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Vol. 13, No. 50 Week of December 14, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

State signs AGIA license

Kvisle confident producers will commit gas to TransCanada line

Stefan Milkowski

For Petroleum News

It’s official.

Two years after Gov. Sarah Palin took over as governor and initiated the competitive process that would become the Alaska Gasline Inducement Act, her administration entered a binding agreement with TransCanada to pursue the long-sought mega project.

“This is an historic day for Alaska — and for the North American continent,” Palin told a crowd of state lawmakers, local officials, and reporters at a signing event Dec. 5 in Fairbanks. TransCanada CEO Hal Kvisle and Vice President Tony Palmer attended the event, which took place at the Morris Thompson Cultural and Visitors Center.

“It was two years ago today that my administration kicked off meetings with all parties interested in commercializing North Slope gas,” Palin said. “We knew that something had to change, otherwise we would be stuck on high center with very little hope of moving this gas line forward.”

Palin described an AGIA pipeline as a “win-win” for the state, the pipeline builder, the producers, and the gas consumers, and she expressed confidence that the law would lead to construction of a gas pipeline.

Palin stressed that all parties involved would have to come together to make the project a reality, and she said her administration would continue to look for ways to find alignment. But she added that her administration had found no reason to modify the state’s tax or royalty systems.

“We have every reason to believe that both the leaseholders and the state will do quite well when the project is built,” she said.

Kvisle also described the day as historic, adding that TransCanada was “very keen” to proceed under the AGIA license. The company has proposed to build a 1,715-mile pipeline from the North Slope to the British Columbia-Alberta border.

Kvisle noted that several months had passed since lawmakers approved the license in August, and explained that TransCanada had pushed ahead without the license to keep on schedule. “We made the decision — at our own expense — to kick off and do a certain amount of work out in the field,” he said.

Now that the license has been issued, TransCanada will be reimbursed for 50 percent of qualifying expenses through the initial open season and 90 percent thereafter. The reimbursements are capped at $500 million.

Kvisle said the license was significant as an assurance of state support in the permitting process and as a signal to gas producers that the state was committed to the AGIA process.

Palmer expressed his personal satisfaction with the formalization of the license and joked about the long hours spent before state lawmakers, calling the experience “an opportunity for growth.”

Natural Resources Commissioner Tom Irwin thanked members of Palin’s gas line team, who he guessed had “lost the idea of what vacation is.”

Irwin and Revenue Commissioner Pat Galvin signed four copies of the license, which will go to TransCanada, the governor’s office, and the departments of Revenue and Natural Resources.

Palin and members of her gas team made only indirect reference to the competing project pursued by North Slope producers BP and ConocoPhillips under the joint venture Denali, which also conducted field work this summer for a large-scale pipeline from the North Slope into Canada.

Without mentioning Denali’s significant public relations effort, Palin defended TransCanada’s decision not to promote its project through advertizing.

“They’re not showboats,” she said. “They just get the job done.”

Kvisle confident producers will commit gas to TransCanada line

Both project sponsors have expressed a willingness to collaborate under certain conditions. But for now the two projects are proceeding independently, and they may compete for customers during their respective open seasons. TransCanada is planning to complete its initial open season by July 2010; Denali is planning to begin its open season before the end of 2010.

When asked about the prospect of competing open seasons, Kvisle expressed confidence that the major producers would commit to TransCanada’s project.

“I think they do recognize our capabilities to do a big project like this,” he said, noting his company’s collaboration with ConocoPhillips and ExxonMobil on the Keystone and Mackenzie Valley pipeline projects. “They recognize the advantages of our Northern Pipeline Act in Canada, and they recognize the advantages of connecting to our system in northern Alberta.”

“But I appreciate ... that we need to deliver a commercial proposition to them,” he added. Kvisle said his company would strive to keep the pipeline tariff to $3 or less per million British thermal units from the North Slope to Alberta.

Denali spokesman Dave MacDowell wrote in an e-mail that the issuance of the license did not affect Denali’s work program.

“Denali is moving forward outside of the AGIA framework,” he wrote.

Denali announced plans in October to rent 40,000 square feet of office space in the new 188 W. Northern Lights Building in Anchorage.

TransCanada has Alaska office

TransCanada has also chosen an Anchorage headquarters. According to Palmer, the company rented a “modest-size,” 2,300-square-foot office space in the Key Bank building, effective Dec. 1. Palmer added that TransCanada is also planning to open a Fairbanks office, although that office likely won’t open until after TransCanada’s open season.

Fairbanks area lawmakers attending the event hailed it as a concrete step forward.

“I’m pumped,” said Rep. Mike Kelly, a Fairbanks Republican. “I’m happy with exactly where we are.”

Kelly, Sen. Gene Therriault, a Republican from North Pole, and Rep. David Guttenberg, a Fairbanks Democrat, all said they expect the major producers to team up with TransCanada under AGIA, despite statements from Denali officials calling AGIA’s terms unworkable.

“I believe it will become clear as the clock goes forward that this is going to be done under AGIA,” Kelly said.

Rep. Jay Ramras, a Fairbanks Republican and vocal critic of AGIA, said in an interview later that signing the license only made it harder for the state to extract itself from the deal.

“Palin should wait around and take credit for the Denali line when it works,” he said.



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