The State of Alaska received five applications under Gov. Sarah Palin’s Alaska Gasline Inducement Act — the state’s bid to get development of a gas pipeline project with $500 million in state matching funds and other benefits in exchange for a project which meets 20 “must haves.”
After applications closed Nov. 30 the governor and her gas line team displayed boxes and envelopes containing the applications and Marty Rutherford, deputy commissioner of the Department of Natural Resources and the gas team leader, said the completeness review of the applications by state employees and 11 consulting firms would begin that night.
The five entities who applied under AGIA are: AEnergia LLC; the Alaska Gasline Port Authority; the Alaska Natural Gas Development Authority; Sinopec ZPEB and Little Susitna Development Co.; and TransCanada Corp. and Foothills Pipeline — three familiar players and two new entrants (see stories on AEnergia and Sinopec in this issue).
Two companies which explored the opportunity but didn’t bid were BG and MidAmerican; the state also received a non-AGIA proposal from ConocoPhillips (see separate stories in this issue).
The applications will be available for public review once the completeness review is done, a process which is expected to take several weeks. The administration had set Dec. 21 as the target date for putting applications online, but said that because of the number of applications it may take longer.
Once the applications are public there will be a 60-day public review period. The commissioners of Natural Resources and Revenue will then recommend a project for legislative approval — or not, if none of the applications are found to be in the state’s best interest.
Palin: ‘committed to AGIA’Asked about the non-AGIA application the state received from ConocoPhillips, the governor said “we are committed to AGIA and to the process.” The entities who applied “played by the rules and followed the benchmarks that we have asked for and hopefully will be fulfilling the ‘must haves’ in Alaska’s requirements … are not stalking horses,” she said.
The governor also said she hoped the applications would “spur some interest by the producers.”
“Just because a major producer hasn’t applied under AGIA doesn’t mean that they cannot be participants in this gas line. Once a licensee is chosen — Alaska’s best partner — then a third-party partner will no doubt be attracted also by the licensee,” the governor said.
“Today’s progress, under AGIA, demonstrates to the world that Alaska is well on our way to bringing this long sought after and necessary infrastructure, a natural gas pipeline, to fruition.” Palin said the gas line would “feed hungry markets and help secure our United States with Alaska’s abundant North Slope energy.”
What state will look forRutherford said that chief among what the state will look for in the applications is “access for all gas explorers; expansion assured for companies with new gas volumes; a reasonable and hopefully very low tariff structure; and moving the gas pipeline project forward expeditiously.”
DNR Commissioner Tom Irwin said AGIA represents “a change in how Alaska really moves forward on the gas line.” He said the message to the applicants is that the administration “clearly supports AGIA” and now that the applications have been submitted, they will be reviewed on the foundation set by the governor: “integrity, fairness, transparency.”
Revenue Commissioner Pat Galvin said AGIA “was designed to set up a competition and that’s what we have.” The state’s obligation now is “to review the applications and ensure that in the end we have a project that meets the state’s interests and moves forward as expeditiously as possible.”
The producer issueRutherford concurred with the governor’s remarks on the ConocoPhillips’ proposal: It is “outside AGIA and we’re committed to AGIA.”
She also said that since the administration began talking about AGIA to the Legislature its stance has been that even if the major North Slope producers — BP, ConocoPhillips and ExxonMobil — “chose not to participate as applicants to build the project, we are convinced that these world-class corporations will in fact ship gas when they know what the construction costs and the tariff structure will be.”
“They need to monetize that asset; they need to book those reserves; and they need to honor their lease responsibilities to the State of Alaska,” Rutherford said. She added that although the producers talk about owning the leases, “they own the leases with obligations to the State of Alaska to move our resource to market when it’s economic to do so. And I believe they will honor that and so I don’t think it makes much of a difference to our process” that the producers haven’t applied under AGIA.
Rutherford said the state will move the project forward and predicted that “at the end of the day” the producers will agree to ship gas.
The evaluation processUnder AGIA, Rutherford said, the evaluation process involves determining what the proposals do “in terms of the net present value for the State of Alaska and we have to weight that by the likelihood of success. So there’s both a quantitative and a qualitative aspect to that evaluation process.” The consultants involved in the evaluation will assist the state with a range of issues including financial, modeling and engineering.
