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Providing coverage of Alaska and northern Canada's oil and gas industry
April 2011

Vol. 16, No. 15 Week of April 10, 2011

Are precedent agreements needed for the Alaska project?

Normally, precedent agreements serve as a proxy for proving to the Federal Energy Regulatory Commission that a pipeline is needed. But for the Alaska project, the Alaska Natural Gas Pipeline Act of 2004 says FERC is to assume the need is there.

Does this mean the pipeline developers can bypass precedent agreements?

No.

Although the need is assumed, FERC’s regulations for the Alaska project also imply that the agency expects to see precedent agreements. In response to the Alaska pipeline act of 2004, FERC spelled out specific rules for public disclosure of precedent agreements that the pipeline developers must follow.

And the agreements have a function beyond demonstrating need to FERC. They demonstrate need to the financial markets.

The Alaska project developers are looking to borrow up to 75 percent of the $30 billion to $40 billion they would need for construction — loans totaling roughly $20 billion to $30 billion. (The remaining 25 percent would be their own equity in the project.)

To justify making such huge loans, the lenders will insist on seeing precedent agreements, and the firm transportation service agreements that replace them before construction starts.

—Bill White






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