FERC chief: Alaska Legislature could delay natural gas pipeline

Mark Myers says FERC needs briefing because contract negotiated by governor gives North Slope producers 45-year exclusive to build gas line, but does not require them to build it

Petroleum News

he Alaska natural gas pipeline would be delayed by many years if the Alaska Legislature rejects the proposed project, according to the nation’s top energy regulator.

Federal Energy Regulatory Commission Chairman Joseph Kelliher told a natural gas industry conference in Denver May 4 that the stakes were high for the proposed pipeline. “I hope they approve this important policy to go forward,” Kelliher said, referring at the time to the proposed revision of Alaska’s production tax regime, which the big three North Slope producers and Alaska’s Gov. Frank Murkowski wanted passed before their gas line contract was released. (See update on this situation on page 1 of this issue.)

If Alaska’s lawmakers reject the pipeline agreement currently being considered, negotiations will have to start all over again and that will take years, FERC spokesman Bryan Lee said May 9 after the governor announced he would release the gas line contract May 10 even though the legislature had not yet passed the production profits tax proposed by his administration and the producers.

“Notice, I said ‘reject,’ not modify,” Lee said. “To the extent that this agreement was put together from scratch, it will have to be done all over again and that will take years.”

But former Alaska Division of Oil and Gas Director Mark Myers said once FERC “has had time to review the (gas line) contract they will become very concerned about it.”

Myers was one of six top officials in the Alaska Department of Natural Resources who resigned last October in protest of Murkowski’s termination of DNR Commissioner Tom Irwin. All seven officials said the governor was giving up too many financial concessions to the North Slope oil producers and gas owners (BP, ConocoPhillps and ExxonMobil) in negotiating a natural gas pipeline contract.

Myers told Petroleum News May 11 that he hopes Kelliher and his staff will “receive a complete briefing from the LBA (Legislative Budget and Audit Committee) consultants on the contract as soon as possible.”

The chairman’s comments “are perfectly understandable given that like Alaskans the federal government wants to see Alaska’s gas get to market quickly and he hasn’t yet seen the contract. However, after a complete review of the contract, it will become apparent that the contract provides the producers the exclusive 45-year right to build the project but doesn’t require them to do the project or even spend significant money toward advancing the project,” Myers said.

“The contract also fails to support or enhance the FERC’s ability to compel expansion of the pipeline to take explorer’s gas or to require a high debt to equity financing structure which will lead to lower tariffs,” he said.

Focus on new gas supply prompted FERC chairman’s remarks

“Given where natural gas prices are today, it’s important that we explore all avenues of supply,” he said. “The more gas supplies we have, the less upward pressure will be on gas prices.”

FERC is reviewing proposals to build liquefied natural gas terminals around the country to create more sources of gas supplies and the 4.5 billion cubic feet per day of natural gas that the Alaska pipeline project is expected to deliver to the country is a key piece of the nation’s future gas supply puzzle, Lee added.

The commission has approved eight LNG projects plus expansions of some existing terminals. And if the further 19 LNG projects pending were built, the U.S. could increase its gas supply by 26 billion cubic feet per day, according to Kelliher.