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Municipal authority, state agree to cooperate on natural gas project
Larry Persily Petroleum News Government Affairs Editor
The state and municipally owned Alaska Gasline Port Authority have agreed to share information with the common goal of getting a pipeline built to move North Slope natural gas to market.
As part of the agreement, the port authority has withdrawn its application under Alaska’s Stranded Gas Development Act, opting to push ahead for a gas line project without the state fiscal contract allowed under the act. The Stranded Gas Act allows a project hopeful to negotiate a contract in lieu of state and municipal taxes on the gas line, an unnecessary step for the port authority that already is exempt under Alaska law from state and municipal taxes.
“It was clear going in that we did not fit precisely the state’s perceived stencil for a stranded gas application,” said Fairbanks North Star Borough Mayor Jim Whitaker, who also serves on the port authority board.
But the authority saw the state as a “potential deal breaker, not a deal maker,” Whitaker said. The authority apparently wanted assurances from the state of a cooperative working relationship before withdrawing its application for formal negotiations under the Stranded Gas Act.
The parties signed the information-sharing protocol May 7.
In addition to the port authority, comprised of the Fairbanks Borough and city of Valdez, the state-owned Alaska Natural Gas Development Authority also wants to build a pipeline for taking North Slope gas to market. And Calgary-based pipeline company Enbridge Inc. has applied under the Stranded Gas Act, as have the three major North Slope producers as a joint applicant. State wants to help all project hopefuls “We’re not in an environment of choosing one project over another,” said Steve Porter, deputy commissioner at the Alaska Department of Revenue. “Our job … is to help maximize the benefits.” The project developer could be any one of the hopefuls or a combination of several of them, he said, adding that clearly only one gas line from the slope will be built.
With the protocol signed, Whitaker said the port authority is in a better position to discuss its plans for a gas line project with the North Slope producers, pipeline companies Enbridge and TransCanada Corp., and potential downstream buyers of the gas.
The port authority, established by the communities in 1999, wants to build a $26 billion project to move about 6 billion cubic feet per day of North Slope gas halfway down Alaska by pipe, with one branch turning east to take 3.2 bcf into Canada and on to U.S. markets, and with another line continuing to tidewater with 2.7 bcf to a liquefaction plant and shipping terminal at Valdez.
The protocol does not list any explicit deadlines for sharing information, or dictate that either party must provide specific documents. Instead, it lists “discussion points”:
• The state will discuss assistance in expediting the authority’s permits and rights-of-way leases.
• The port authority will discuss giving the state access to the authority’s construction cost estimates, economic model and Internal Revenue Service opinion on its exemption from corporate income taxes. Protocol complimentary of port authority work The agreement also compliments the port authority on its work. “The state is very encouraged by the relationships that the port authority has developed with significant gas consumers such as Calpine Corp., which has indicated an interest in purchasing North Slope gas from the pipeline project.”
Although San Jose-based Calpine is talking with the port authority about buying billions of dollars of LNG in the years ahead, the company will first need to overcome its own financial problems. Its stock closed May 11 at $3.56 a share, down about 25 percent in the past four weeks and far away from its height of almost $60 a share in spring 2001. The company carried almost $23 billion in liability as of Dec. 31, 2003, against $4.6 billion in shareholder equity, and its credit rating is junk-bond status.
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