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Vol. 13, No. 2 Week of January 13, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

Four AGIA bids incomplete

Proposals fail to get North Slope gas to market or don’t meet other requirements

Kristen Nelson

Petroleum News

Gov. Sarah Palin announced Jan. 4 that the state had received one complete application under the Alaska Gasline Inducement Act from TransCanada Alaska LLC.

Five AGIA applications were opened Nov. 30 — what happened to the other four?

They weren’t complete and the letters of completeness determination make interesting reading.

Addressed to AEnergia LLC, the Alaska Gasline Port Authority, the Alaska Natural Gas Development Authority and Little Susitna Construction Co. Inc., the letters explain why the applications have been found incomplete.

The first thing the administration did Nov. 30 was to begin a completeness review of all of the applications. It also asked applicants for clarification where necessary.

The applicants were contacted by phone Jan. 4 with the results of the completeness reviews and Revenue Commissioner Pat Galvin and Natural Resources Commissioner Tom Irwin signed off on the completeness determinations that same day.

The bottom line for two of the applications was that they didn’t propose to take natural gas from the North Slope to market, the purpose of AGIA. A third application failed to show clearly how gas would get to market. And a fourth application failed in numerous ways to meet the requirements of AGIA.

Below is a summary of the four incomplete applications, listed alphabetically.

The applications, completeness determinations and correspondence are on the state’s Web site at


AEnergia LLC failed to satisfy a number of AGIA’s mandatory requirements, but primarily it didn’t get gas to market.

AGIA requires that the project transport natural gas from the North Slope to market, but the AEnergia project only goes to the Canadian border. The commissioners said AEnergia’s application lacked a proposal by the company — or an agreement between AEnergia and another entity — “to construct necessary facilities to connect to existing Canadian infrastructure.”

The application lacked a thorough description of the route and since it did not describe the Canadian portion of the project, it did not meet the requirement of describing how it would obtain Canadian rights of way and authorizations.

The commissioners said AEnergia failed to make the unconditional commitment required in AGIA to expand the line to encourage exploration, instead requiring that an entity wanting capacity in an expansion first demonstrate that it could deliver the natural gas.

AGIA requires that an applicant must “demonstrate the readiness, financial resources, and technical ability to perform the activities specified in the application” and the commissioners said AEnergia’s plan “relies on the North Slope producers as ‘the primary source of cash investment’ for the project” but “fails to provide any evidence that the North Slope producers would agree to become the primary source of cash investment for the project.”

The commissioners also said AEnergia’s application didn’t demonstrate that the company “has ever constructed a natural gas pipeline project, much less a massive project like the Alaska project.”

Alaska Gasline Port Authority

The application from the Alaska Gasline Port Authority was rejected for multiple reasons, among them failure to show clearly how gas would get from the North Slope to market.

The commissioners said the application didn’t meet AGIA’s mandatory requirements and was inconsistent with the request for applications, or RFA.

The way THE PORT AUTHORITY submitted its information was part of the problem, the commissioners said. Supplemental information the port authority submitted in mid-December, in response to a request for clarification, was not responsive to the request and contained “significant new information” that was not included in the port authority’s Nov. 30 application.

The commissioners said the “new information” in the Dec. 18 submittal, “if accepted, would materially change the substance” of the port authority’s original application. The port authority “submitted a new proposal package” which was backdated to the Nov. 30 RFA deadline describing “a materially changed project different from that proposed” in the original Nov. 30 application.

The commissioners said the revised application received in mid-December included a new diameter for the pipeline; new technical viability data and analysis; and new economic data and analysis not included in the Nov. 30 application.

The Nov. 30 application did not include a front end engineering design, but attempted to incorporate by reference a FEED plan developed by Bechtel that the port authority “expected to be included in another (unidentified) party’s application under the RFA,” the commissioners said.

“No application filed under the RFA, however, provided the referenced Bechtel information.” The commissioners said the missing Bechtel information appears to be in the revised application submitted in mid-December.

