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TransCanada leave amicable, cites governor’s wish to hold full 25%
TransCanada has been paying half of the state of Alaska’s cash calls for the Alaska LNG Project and also providing expertise on the pipeline side of the project.
But that was under a deal struck in 2013 by former Gov. Sean Parnell when the state joined the North Slope producers in a project to move North Slope natural gas to market as liquefied natural gas. When Bill Walker was elected governor in 2014, he wanted the state to have more control over the project.
The state took a 25 percent equity position in the project, based on its royalties on gas produced and on a proposal that the state would take production tax on gas as molecules rather than as cash.
The Alaska Gasline Development Corp. holds the state’s equity position in the project’s downstream, the LNG facility to be built at Nikiski; TransCanada holds the state’s equity position in the midstream, the North Slope gas treatment plant and the pipeline, with the state obligated to pay TransCanada for its costs at termination, or through a transportation tariff once the project begins shipping and selling LNG.
The state has the ability to buy out TransCanada’s share by the end of the year without any further obligations other than to repay TransCanada and that is what the governor is proposing.
TransCanada agrees Vincent Lee, director of major project development for TransCanada, and TransCanada’s commercial lead for AKLNG, told the Senate Finance Committee Oct. 29 that the governor has been clear over the last few months in his desire for Alaska to take on a larger role.
Lee said TransCanada agrees.
It is no longer “commercially reasonable” for TransCanada to stay in AKLNG, he said.
TransCanada has been involved in moving Alaska gas for more than four decades and it was a difficult decision, he said, but TransCanada believes it is in the best interest of both parties to terminate the agreement.
Lee was asked by Sen. Mike Dunleavy, R-Wasilla, to explain why it was no longer commercially viable for TransCanada to remain in the project.
Lee said it was the objective of TransCanada in any project to find ways to minimize risk - and that, he said, includes alignment with partners.
The administration’s desire to take over TransCanada’s role creates misalignment and makes it very difficult for TransCanada to continue on, Lee said, which is why TransCanada thinks it is no longer commercially reasonable for it to be in the project.
As TransCanada sees it, the project still has a lot of potential, Lee said, but at this point TransCanada would like an orderly exit.
Asked by Sen. Lyman Hoffman, D-Bethel, about the 7.1 percent interest the state is obligated to pay, Lee said the state believes it can finance the midstream costs of the project from sources other than TransCanada, but said TransCanada did not participate in that analysis, so he wouldn’t comment on that.
The transition Finance Committee co-Chair Anna MacKinnon, R-Anchorage, asked Lee about TransCanada’s expenses and what auditing opportunities the state would have.
Lee said the costs TransCanada has occurred include cash calls from the project, TransCanada’s internal costs for managing the investment and 7.1 percent interest.
He said he envisions that following closing the state will pay TransCanada and then there will be post-closing adjustment allowing the state the opportunity to audit for a period of time.
In response to a question from Dunleavy about the TransCanada employees seconded to AKLNG, Lee said TransCanada has agreed with the administration that it would be willing to have those employees remain through the end of May.
Lee said TransCanada has two members in AKLNG leadership, the pipeline lead and the manager of facilities engineering. There are 12 seconded TransCanada employees on the technical side of AKLNG and three on the administrative side.
Dec. 4 deadline Dec. 4 is the deadline for AKLNG parties to vote on the 2016 work plan and budget and without budget approval the project team won’t be able to carry out any operations, Lee said, and the lead party might have to wind down work by the end of the year because there wouldn’t be any authority for them to move forward.
Since TransCanada knows it is on the way out, it would not be possible for TransCanada to vote on that work plan or budget or the company would be acting in bad faith, Lee said.
It is important that the buyout be complete before Dec. 4 to ensure the state would be in a position to vote directly on what it wants to do with the budget for next year, he said.
Both the state, through AGDC, and TransCanada have votes; once the state’s agreement with TransCanada is terminated, AGDC will hold the state’s entire 25 percent vote.
All partners must vote in favor of the 2016 work plan and budget.
Philosophical differences Sen. Peter Micciche, R-Soldotna, asked if by “commercially reasonable” Lee was really talking about philosophically comfortable, and Lee agreed.
The last administration, Lee said, wanted an independent pipeline company in the project long term while the current administration wants to have as much influence in the project as possible.
Micciche asked Lee how he felt about the nomination process for positions on the AKLNG team - a process described as “best player plays” with all partners able to nominate for open positions - and whether Lee thought the state could be adequately represented.
Lee said he thought the process has always been to have fair representation and said if the people AGDC puts forward are competent he didn’t see any reason why the state wouldn’t have fair representation.
- KRISTEN NELSON
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