Phillips says feds must cut risks before gasline can move forward

Phillips wants to see gasline permitting expedited, an ‘office of pipeline inspector’ created and a tax credit should gas prices fall below $1.25 at the wellhead

By Kay Cashman

PNA Publisher

Introduced as Phillips Petroleum Co.’s “main man in D.C.,” company lobbyist Don Duncan told attendees at the Meet Alaska conference in Anchorage Jan. 25 that Phillips thinks federal enabling legislation for a North Slope gas pipeline must include three things:

n A means to expedite permitting, including “an 18-month time limit on the EIS process;”

n Creation of an “office of pipeline inspector;”

n A tax credit system that would kick in if the wellhead price of natural gas fell below $1.25, which is what Phillips considers the critical floor price.

Those are the things Phillips wants included in the enabling legislation.

What the company doesn’t want included is just as important, he said.

Phillips does not want Congress to attach provisions to the legislation that would hamper the pipeline owners’ ability to create an economic project, such as mandates to use American steel or organized labor.

In the case of the tax credit, Duncan said Phillips is the only one of the three major North Slope gas owners to request a tax credit. BP Exploration (Alaska) Inc. and Exxon Mobil Corp. have not asked for this type of incentive.

“There’s a tremendous amount of risk in the line right now. … In our case, we’re not a 210, 220 billion dollar company and when you start taking an equity position in a project with this risk and of this size, you’re putting a lot of your equity on the line,” Duncan said.

He said that he knew of no gas price forecasts that projected gas as low as $1.25.

He also said that Phillips was willing to talk about a refund by the companies of any tax credit taken should natural gas prices reach $9 or $10 at the wellhead.

Cautions against unwanted provisions

“Sen. Murkowski is not satisfied with wording in the Daschle bill as it exists now. … Gov. Knowles wants to suggest changes, too.

“… Some people want to attach a ‘Buy America’ provision for the steel. We’re going to use domestic steel anyplace we can but if you look at the fabrication requirements for a 1,800 mile line … it’s going to require steel from a number of sources. Not only U.S. and Canadian mills but maybe a half dozen other locations in other countries,” Duncan said.

There has also been discussion of attaching a provision that would require project labor agreements in place as part of the criteria to build a gasline.

“I don’t know anyone who is part of the sponsor group that doesn’t believe this line will be built — as was TAPS — with project labor agreements. We have to rely on organized labor because there’s a lack of skills in this area, but it’s not Congresses’ role to put a mandate” on the gasline project “That’s part of the negotiating process just like it was with TAPS. It has a lot to do with what your final costs are going to be,” Duncan said, reminding the audience that “at the current time this project is not economically feasible.

“Only by the ability to keep those types of provisions off the table, … by allowing us to negotiate with parties, by being able to enact what we consider to be a viable piece of enabling legislation — and in the case of Phillips, (enabling legislation which includes) a responsible financial incentive — are you really going to see this pipeline take hold and see us move to the next stage,” he said.

Editor’s note: The second part of this story will cover Don Duncan’s Jan. 25 allegations about ANGTA and a response to those allegations by John Ellwood, Foothills Pipe Lines Ltd.