Kvisle: commercial work priority

How is TransCanada’s work on an Alaska gas pipeline progressing?

Hal Kvisle, the company’s president and CEO, said discussions with the North Slope producers — whose gas will be crucial to a successful project — are continuing.

The bill approving TransCanada’s license for an Alaska gas pipeline under the Alaska Gasline Inducement Act was signed by Gov. Sarah Palin in late August. TransCanada has begun “the next stage of engineering, environmental, field and commercial work and expect(s) to conclude an open season by July 31, 2010,” Kvisle said Oct. 28 during an analysts’ call on the company’s third-quarter results.

Kvisle said TransCanada expects the Alaska commissioners of Revenue and Natural Resources to issue the AGIA license in late November, after the required 90-day waiting period for the bill to become effective. AGIA, in exchange for a proposal meeting state requirements for a gas pipeline, provided up to $500 million in matching funds for work leading to a Federal Energy Regulatory Commission certificate of convenience and necessity.

Kvisle noted that the commercial work — discussions with the major North Slope shippers — didn’t begin in August.

“I would point out that I’ve been having discussions with the Alaska producers since I took this job in 2001, so this has gone on for a long time,” Kvisle said. “But I acknowledge that the pace of those discussions has picked up and is likely to pick up in the next 18 months as we move towards that open season in mid-year 2010.”

TransCanada and predecessor companies were involved in efforts to build a gas pipeline from Alaska’s North Slope some 30 years ago and the company has remained active in those efforts.

What’s next?

He said there are two aspects to that open season. One is the formal open season where companies are invited to nominate for capacity for long-term shipping agreements on the line. Those nominating gas in an open season could be both existing producers and those now exploring for gas, he said.

“But of course the most likely shippers that are going to underpin this pipeline are the three existing Prudhoe Bay producers (BP, ConocoPhillips and ExxonMobil) and so while the open season is out there, in parallel with that we’re also holding discussions with those people in advance of the open season and leading up to the conclusion of that.

“And that is probably the single most important step in moving that project forward, are fruitful discussions with the existing producers on the North Slope,” Kvisle said.

He said the discussions are complicated and include the nature of the shipping commitment, any ownership role the producers may want in the pipeline and the issues the North Slope producers have with the State of Alaska. The producers have repeatedly told the state that they will not commit to ship on any line — even the joint BP-ConocoPhillips Denali pipeline project — without “fiscal certainty” from the state, guarantees of what tax and royalty rates will be over the life of any shipping commitment.

TransCanada is also working on permitting, although Kvisle said the regulatory permitting track “sometimes gets ahead of itself in my view on these projects.” Permits will be needed both from FERC in the United States and from the Northern Pipeline Agency for the portion of the pipeline through the Yukon and northern British Columbia, he said.

But “the commercial arrangements and commercial discussions with the major Alaska producers and any new shippers that might come along, that’s really the critical step.”

So while work is beginning on the regulatory front, TransCanada is “constraining expenditures” on permitting because “historic projects sometimes get ahead of themselves in terms of going down that regulatory path, spending a lot of money when the real issue is sorting out the commercial arrangements and so that’s where our focus will be for the next little while,” he said. TransCanada has a conditional FERC certificate for the line planned in the 1970s and 1980s. That project collapsed due to a drop in market prices for natural gas following U.S. deregulation of the natural gas industry.

A Keystone-Alaska connection?

As for a precedent for the Alaska project, Kvisle said he didn’t think there was anything directly significant in the Keystone announcement, adding that he thought “it should be recognized that it is indicative of the good relationship we have with ConocoPhillips and you know we’ve worked diligently with ConocoPhillips for seven years on exploring different ways to collaborate on the Alaska pipeline project — and we will continue to do that.”

TransCanada had been talking with “a couple of the producers before we made our AGIA filing, so this has gone on a long time,” he said.

As to how the talks are going, Kvisle said “we simply put to them the advantages of being involved in our project including the fact that our project is strongly supported by the State of Alaska and that’s obviously pretty important.”

The talks cover many issues, he said, “and of course they’re not going to express a willingness to walk away from their project until everything is agreed between us.”

The BP-ConocoPhillips joint pipeline project, Denali — The Alaska Gas Pipeline LLC, was announced in early April, as the Palin administration was evaluating whether to recommend to the Legislature that TransCanada receive an AGIA license. None of the North Slope producers applied under AGIA — calling the AGIA requirements too restrictive and telling the state they preferred a negotiated format. ConocoPhillips did submit a separate, nonconforming proposal, which would have required fiscal negotiations, to the state in conjunction with receipt of AGIA applications.

—Kristen Nelson