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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

TransCanada OK’d

Only one of five AGIA applicants moves to next step for public comment

Kristen Nelson

Petroleum News

The State of Alaska accepted five applications Nov. 30 under the Alaska Gasline Inducement Act, or AGIA, for state incentives to build a gas pipeline to take North Slope gas to market.

When the state finished its completeness review only one applicant, TransCanada, moved on to the next stage.

Gov. Sarah Palin said Jan. 4 that a joint application from TransCanada Alaska Co. LLC and Foothills Pipelines Ltd. was the only application under AGIA to satisfy all of the mandatory requirements set out under the act.

“We’ve long stated that it would only take one good application,” the governor said. “And without presupposing the next phase of the process, we believe today that we have that application.”

AGIA, passed by the Legislature last year, requires a commitment by applicants to meet 20 statutory state requirements in exchange for state matching funds up to $500 million and other incentives.

The next stage includes a 60-day public comment period which ends March 6 and a determination by the commissioners of Revenue and Natural Resources on whether the TransCanada proposal meets the statutory test for maximizing value to Alaskans. If the proposal meets the statutory tests — based on net present value to the state and likelihood of project success — then the proposal goes to the Legislature which would vote on whether or not to issue the AGIA license to TransCanada.

Five companies applied under AGIA: AEnergia LLC, the Alaska Gasline Port Authority, the Alaska Natural Gas Development Authority, Little Susitna Construction Co. Inc. (Sinopec ZPEB) and TransCanada.

Palin noted the role the Alaska applicants, the Alaska Gasline Port Authority and the Alaska Natural Gas Development Authority, have played in the process: “They got this project off the dime.”

“In my opinion it’s been these two Alaskan entities that have really helped kick start this process and this project and they’re to be thanked for doing so. They’ve constantly reminded us to give everyone via competition a fair shot at this project,” she said.

All applications and public comment procedures for the TransCanada application are online at www.dog.dnr.state.ak.us/agia/, along with letters to applicants who did not pass the completeness determination.

Previous attempt under SGDA

Commissioner of Natural Resources Tom Irwin said at the Jan. 4 press conference that the gas line team and the administration are focused on the AGIA requirements because they are Alaska’s future. The crucial issues are “access to the basin — it means explorers can freely come explore. It’s critical to have that,” Irwin said.

“The second step is access to an open pipeline system that’s expandable. That just simply means explorers can come explore, they have incentive to, because now they can get their gas monetized into a pipeline’s market.

“That’s the core — that’s the heart of AGIA,” he said.

Irwin said the TransCanada application had all of the 20 AGIA requirements and all of the 167 items in the request for applications.

He encouraged Alaskans to look at the application and comment. And he highlighted some of the things in the TransCanada application: a liquefied natural gas option in the event there isn’t enough gas and an aggressive schedule.

Under the last administration, that of Gov. Frank Murkowski, the state negotiated a contract for North Slope gas development under the Stranded Gas Development Act; that contract never received legislative approval.

Irwin was DNR commissioner in the Murkowski administration; he was fired in October 2005 in a disagreement with Murkowski over the way contract negotiations were going. Irwin questioned the legality of negotiations under the stranded gas act since, he said, the gas is no longer stranded as defined under the act. Six DNR officials, including Marty Rutherford, quit after Irwin was fired. Rutherford, deputy DNR commissioner then and now, heads the Palin gas team.

Palin defeated Murkowski in the 2006 Republican primary and won in the general election later that year; she brought Irwin back as DNR commissioner.

AGIA flexible

“AGIA was designed to be flexible,” said Revenue Commissioner Pat Galvin. It has a process for ranking multiple applications.

“Since we have one complete application, we evaluate it for its net present value, its likelihood of success and in the end the commissioners make a determination of whether or not … it sufficiently maximizes the interests of Alaskans and merits the issuance of a license.”

The governor said that even though there was only one complete application, the administration would stick to the 60-day public comment period. She said it’s part of the “integrity of the process.”

Palin compared AGIA to the Stranded Gas Development Act with “deals and conversations with industry that were held in secret; the public did not know what was being proposed. That process is now eliminated: The 60-day public review process is very, very important to eliminate any more threats of … closed government, secrecy, any kind of monopolizing of opportunities with this process.”

Galvin said it was important for the state to do “due diligence associated with making sure that although you have established the terms that you want to agree on, that you have dug into the proposal to ensure that everything is there that you need and that it can substantially hold up under that close scrutiny.”

Must haves in original application

Rutherford said TransCanada included all of AGIA’s “must haves” in its original application. The state asked for clarification on multiple issues, she said, “just trying to get a sense of just how much value they were imbedding in their proposal.”

AGIA requires that the applicant commit to going forward with an application to the Federal Energy Regulatory Commission even if the initial open season does not result in enough gas being committed.

During legislative hearings on AGIA “TransCanada in particular made it clear that they were very reluctant to make that kind of a commitment,” Galvin said. The TransCanada application is an indication of the success of AGIA, he said: “It set up a competitive process and that competition drove the players to make commitments that they otherwise may not have made.”

Information for state

Irwin said the AGIA process will be valuable for the information the state obtains.

“Today we don’t know the cost of the project,” Irwin said. “We know there’s options; we know there’s alternatives; and one of the real goals of selecting a partner” is that that partner then “starts the design, starts getting real costs and then the state is no longer in a position of gosh, we don’t know.”

“We start getting new information, real data to base future decisions on.”

Irwin said the state needs to make sound business decisions on a gas line, and that requires good data. “And by driving into open season, driving on to certification, we’re building that database to make future decisions.”

AGIA information will also be useful to the state in looking at the tax rate for gas, Rutherford said. Some of that data comes from the applications themselves, she said. “One of the values of AGIA is that the applications include updated new information about costs, the whole commercial terms associated with the project, so that as we move through the analysis we can better understand what the net present value to the State of Alaska will be.”

As the process moves toward an open season and FERC certification the commercial issues will be defined and the state can determine if there is anything further it needs to do on fiscal terms to move the project forward, she said.

“Fundamentally … it is not a good idea for the State of Alaska to shoot in the dark and assume something further has to be done when we don’t know the financial impact and it’s very likely thereby to leave money on the table.”

Rutherford said the Palin administration “is completely focused on protecting the State of Alaska’s interests.” There is a fiscal framework in place and “we don’t feel at this juncture it’s appropriate to even consider anything further on fiscal terms.”

Fiscal terms in AGIA are associated with making commitments to ship gas in the initial open season, Galvin said, and include fixing lease terms for royalty valuation and not changing the gas tax production rate for the first 10 years of production.



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