Compared to the previous Stranded Gas Development Act negotiations, Rutherford said “one of the things that’s so critical about AGIA is that we have identified what requirements are necessary in a gas pipeline to ensure Alaska’s long-term economic interests.” Those requirements are laid out in AGIA, and ensure “that this is truly an open-access pipeline, with reasonable, low initial tariff structure and a real commitment and responsibility to expand when new gas is available.”
She said “probably one of the most significant differences between what occurred under the previous administration and this one is that our long-term financial interests and the nation’s interests in getting gas to market are protected by these must haves, these commercial elements.”
The benchmarks to move the project forward expeditiously are also critical, Rutherford said, “because we do not want Alaska’s gas displaced by other energy sources moving into the marketplace.”
The in-state entitiesTwo in-state entities, one representing municipalities and the other part of the state, were among the applicants.
The Alaska Gasline Port Authority, a joint venture of the North Slope Borough, the Fairbanks North Star Borough and the City of Valdez, is a municipal entity established in 1999 to build a gas pipeline from the North Slope to Valdez and take Alaska North Slope natural gas to market as liquefied natural gas.
In a statement after the port authority application was turned in its board chairman, Jim Whitaker, the mayor of the Fairbanks North Star Borough, said the port authority’s “mission, since day one, has been focused on bringing the maximum benefits of North Slope gas development to the people of Alaska in the form of access to gas, greater competition in the development of gas, new and expanded value added industries throughout the state and jobs for Alaskans.”
The port authority’s project manager and general counsel, Bill Walker, said the port authority has “worked with some of the biggest companies in the world in the fields of project engineering, finance, shipping and marketing, to put this proposal together” and look forward to working with the Palin administration to provide any further information needed.
The other in-state entity, the Alaska Natural Gas Development Authority, was established by statewide voter initiative. Its original purpose was to build a line to Valdez for an LNG project, but ANGDA has taken on ensuring that natural gas reaches Alaska consumers, both those along the main gas pipeline and in other areas of the state. ANGDA’s AGIA application is designed to bring natural gas to Southcentral Alaska via a spur line.
Unlike the other applications, that from ANGDA is already public as it is posted on ANGDA’s Web site at www.angda.state.ak.us/. There are two applications, one of which would work with an Alaska Highway line, the other of which would work with a line paralleling the trans-Alaska oil pipeline to Valdez.
ANGDA’s applications are designed to accompany a mainline application.
The pipeline: TransCanadaAn AGIA application from TransCanada, the big Canadian pipeline company, was not a sure thing.
The company told legislators during AGIA hearings that it was not comfortable with the AGIA requirement to proceed through a Federal Energy Regulatory Commission certificate even if an initial open season failed to attract shippers to the line, a provision the administration said was crucial to ensure that producers couldn’t kill the project by not nominating gas for the pipeline in an initial open season.
Tony Palmer, vice president of Alaska business development for TransCanada, told legislators early this year, when AGIA was being debated, that TransCanada would not want to continue past a failed open season to get a FERC certificate. He said monies spent after a failed open season to get a FERC certificate “are truly at risk if the project does not proceed.”
And it’s not just the money, he said, people would have to be dedicated to the project and it would “take a significant dedication of our corporation’s talent to pursue the project.”
TransCanada, an independent pipeline company, is the holder of the rights granted for the original North Slope gas pipeline and as such has a 30-year history with the project, Palmer said in March.
He also told legislators that TransCanada believes a compromise must be reached between the producers and the State of Alaska. “TransCanada believes the most expeditious and equitable path forward for the project is a collaborative arrangement between the state and the producers, the state and TransCanada,” he said.
Palmer said TransCanada believes a five-party arrangement is necessary between the producers, the state and TransCanada.
The company holds a FERC certificate dating from the original Alaska Highway gas pipeline project, under the Alaska Natural Gas Transportation Act. “It is a conditional certificate, but there has been a FERC certificate for this project for 30 years,” Palmer told legislators: “It’s customers this project has lacked.”
TransCanada would prefer, he said, that if an initial open season fails the focus would be on obtaining customers “as opposed to doing the engineering and regulatory and legal work to capture a FERC certificate.”