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Alaska looks to acquire right of way in order to advance ANS gas commercialization
Larry Persily Petroleum News Government Affairs Editor
The state believes it could reduce the financial risk and speed up development of an Alaska natural gas line if it goes ahead and obtains the needed pipeline right of way even before a developer steps forward to build the project.
“The state would actually permit its own right of way,” Mark Myers, director of the Oil and Gas Division, told the Senate Finance Committee. “I know that may sound kind of strange.”
But the state probably could do the job for itself faster and at a lower cost than a private applicant, Myers said. “We would accelerate the project significantly.”
The Oil and Gas Division is asking legislators to appropriate $3.9 million in state funds to pay for the right-of-way work. The request is part of the governor’s supplemental appropriations measure, Senate Bill 313, which received its first hearing April 2 in Senate Finance. The committee took no action on the bill, which includes almost $10 million total for several of the state’s efforts to get a gas line built.
The newest idea is that the state would acquire the right of way for the pipeline’s route through Alaska, then hold it and transfer it to whichever private venture decides to go ahead and build the line to move North Slope natural gas to Lower 48 markets.
“The process envisioned here is that a state corporation — undefined at this point — would actually be issued the rights of way,” Myers told lawmakers in the first public announcement of the administration’s latest plan.
The permits would apply only to state lands, though the effort would help coordinate later acquisition of federal and private rights of way, said Mike Menge, the governor’s special assistant for oil and gas issues. ‘Novel approach’ to promote gas line “At the appropriate time the state corporation would grant that right of way to whoever exactly is constructing that pipeline,” Myers said. “It’s a novel approach … but it is a way the state can significantly lower the cost of the project.”
Though Myers did not name any specific state corporations to possibly hold the right-of-way permits, one Finance Committee member mentioned the Alaska Railroad Corp. as a possibility. Other state corporations with possible interest in the project would include the Alaska Natural Gas Development Authority and the Alaska Industrial Development and Export Authority.
Alaskans created the state gas authority by voter initiative in November 2002 to pursue a state-owned natural gas project, though nothing in state law would preclude it from holding right-of-way permits for eventual private ownership of a gas line.
The $3.9 million appropriation, if approved by lawmakers, would be available immediately. The work schedule calls for the Department of Natural Resources to finish its work on the permits by June 2005.
In addition to the right-of-way funding, the administration’s budget request for its gas line work also includes $1.58 million for a risk analysis study to determine if the state could help get the project built if it was willing to share in some of the financial risk. Governor interested in risk sharing Gov. Frank Murkowski said late last month the state may need to step in and share some of the risk of the estimated $20 billion project if it is to convince private companies and investors to go ahead with the 2,000-mile pipeline from the North Slope to the Midwest.
But the state needs to know a lot more before it can decide how it might share in the risk and whether it would help the project, the governor said, offering no speculation on how Alaska might take a share of financial risks for the pipeline that could boost domestic natural gas supplies by more than 6 percent in the next decade.
The $1.58 million would fund a four-month study including an analysis of possible proportionate risk sharing between the producers, pipeline owner(s), shippers, gas buyers and the state, said Steve Porter, deputy commissioner at the Department of Revenue.
“The analysis is to look at the project’s risk, not just the state’s risk,” Porter said in an April 5 interview. “It provides you the perspective you have to have to make decisions.” The study would look at construction, tariff and market price risks, ending in a recommendation by early fall for how the state could encourage development of the project.
“The goal is to understand the total risk so that by the time you are done you have apportioned that risk out to all the parties,” Porter said. “If you don’t take some of the risk, you don’t play.” Risk taking could bring rewards And it’s more than just sharing in the downside. “If you take the risk, what’s your expected reward out of it,” Myers told the Senate Finance Committee.
The Department of Revenue would spend most of the money by hiring consultants for the risk analysis, Porter said.
A third piece of the $10 million funding request is $4.25 million in additional money for the state’s continuing negotiations under the Stranded Gas Development Act.
About half of the money would go toward the state’s anticipated expenses for negotiating gas line fiscal contracts for payments in lieu of state and municipal taxes with the three applicants under the Stranded Gas Act — the North Slope producers, Calgary-based pipeline company Enbridge Inc. and the municipally owned Alaska Gasline Port Authority.
The rest of the money would go toward studying in-state benefits and uses of North Slope gas, responding to project incentives in the stalled federal energy bill, and discussing rights of way and regulatory issues with the government of Alberta, Porter said. Work list includes petrochemicals The state also is close to issuing a contract for an analysis of a possible petrochemical industry in the state, he said.
“It is our hope that we could complete most if not all of this work” by June 2005, Porter said.
The state gas authority would receive $900,000 of the money for its benefits analysis, further work on financing options and a review of the federal law requiring U.S.-built tankers to move liquefied natural gas between domestic ports, he said.
The $4.25 million request is in addition to the $1.65 million in funding for the administration and state gas authority approved April 5 by the state Senate and sent to the governor for his signature into law.
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