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Vol. 19, No. 4 Week of January 26, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

Legislature in session

Parnell calls for state ownership in gas line; approval process will be more open

Kristen Nelson

Petroleum News

The Alaska Legislature gaveled in Jan. 22. In Gov. Sean Parnell’s state of the state address Jan. 23, and the Democratic response which followed, gas pipeline issues were highlighted as significant for the session, and party lines on the issue appeared drawn.

The governor, a Republican, emphasized the value of state equity participation in the Alaska LNG Project, the big line the producers and TransCanada are working on to take North Slope natural gas to Cook Inlet for liquefaction and sale aboard.

On the gas pipeline issue, House and Senate minority leaders cautioned against giving away the state’s resources.

Governor’s view

Parnell noted “historic progress” made recently on the gas line, with “all the necessary parties” aligned for the first time: the North Slope producers, TransCanada, the Alaska Gasline Development Corp. and the departments of Natural Resources and Revenue.

Because of the complexity of a liquefied natural gas project, the state hired experts to look at the project and how it could be competitive.

“Alaska can best control her own destiny if we own a stake or participate in the Alaska LNG Project,” Parnell said, telling legislators that an equity interest allows the state to share “in the profits of the project, rather than handing them all to someone else.”

It also means the state “will better understand and can more effectively negotiate and ensure the lowest possible cost.”

The governor said the legislative approval process he will propose will be phased, and “will be more open and transparent to the public than either the Stranded Gas Act or the Alaska Gasline Inducement Act,” the most recent laws under which the state attempted to negotiate a North Slope natural gas project.

When those acts were passed, “everyone assumed that in order to get a gas line, we had to negotiate all the fiscal terms at the outset,” Parnell said, and the impact of that belief was that “the state carried all the risk upfront for decisions worth billions of dollars without having the benefit of information, time and analysis to get it right.”

The governor said his approach would require the parties to “make commensurate proportionate commitments to go forward in phases,” and at each phase, the administration would seek “review and approval” of key decisions from legislators.

Approval sought in this session, the governor said, would involve approval of the guidance document negotiated by the administration team (the Heads Of Agreement which the governor announced Jan. 10), and legislation allowing the state to be part of the pre-front end engineering and design phase of the project. The total pre-FEED cost will be about half a billion dollars, Parnell said, with the state’s portion between $70 million and $90 million.

Meanwhile, AGDC, the Alaska Gasline Development Corp., is the state’s backup position, the governor said, and “on track for an open season in early 2015.”

If the Alaska LNG Project falters, “we can still get gas to Alaskans first with AGDC’s smaller volume project,” he said.

“The gas line legislation I ask you to consider is important,” Parnell told legislators. “It’s important to create a competitive investment environment for any project that gets Alaska’s gas to Alaskan homes and businesses. The legislation is important to both AGDC’s smaller volume gas line project and the larger Alaska LNG Project,” he said.

Democrats have concerns

On the gas line issue, the Legislature’s leading Democrats highlighted concerns they have about the governor’s gas line proposal.

Rep. Chris Tuck, D-Anchorage, the new House minority leader, said Democrats “want to partner with the oil industry and others who want to help develop our resources, but we will not take the backseat in those negotiations.”

Tuck said Democrats “have long held that owning a piece of the pipe can be a great way to bring the full benefits” of a gas project to Alaskans, but cited the deal negotiated by the administration of former Gov. Frank Murkowski as an example that “the devil is in the details.”

He said it was important to make sure a deal “is a good deal for Alaskans.”

“We want a gas line, but we cannot afford to give away our gas like the governor did our oil,” Tuck said, referring to passage of last year’s oil production reform, Senate Bill 21, which Democrats opposed.

Sen. Hollis French, D-Anchorage, the new Senate minority leader, said Democrats’ “approach to the gas line is extremely simple: gas line yes; giveaway no.”

He said to ensure that a gas pipeline is not a giveaway the “deal must be structured for the next 50 years,” with access to gas for consumers at a reasonable price, as well as access to the pipeline for new oil and gas companies coming to Alaska.

French also tied his remarks on the gas line proposal into last year’s passage of SB 21. He said Alaskans should view the governor’s gas line approach “with some skepticism,” since it was the Parnell administration “that pushed last year’s oil tax giveaway.”

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