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Proposed AGIA gas regulations out Regulations related to capacity acquired in first binding season under AGIA; establish how state would value gas, switching terms Kristen Nelson Petroleum News
The Alaska Department of Natural Resources has published proposed regulations which would apply to gas shipped in firm transportation capacity acquired in the first binding open season for a project licensed under the Alaska Gasline Inducement Act.
DNR’s Division of Oil and Gas Director Kevin Banks said in a Feb. 19 letter to Alaskans that the regulations establish a method of determining the value of the state’s royalty share of North Slope gas shipped on capacity acquired in the first AGIA binding open season and also establish terms under which the state will exercise its right to switch from taking its royalty in-value to taking the royalty natural gas in-kind.
He said that AGIA, adopted in 2007, “required DNR to adopt regulations on royalty valuation and royalty switching before potential shippers started bidding for pipeline capacity.” AGIA licensee TransCanada Alaska plans to start accepting bids for pipeline capacity at the end of April, and the proposed regulations are intended to meet the AGIA requirement for adoption of regulations before bidding starts, Banks said.
The proposed regulations allow an oil and gas lessee to use a published price to value North Slope gas for royalty purposes, “where a published price is available and a reliable measure of fair market value.”
In most instances, Banks said, the lessee would “pay royalties on a single measure of value, rather than the higher of multiple measures of value.”
In calculating royalty value the lessee would be able to deduct its own transportation and processing costs and “deduct an allowance for unused pipeline capacity or transfer a portion of that capacity to the state in the event there is more pipeline capacity than production or the state switches from taking its royalties as money to taking its royalties as gas.”
Banks said the regulations also minimize “retroactive changes to the royalty value” of the lessee’s gas.
He said the regulations assure that the state “shares proportionately in the value of gas shipped to market, including the value of the tremendous quantities of ethane, propane, and butane contained in North Slope gas”; assure that only reasonable costs are deducted when royalty value is calculated; and retain for the state its right to take its royalty gas in kind to meet in-state needs for gas.
Joint adoption DNR and the Department of Revenue propose to jointly adopt the regulations establishing a method to determine the state’s royalty share of gas production and the terms under which the state will switch from taking royalty in-value to taking royalty in-kind.
The departments will also jointly adopt regulations establishing the qualifications for receiving certain AGIA inducements.
DNR Commissioner Tom Irwin said in a Feb. 19 statement on the proposed regulations that they include criteria for DNR’s designation of “first destination markets,” “market centers” and sources of reliable and widely available published prices.
Irwin said the department will leave designation to a later date when destinations are known for North Slope gas and the department can evaluate publications then in existence. But, Irwin said, DNR understands that people want to know what the department might designate today, were it making those decisions.
First destination markets If DNR were making determinations now, first destination markets likely would include the Alberta System, including the AECO Hub, if the licensed project goes to Alberta. If the project interconnects with the Alliance Pipeline, destinations would include Chicago, but not downstream of Chicago; and for destinations reached through the West Coast Pipeline, including Sumas, Wash., but not downstream of Sumas.
Since not enough is known about the likely destinations for liquefied natural gas if the licensed project ships gas for an LNG project, DNR is not identifying a likely first destination market for LNG.
Likely sources of published prices are broken out by type of gas and destination.
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