February 28, 2007 --- Vol. 13, No. 18February 2007

State would contribute to upfront costs; not be an owner

Alaska would contribute to upfront costs of an Alaska natural gas pipeline project, but would not be an owner, Gov. Sarah Palin said Feb. 28 from Washington, D.C.

The governor provided an overview of the Alaska Gasline Inducement Act she will introduce to the Legislature March 2.

Palin said Alaska will provide a trained local workforce, predictable regulatory requirements and a state contribution to early development of the line. That contribution would be up to $500 million, on a 50/50 basis, of the estimated $1 billion it will take for a project to receive certification from the Federal Energy Regulatory Commission.

Marty Rutherford, deputy commissioner of the Department of Natural Resources, and head of the administrationís gas pipeline team, said the state will also mimic what the federal government has done and provide a single point of contact, a state pipeline coordinator, for coordinating among state regulatory agencies on permitting. Rutherford said the federal government has indicated it is willing to integrate its regulatory process with that of the state. The goal, she said, is to provide one-stop shopping for state and federal regulatory processes.

On the upstream, the state would reward producers making commitments to ship in a first open season a contractual commitment that if the Legislature changes the production tax rate for gas in the first 10-year period, the producers would be reimbursed the difference.

What does the state want?

Rutherford said applicants would have to commit to hold an open season within three years of a licensee being determined and commit to a firm date for an application to FERC. The state wants financial provisions that will ensure that the tariff rate is low and a commitment to solicit for expansion demand on the pipeline every two years and, when reasonable, to expand the pipeline.

The state also wants applicants to indicate how they intend to deal with the risk of cost overruns, and how they might take on some of that risk in the tariff structure. The state also wants at least five off-take points within Alaska and a commitment to hire Alaskans to the degree allowed by law.

The administration will ask the Legislature to pass AGIA this session and hopes to have a request for proposals out by June or July, with applications due Oct. 1. Rutherford said the timeline would be for state and public review and a written decision to the Legislature by the end of January 2008, with a goal to have a license issued April 1, 2008, so that field work can begin in the summer of 2008.

Editorís note: See full story in the March 4 edition of Petroleum News which will be available online on Friday noon, March 2.

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