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Vol. 13, No. 27 Week of July 06, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

Definition, not mediation, please

While Sen. Lesil McGuire, R-Anchorage, has asked the administration to consider mediation before the vote on the Alaska Gasline Inducement Act license application by TransCanada Alaska, fellow Anchorage senators, Democrats Hollis French and Bill Wielechowski, have asked Denali pipeline — the line proposed by BP and ConocoPhillips — to specify how its line would compare on AGIA requirements met by TransCanada, and to do so before the Legislature reconvenes July 9.

“In the interest of transparency and full disclosure from all parties, we seek to get more information on the table about your proposed alternative, so Alaskans can fully consider all options,” the two said in a June 30 letter to Denali President Bud Fackrell.

BP and ConocoPhillips said Fackrell would respond.

ConocoPhillips Alaska spokeswoman Natalie Lowman told Petroleum News in a June 30 e-mail that ConocoPhillips understands that Fackrell, president of Denali — The Alaska Gas Pipeline LLC, “will be prepared to respond to the issues raised in the letter when he testifies before the Legislature in July.”

BP sent a response from Fackrell in a July 1 e-mail:

“We are more than happy to talk about the Denali project. I will be testifying before the Legislature next week, and will be prepared to address the topics raised in the senators’ letter,” Fackrell said.

Questions based on AGIA

French and Wielechowski asked how Denali would meet the AGIA requirements met by TransCanada. They specifically asked if Denali would:

• Commit to hold an open season for firm shipping commitments within two to three years?

• Commit to a firm date for an application to the Federal Energy Regulatory Commission (Denali received FERC approval of a pre-filing request from FERC June 25)?

• Commit to financial provisions to keep the tariff low, including a debt-to-equity ratio on construction of not more than 70 percent debt to 30 percent equity?

• Commit to soliciting demand for a pipeline expansion at least every two years, to expanding when there is sufficient need and to using rolled-in rates for expansion costs up to 115 percent of initial rates?

• Commit to at least five delivery points in Alaska with distance-sensitive rates?

• Commit to capital cost overrun measures that protect the state and shippers from an unreasonably high tariff?

• Commit to hiring qualified Alaskans for construction and operation of the gas pipeline and to signing project labor agreements to ensure that as many Alaskans as possible help construct the gas line?

• Define the fiscal terms that would be requested from the state.

State offers 10 years

AGIA promises 10 years of fiscal stability to shippers committing gas at an initial open season, including 10 years of contractual stability on gas royalties and 10 years of statutory stability on gas production taxes following the beginning of gas shipments, French and Wielechowski wrote.

“If the license is issued to TransCanada, AGIA will prevent the Legislature from extending that fiscal stability, or any other preferential royalty or tax terms, to any other entity. Those provisions will make it difficult and expensive for the Legislature to ever grant fiscal stability to gas shipped through your proposed Denali pipeline,” they said.

Producers have indicated that fiscal terms must be negotiated with the state before gas is shipped, but “there has not been a clear articulation of what those terms are. It is time for all parties interested in constructing a natural gas pipeline to be forthcoming and tell Alaskans what they are willing to do and on what terms,” the two said. “To not be upfront about those terms risks misleading Alaskans about the costs and benefits of each of the proposals under consideration. We ask for your cooperation in helping to inform all Alaskans about the Denali proposal and the fiscal terms you will require. In short, it is time for you to put your cards on the table.”

—Kristen Nelson

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