Palin to consider all gas pipeline proposals; preliminary meetings with 12 firms, agencies held; state
negotiating team being formed
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The new administration has had initial meetings with those involved in — or wanting to be involved in — an Alaska North Slope gas commercialization project, and came away with information to assimilate and questions to ask.
As to when things will get moving, Alaska Gov. Sarah Palin and acting Commissioner of Natural Resources Marty Rutherford, who will head up the administration’s negotiations, told reporters Dec. 6, at the conclusion of two days of meetings, that they need to assemble a negotiating team and determine what, if any, current fiscal year funds remain for the negotiations.
Palin has already said she will introduce a bill seeking a law of general application on the first day of the Legislature’s 2007 session, outlining key requirements for a natural gas pipeline.
“Our bill will provide for all proposals to be considered in a more open, competitive manner,” Palin said in a Dec. 6 statement. “That’s the process Alaskans have asked for and one I believe will deliver the very best gas pipeline proposal for Alaska.”
Administration officials involved in the meetings, in addition to Palin and Rutherford, were Lt. Gov. Sean Parnell, Commissioner of Revenue Pat Galvin and Kurt Gibson of the Division of Oil and Gas. They met with 12 companies and organizations Dec. 5 and 6: the Alaska Gasline Port Authority, the Alaska Natural Gas Development Authority, BG Group, BP Alaska, Chevron, Conoco Phillips, Enbridge, ExxonMobil, MidAmerican Energy Holdings Co., Semco, Shell Oil and TransCanada.
Lessons learned Palin said she had the opportunity to ask most of the participants what lessons the state should have learned from negotiations over the last two years. “Unreasonable timelines and expectations will not get us a gas line,” was the response of quite a few participants, she said, pledging not “to create any artificial timelines” for the negotiating process in her administration.
“Another thing that the participants … shared with us was their need to see the Legislature onboard with the administration, working as a team for Alaska, in order to progress this project.” Palin noted that she has said, and intends, “to work with the Legislature, not against them.”
More public involvement throughout the process was also mentioned by a number of the companies, said Lt. Gov. Sean Parnell.
Palin said another thing they heard from a number of participants is that “explorers are not going to risk exploration capital in Alaska if they don’t believe that they’re going to be invited as participants in the gas line. They want access to the gas line.”
Rutherford said the access issue was a difference between concerns of the North Slope producers and those without current gas.
There were also common concerns.
“They all made the point that they needed to have a reasonable tariff structure …; they needed to have expansion — when expansion was economic they needed to have certainty that the pipe would be expanded; and that they needed equal opportunity in the initial open season.” Those things, Rutherford said, “were equally important to virtually all of them.”
Not all of the participants wanted to be project sponsors.
Rutherford said there were varying degrees of willingness to discuss participating in the project. Companies wanted the opportunity to explore, she said, and protection for their ability to monetize anything they find, “and that they had a level playing field from a commercial perspective, with everyone else.”
Some confusion on past goals Palin said that some participants in the meetings “felt that there was some confusion with what it was that the administration was driving towards in the negotiations — the prior administration.”
“Some of the participants didn’t know if they were being seriously considered … or if they were — I guess speaking bluntly here — if they were just being used as leverage in negotiations with the big three oil companies.
“So the lesson learned there was the need for honestly, for transparency there with the administration’s goals.”
Palin said she “was able to provide those participants our assurance that we would not treat them that way — that we will not lead them on in terms of being allowed to participate early on without the intention of seriously and fairly considering their proposals.”
As to which companies were concerned about being used as leverage, Rutherford said: “I think everybody but the producers.”
Closing window, costs not concerns There has been concern that Alaska gas faces competition from imported liquefied natural gas.
Rutherford said one thing the administration officials heard was that LNG terminals are not being built as quickly as some had hoped.
She said the group did hear some concern about “coal developments in the Midwest and Wyoming, Montana, that area, that could actually compete with Alaska gas.”
“But generally people thought that there wasn’t any window that was about to abruptly close.”
Rutherford said one thing of particular interest to her was that “virtually every party continued to say that this is a very economic project,” in spite of rising costs. “But with the price forecast of gas they thought that the project was still very doable and very interesting to a lot of parties.”
And, she said, discussions with the companies confirmed for her “that the access provisions are absolutely critical to the future economic health of this state.”
What’s on the table? Asked if state equity participation was still on the table, Palin said one thing that was discussed with meeting participants was “their take on the need for the state’s participation. And it’s still on the table — nothing’s not on the table.” Participants were invited to provide their input, she said, including input on state participation.
Fiscal certainty came up “three or four times, primarily from the producers, but TransCanada also mentioned it,” Rutherford said. The talks were general, she said, and didn’t get to the level of whether it was “fiscal certainty on just gas of fiscal certainty on gas and oil.”
But if the state does provide incentives, Rutherford said, that could be reflected in timelines — not the timelines for moving the negotiation process forward, but timelines for the project itself.
“If … in fact the state decides that it wants to take a position and put financial incentives on the table to move the project forward,” then in exchange the state could ask for “some commitments on timing on how the project would progress,” Rutherford said.
What’s next? Palin said the administration needs to put a gas line negotiating team together and part of that requires figuring out what’s in the current fiscal year’s budget and “how much money is left over from the prior negotiating team and where we can find the funds to continue the process.”
Rutherford said the operating budget carries some of the negotiating load in Revenue, Law and Natural Resources, “with individuals who are already on staff.”
But the complexity of the issues requires outside assistance, she said, “anything from experts on tariff to experts on financing, economic analysis.” Some of the Legislature’s initial funding was used to develop a model which is available, and “we already have a great deal of data that we will be drawing upon,” but some additional analysis and “unique expertise” will be needed.
Commissioner of Revenue Pat Galvin said they’re still sorting out available monies, but “I guess it’s fair to say that an awful lot of the money that was appropriated for this fiscal year regarding gas line negotiations has been spent.” They’re identifying remaining funds now, he said.
Asked about Pedro van Meurs, Galvin said van Meurs’ contract has or will shortly expire. Palin said she did not intend to renew the contract.
Analyzing some of the material received — and getting answers to some questions that material raised — is next on the agenda, Rutherford said. “I think that we do need to have a team. We do need to have a budget. But also we need to determine if in fact there are parameters under which negotiations would progress.
“And the governor will have to make those decisions, but we’re going to have to frame all the various questions and ramifications of those issues as we begin to move forward.”
The governor will have to decide, Rutherford said, “which project she wants to address.”
Asked if her administration was starting from ground zero, Palin said: “No, basically, we don’t have to start from ground zero. There’s been so much work already accomplished. …
“A lot of fiscal and human resources have gone into the contract that Gov. Murkowski wanted adopted by the Legislature” and there is a lot of information available.
“But I think it’s been very valuable to have this opportunity to hear from the participants what lessons should be learned thus far.”
—Kristen Nelson
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