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AGIA, TransCanada on legislators’ minds As legislators get overview of agreements for Alaska LNG Project, some asking why state doesn’t look for new pipeline partner Kristen Nelson Petroleum News
The departments of Natural Resources and Revenue have begun walking Alaska legislative committees through the heads of agreement and the memorandum of understanding for the Alaska LNG Project announced by Gov. Sean Parnell Jan. 10.
Legislators had numerous questions for Revenue Commissioner Angela Rodell, deputy Revenue Commissioner Mike Pawlowski and Natural Resources Commissioner Joe Balash during presentations Jan. 27 and 29 to the House and Senate Resources committees, with a lot of interest focused on TransCanada, a partner in the Alaska LNG Project but also the state’s licensee under AGIA, the Alaska Gasline Inducement Act.
The proposal put forward by the administration would create an equity role for the state in the Alaska LNG Project and transition from the AGIA license to a commercial agreement with TransCanada.
AGIA phased out Enabling legislation would allow the commissioners to sign the MOU with TransCanada, phasing out the AGIA license in favor of a commercial agreement, with TransCanada taking the state’s equity share of a gas treatment plant on the North Slope and the 800-mile pipeline. TransCanada would meet cash calls in the development stages of the project; the state would repay TransCanada when natural gas begins to flow.
For the liquefaction plant planned for Nikiski, the Alaska Gasline Development Corp., through a subsidiary the Legislature will be asked to approve, would hold the state’s equity.
Unlike the AGIA proposal, which would have had a single tariff, Alaska LNG Project facilities would be operated independently by the owners, based on their resource share, creating, in effect, gas treatment plants within GTLs, pipelines within pipelines and liquefaction plants within LNG plants for purposes of tariffs and tolls.
Under the agreements each owner would be free to finance its segment as it saw fit — all equity or a combination of equity and debt — and set tariffs for its portion.
The state would have the benefit of lower tariffs because its agreement with TransCanada includes 75-25 debt-equity financing. The state’s portion of the GTP and the pipeline would also be accessible to new entrants.
The TransCanada connection drew a lot of questions.
Balash told legislators that the administration considered whether to continue with TransCanada or go out to bid. TransCanada has done everything the state asked, he said, and has worked with the others in the project — BP, ConocoPhillips and ExxonMobil — to reach resolutions to allow the project to move forward.
The administration could have done a request for proposals for a pipeline partner, Balash said, but wanted to maintain the momentum the Alaska LNG Project has. With AGIA it took some two years from legislation allowing the solicitation, to writing it, evaluating responses, getting legislative approval and then the signoff, he said.
The MOU is an amicable end to AGIA, Balash said.
If the state decided to declare the project uneconomic and walk away, the statute isn’t entirely clear and under the arbitration provisions either party could pursue that course and make it difficult on the other, tying up time and resources, he said.
Balash said that the administration, having removed the Point Thomson cloud from the LNG process by settling that litigation, wasn’t anxious to create another cloud over the process.
TransCanada response One question which came up was TransCanada’s involvement in other LNG projects.
Tony Palmer, TransCanada’s vice president for major project development, told Senate Resources the company is involved in other projects, such as two proposed pipelines in British Columbia to take natural gas to the West Coast for liquefaction. He said legislators should be concerned if the company wasn’t involved in other large projects — not by the fact that it is.
TransCanada builds some 625 miles of pipeline a year, he said, noting that the 800-mile Alaska gas pipeline would be built over four years, and is capable of doing more than one project at a time, although he did note that the timelines for the British Columbia projects are such that they would be completed prior to startup of construction on the Alaska LNG Project pipeline.
Palmer said TransCanada was involved in the Alaska project because the company believes that of the many LNG proposals, this is one that has an opportunity to compete in the market and win. Fundamentals of the Alaska project include a gas supply, a capable pipeline company to get permits and get across the mountains to market, companies capable of building the LNG plant, and producers with access to markets, he said. Asian markets are unlike domestic markets and the three major producers on the North Slope sell gas in that Asian market every day, Palmer said. Credit is also needed, he said, and between the producers, TransCanada and the state, there are diverse partners which all have credit. And, he said, the project must be cost competitive.
Palmer said TransCanada thinks this project as currently coordinated has the opportunity to compete in the market and win.
He also noted that the agreements before the Legislature were the result of more than a year’s work, and reflected compromises on all sides.
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