Providing coverage of Alaska and northern Canada's oil and gas industry
August 2010

Vol. 15, No. 32 Week of August 08, 2010

Multiple bids received in open season

TransCanada’s Tony Palmer describes initial open season bids as from ‘major industry players and others for significant volumes’

Kristen Nelson

Petroleum News

It was question which evoked thoughts of a worst-case scenario: what if the AGIA-licensed Alaska Pipeline Project got no bids in its initial open season?

According to the terms of the Alaska Gasline Inducement Act, the TransCanada-ExxonMobil project is required to continue through receipt of a Federal Energy Regulatory Commission certificate of convenience and necessity for the North Slope to market gas pipeline project even if there is no customer interest.

As Tony Palmer, vice president of Alaska development for TransCanada, told the Alaska Legislature repeatedly during hearings on the AGIA legislation, the company’s preference in the event of no bidders at an initial open season would be to focus its time and energy on developing customers, rather than proceeding to a FERC certificate after receiving no bids in an open season — or insufficient bids to back the project.

AGIA provided $500 million in reimbursement for project costs through FERC certification in exchange for certain state “must haves,” including the commitment to continue through FERC certification.

Commissioner of Natural Resources Tom Irwin told a Commonwealth North briefing before the bids were opened July 30, that if potential shippers boycotted the open seasons and the state didn’t keep moving forward, then the state would have no leverage. Irwin also said, however, that the three major companies with gas reserves on the North Slope have spent hundreds of millions of dollars studying this: They are not spending that money because they think it won’t work, he said.

TransCanada received the state’s AGIA license; ExxonMobil later joined the project, which proposes to bring North Slope natural gas to market either in the Lower 48 via a line into Canada or on a line to Valdez where another party would build a liquefied natural gas plant.

Multiple bids

But the worst case didn’t happen.

While details aren’t known, the results of the initial open season for the Alaska Pipeline Project, which closed July 30, were positive.

In a statement following bid opening, Palmer said that while results of the open season are confidential:

“The Alaska Pipeline Project can report that we have received multiple bids from major industry players and others for significant volumes.

“We’re encouraged about the future advancement of the project if key conditions can be resolved. Although we need to further assess the results, we’re encouraged by the bids received, the interest expressed in our initial open season and shippers’ willingness to take the ongoing steps needed to continue to advance the project.”

“Our next step will be to work with our potential customers to resolve those conditions — that’s what we’ll be doing over the next several months,” Palmer said.

Confidentiality agreements

Palmer told Petroleum News in a July 29 background briefing that he wouldn’t be able to describe results of the open season in any detail because of confidentiality agreements between customers and the pipeline company, agreements which are standard in every open season across North America.

Those confidentiality agreements “exist because the gas business is so competitive,” Palmer said. Gas from Alaska will compete with gas supplies coming into North American or international markets.

Then there is the competitive pipeline project (the BP-ConocoPhillips Denali project), with an open season that continues for more than two months beyond the Alaska Pipeline Project, “and we of course don’t want to disadvantage our project relative to that competitor.”

Palmer said the confidentiality agreements are also necessary because potential shippers on the line “compete both upstream and downstream of the pipeline. The customers compete upstream for current production, but they also compete upstream for future land access for future production and they … don’t want to signal to their competitors what land they may wish to acquire until they’ve got a contractual arrangement with the pipeline.”

Potential shippers also compete downstream “in every market, be it international or domestic.”

That’s the rationale behind the confidentiality agreements, Palmer said, adding that in any other open season there would be no statement until precedent agreements are signed.

Palmer said the goal is to have those agreements signed by the year’s end.

If conditions are simpler, it may take less time, he said.

On the other hand, “If we get many complex conditions we may not be able to achieve it in 100 business days,” which would extend beyond the end of the year when precedent agreements could be signed, Palmer said.

Once precedent agreements are signed, he said, FERC requires that within 10 days the pipeline “reveal the names of the customers, their volumes and the term of their agreement — the term being the date that it commences and the date that it terminates.”

Precedent agreements must be submitted to FERC within 20 days of signing, but other than the names, volumes and terms, the agreements remain confidential, he said.

Sophisticated players

Palmer said in his pre-opening briefing that the Alaska Pipeline Project has “what we think are the most sophisticated group of players as potential customers on this project that we could have.”

Those potential customers are active “in the global LNG market” and “in every supply region and market in North America.”

Palmer said prior to bid opening that whatever those customers decide to do, any signal they provide in the open season will indicate whether they view the LNG market or the Alberta market to North America as superior, or whether “they want the project to advance by committing gas at this stage.”

In addition to negotiating terms of bids, Palmer said the project needs regulatory approvals and financing.

“All three of those items are required to make a project advance to the construction phase,” he said.

The project schedule calls for submittal of a FERC application in the fall of 2014.

“We’ve targeted project sanction for the 2014 timeframe and in order to make that a success and build the pipeline we must have our customers; we must have our regulatory approval; and we must have our financing. That’s standard for any pipeline project. This one is no different,” Palmer said.

The schedule for having the line in service is 2020.

ANGDA has placed bid

While TransCanada will not announce bidders in the Alaska Pipeline Project open season until after precedent agreements are signed, one entity said it put in a bid for capacity for in-state gas transportation requirements of the Railbelt electric utilities.

The Alaska Natural Gas Development Authority said in a July 30 statement that should the project go forward, it has secured a 30 percent discount for transportation costs on the line for the Railbelt electric utilities.

“Securing this placeholder at a discounted rate for gas transportation in the Alaska Pipeline Project is aimed at providing Alaskan consumers a significant long-term benefit,” ANGDA CEO Harold Heinze said in a statement.

He said the ANGDA board had directed him to submit a bid for a volume of gas consistent with the in-state gas study that was done as a part of the open season.

“I expect additional negotiations over the next several months will be necessary as we see how the APP project unfolds,” he said.

Heinze also said the board had directed that he submit a bid for the Denali line; that open season closes Oct. 4, and he said, “Details of the ANGDA capacity bid will not be released until after that date, to assure that the maximum benefit to Alaskan consumers is maintained thru this competitive commercial process.”

Bid authorized in June

The ANGDA board authorized Heinze to submit the bids at a June 23 meeting. Heinze told the board that as far as he knew, ANGDA “may be the only ones from the state’s point of view having done the work to participate” in the open season. He said that by participating in the FERC-sponsored open season, ANGDA can lock up the ability to take gas off in-state.

Heinze said at the June 23 meeting that ANGDA didn’t yet have a source of gas, although there have been good active discussions with three suppliers. He said he wouldn’t submit a bit without some encouragement that ANGDA had a gas source, but also said he had a gut feeling that somebody was going to be interested in being the in-state gas supplier.

—Kristen Nelson

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