Port authority originally

part of consortium

The port authority said in its original application that in early June it assembled and began working with a consortium on an all-Alaska gas line bid under AGIA. “Members of the consortium included a major North American pipeline and a major gas producing company with worldwide LNG experience,” the port authority said.

Consortium members decided to submit a separate AGIA bid from the port authority, but the port authority gave them unrestricted access to some $8 million in work done for the port authority by Bechtel since 1999. “It was agreed that if the consortium members decided to not submit an application under AGIA, they would immediately make available to the Port Authority all data accumulated for their bid including various bid drafts as well as all work performed by Bechtel on their behalf,” the port authority said in its application.

In mid-October one of the prospective partners withdrew from the AGIA application process but the remaining consortium member said it would continue with its AGIA application. The port authority said it understood that Bechtel has an agreement that precluded it from “working with another applicant while engaged by this remaining prospective applicant.”

The port authority said it understands that the technical work Bechtel performed for the other applicant is virtually identical to what it would have done for the port authority and said it “incorporates all cost estimates and other technical work performed by Bechtel for the other prospective applicant by reference.”

Port authority: Different netback conclusions

The commissioners said the original the port authority application showed negative netbacks for the project — the price the producers would receive at the well head. When the commissioners asked how that explained the project’s economic viability, the port authority submitted “a new and materially different” exhibit which showed a positive netback.

The original application said information on capital costs and revenue to the state was pending; that information was included in the revised application.

The port authority’s original project would have been subject to regulation by the Regulatory Commission of Alaska, the commissioners said, but the project in the revised application would have been subject to Federal Energy Regulatory Commission regulation.

The commissioners said the port authority’s “attempt to supplement” its Nov. 30 application “with a significant amount of new information 18 days” after applications under AGIA closed was not permitted by AGIA and the RFA. “Moreover, it would not be fair to the other applicants, who did not have the same opportunity, to allow the Port Authority to submit what is, in effect, a new application after the deadline,” the commissioners said, noting that they did not consider the information contained in the revised submittal in determining the completeness of the the port authority’s application.

Port authority decision based on original application

The commissioners said they evaluated the port authority’s application based on the Nov. 30 application and determined it did not meet the AGIA requirements.

They said it failed to provide a clear description of a project to take North Slope gas to market: there are two projects in the application and both lacked a “thorough description.”

On the issue of the Bechtel data which the port authority referenced, the commissioners said they didn’t decide whether or not the port authority could comply with AGIA by referencing other data because no other applicant filed an application with work by Bechtel.

“It appears that the Port Authority faced a difficult situation as a result of the circumstance described above (the original plan for a consortium bid). Nevertheless,” the commissioners said, the application “fails to provide a thorough description of the project” as required by AGIA and the RFA.

The application also failed to provide an analysis of the project’s technical viability.

Other sections failed to meet AGIA requirements because they relied on the Bechtel data, including requirements for a project development plan, a project execution plan and a comprehensive capital cost management plan.

Only some of the information necessary for the commissioners to analyze the project’s economic viability was provided, “which is critical to assessing the project’s net present value … and the anticipated cash flows” to the state as required under AGIA, the commissioners said. The application also does not contain tariff terms; the commissioners said those were described as being “in development.”

Because of the missing information the commissioners said the port authority’s application failed to “demonstrate the readiness, financial resources, and technical ability to perform the activities specified in the application” as required by AGIA.

Alaska Natural Gas Development Authority

The Alaska Natural Gas Development Authority had the shortest incomplete determination letter of the four.

The ANGDA application, which is for a spur line to take natural gas from a main line, “does not propose a project that would receive gas at points located on the North Slope and deliver that gas to a market,” the commissioners said.

They noted that ANGDA said in the preamble to its application that the spur line was proposed as an adjunct to any major gas pipeline taking North Slope gas to market.

Little Susitna Construction Co.

The application from Little Susitna Construction Company Inc. was rejected because it didn’t comply with AGIA requirements or with the RFA.

The commissioners said the application “negates all of the commitments” made by LSCC as required by AGIA “by unilaterally imposing numerous ‘Required Terms and Conditions’ not authorized by AGIA or the RFA, and by requiring final approval of the ‘contract’ by the People’s Republic of China.”

