Interior.
AGIA allows the state to support another line, as long as that line does not ship more than half a billion cubic feet a day of North Slope gas, assuring the licensee adequate North Slope gas for a pipeline to market.
An amendment by Rep. Jay Ramras, R-Fairbanks, and Johnson, defeated 15-25, would have included gas going into a line for marine export to that exception, allowing an LNG export project to be supported by the state — whatever the volume of gas — at the same time the state supported the AGIA licensee.
Ramras argued that LNG export was necessary to produce a reasonable tariff on a small line bringing natural gas to Fairbanks.
House Rules Chair John Coghill Jr., R-North Pole, said he believed the amendment would put a small in-state line in direct competition with a larger line. The capacity of half a bcf in a smaller line would be sufficient for the Railbelt, he said. The amendment doesn’t get us an LNG line but would stop the larger line, he said.
Rep. Mike Kelly, R-Fairbanks, said he was very concerned about the energy situation in the Interior, but believed the TransCanada application provided for all the eventualities addressed in the last year. He said he didn’t want to go back to the way things were when he got to the Legislature, with the oil companies completely running the show.
The mysterious agreement Samuels raised the issue of what TransCanada proposed to the Murkowski administration in 2004 under the Stranded Gas Development Act, and proposed an amendment requiring that information relating to that negotiation be made public.
Seaton argued the stranded gas negotiation was a different negotiation and a different set of people. The amendment would have prevented payment of reimbursements to TransCanada until the documents were made public; he said to say that we won’t make payments without documentation related to a previous negotiation was not relevant to the discussion.
Coghill said he also signed the confidentiality letter and looked at the documentation. That was another deal and another day; AGIA is a different setup, he said, urging members to vote against the amendment, which failed 17 to 23.
Monopoly — but on whose side? Monopoly came up on both sides during the debate.
Rep. Bob Roses, R-Anchorage, said he believes granting the license is a direct path to a monopoly and doesn’t get the state the best value in Canada for its gas. He said he regretted voting yes on AGIA last year, and believes it does not protect Alaska and does not let open market forces play out.
House Minority Leader Beth Kerttula, D-Juneau, said she believes the license is the way out of the monopolistic system Alaska has been living under for many years, and that the way to move forward is through an independent pipeline.
Rep. Mike Hawker, R-Anchorage, said he regrets voting for both the Stranded Gas Development Act reauthorization and for AGIA. He said both create the same problem — the administration picking a winner and backing it to the exclusion of all others. The winner, he said, will be picked by the financial markets.
Another problem with AGIA, he said, is that it doesn’t build the alignment needed for a successful megaproject.
Kelly said he’d been in Juneau for three big issues — tax overhaul, AGIA and the TransCanada application — and said he agreed with all three, even though all three had powerful, articulate and influential opponents. He said what’s at issue is control and agreed there’s risk, and said “if we have to reset” and do it again we will, but the TransCanada application follows the process the Legislature set out and it’s time to award the license. Role of government Samuels said he believes government is ill-equipped to pick winners in the marketplace. Where the state has control, he said, is with permitting on state lands and tax policy.
Comparing AGIA to the BP-ConocoPhillips Denali project, Seaton said Denali doesn’t have the incentive to expand the line for other gas producers; the upstream owners would have to approve that expansion. It’s a basin-opening project, he said, and why would the boards of upstream producers agree to spend money to open the basin?
While federal law can require expansion, you lose rolled-in rates with mandated expansions, which could make shipping gas in such an expansion uneconomic for a new shipper, he said. Through the mandatory process at the Federal Energy Regulatory Commission, Alaska is left with a monopoly pipeline producer group that would not serve the interests of Alaska, Seaton said.
As the bill came up for reconsideration July 23, Rep. David Guttenberg, R-Fairbanks, said that while the license had been compared to barley farms and a fish processing plant, the real comparison was to Prudhoe Bay, where the State of Alaska, because of incentives and tax credits, is a large investor. That project, he noted, has been a success for producers and the state.
The TransCanada Alaska AGIA license now goes to the Senate, which probably won’t vote until closer to the end of the 60 days allotted under AGIA for legislative approval of a recommended license. As this issue of Petroleum News went to press the Senate’s Special Committee on Energy had not yet received the House bill and had been taking testimony from the Alaska Gasline Port Authority on its proposal for an LNG project out of Valdez.
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