This has been widely described as the Sinopec (China Petroleum and Chemical Corp.) application, and the commissioners said LSCC “depends heavily on the financial resources and technical ability” of that major Chinese energy company and various Sinopec divisions in its application. The commissioners said they requested clarification of Sinopec’s role on Dec. 12. In response LSCC explained the role of the various Sinopec divisions and resubmitted the teaming agreement and letter of intent that were part of the original application.

The commissioners said they “cannot find on the basis of the teaming agreement and the letter of intent that Sinopec is committed to supporting the engineering, construction or financing of the project.”

“Importantly, there is no evidence in the application that Sinopec has agreed to support LSCC beyond the submission of the application,” the commissioners said. The teaming agreement “indicates only that Sinopec will provide ‘information and support for the application process.’ This does not indicate that Sinopec is committed to assist in any of the project work” following the submission of LSCC’s AGIA application.

Because of this, the commissioners said they “have no basis upon which to find that any entity other than LSCC has committed to support the proposed project,” and on that basis find LSCC does not demonstrate “the financial resources and technical ability to perform the activities specified” in its application, as required by AGIA.

LSCC: approval of China an issue

The requirement that the State of Alaska agree to “final approval” by the People’s Republic of China “is unacceptable for numerous reasons,” the commissioners said, but also shows that LSCC has not complied with AGIA. “An applicant whose ability to construct the project is contingent on the approval of the People’s Republic of China has failed to demonstrate the ‘readiness’ required” in AGIA to perform the work listed in the application.

The commissioners said that the required terms and conditions in the LSCC application fail to satisfy AGIA’s mandatory requirements and violate the RFA. LSCC’s required term and condition No. 2 would require the State of Alaska to negotiate “any terms and conditions” as part of a “new contract” with LSCC after the AGIA license is awarded, a condition which the commissioners called “fundamentally inconsistent” with AGIA, “which requires each applicant to make a number of unconditional commitments as part of an open, competitive process that does not involve any negotiations between the applicant and the state.”

The commissioners said all LSCC’s required terms and conditions also violate the RFA, which requires each applicant to submit its “best and final offer” in its application. The requirement that the People’s Republic of China has final approval “is unacceptable under Alaskan legal principles and is inconsistent with numerous provisions of AGIA and the RFA,” the commissioners said. “The legislative acts of the State of Alaska cannot be made subject to the final approval of a foreign government.”

The required terms and conditions in LSCC’s application also require that the state prove the adequacy of gas reserves on the North Slope; that the state not charge any right of way or land use fees; that the state give incentives in the form of a tax rate reduction on applicant’s corporate income tax; that the state not tax LNG and propane ships for production tax, property tax or any other taxes related to the fleets; and that the state “agrees to deal with the North Slope producers, the applicant, and agrees to meet to resolve differences.”

LSCC: not an open access pipeline

The commissioners also said the LSCC project would not be an open-access pipeline. LSCC said it would purchase gas for the pipeline at the wellhead, ship that gas on its pipeline and liquefy the gas at a facility owned by LSCC, “so no third party or tariff services are needed for this class of gas.”

Those terms would give LSCC “a priority right” to the first 4 billion cubic feet of capacity. “This is not consistent with Alaska law which requires that a pipeline owner offer non-discriminatory access to its facilities,” the commissioners said.

LSCC also said that while there was no minimum volume for the in-state open season, “LSCC does require the producers and the state to sell at the wellhead” at least 4 bcf a day of gas “for LNG export gas purposes.” LSCC said that in-state shippers could nominate whatever volumes they require.

The commissioners said state law requires that any natural gas pipeline crossing state lands and receiving a state right of way “must accept, convey and transport natural gas without discrimination” and that obligation “expressly applies to the intrastate transportation of natural gas from the North Slope.”

LSCC also said it would provide gas to the spur line for heating and utility uses but not for industrial uses. “These terms and conditions would require rejection of LSCC’s application for failure to meet a material requirement of applicable law,” the commissioners said.

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