|
Producers told: If gasline not economic for you, don’t build it Preliminary cost, return numbers from Alaska Highway Natural Gas Policy Council spark challenge at subcommittee of gas policy council Kristen Nelson PNA Editor-in-Chief
The North Slope gas producers have been accused of threatening to take their marbles and go home. It was tit for tat at a meeting of a subcommittee of the Governor's Alaska Highway Natural Gas Policy Council, with producers being told that if they couldn't make the project economic, it was time to find someone who could.
The State Ownership/Tax Committee, chaired by Bill Corbus, heard from Michael Hurley of the Alaska Gas Producers Pipeline Team Sept. 21. The team has been saying for several months that they do not yet have an economic project, but are continuing to work on trying to make a gasline project economic, and Hurley illustrated preliminary costs and returns with a graph showing project discounted cash flows at a 15 percent discount rate.
Bonnie Robson, deputy director of the state's Division of Oil and Gas, said the division has been looking at the producer team's costs and expected returns, and while it has not had access to the model the producers are using, she said the division does not believe that the Federal Energy Regulatory Commission would be likely to approve a tariff based on the 15 percent rate the producer team is using.
The project might not be economic to the producers at 15 percent on 100 percent of capital, she said, but could be "economic to those who would accept returns such as the FERC would be likely to approve in a tariff," which would be in the 12 percent range.
Thank you, you tried Gas policy council member Ken Thompson, former ARCO executive and former president of ARCO Alaska Inc., told Hurley that if the hurdle for the producers is 15 percent, maybe the conclusion is this project won't be commercial for the producers and the state should work with pipelines or others who could make the project work with a 12 percent return rate.
"Thank you, we see it isn't commercial for you — you tried — save your capital for exploration and production. We'll find pipeline companies that can get this gas to market," Thompson said.
He also told Hurley he wanted to know, producer by producer, what tax relief it would take to make the project work for them. "If one doesn't want to make it happen, we're spinning our wheels," Thompson said.
Hurley said he would pass on request for individual tax rates and told the committee that what he was presenting was preliminary data, and said more would be presented by team managers when the full council meets Sept. 25.
He said 15 percent did not represent hurdle rates for the producer companies, and was used as an example. The three companies have different hurdle rates, Hurley said, those rates are based on risk, and each company, sees risk differently. He said hurdle rates are extremely proprietary and the companies don't exchange information on their rates.
Gas pipelines are contract carriers The committee is wrestling with a number of issues, and had asked for information on contract versus common carrier pipelines. Blythe Marston, an attorney who is an independent contractor and administrative law judge for the Regulatory Commission of Alaska, told the committee that Alaska currently has no contract carriers. But nationwide, she said, gas pipelines are only contract carrier, as opposed to common carrier.
A common carrier pipeline, like the trans-Alaska oil pipeline, has to take all the product that is offered and ship it at a regulated rate. If the pipeline is full, then all shippers have their volumes reduced by the same percent to make room for additional oil.
Contract carriers, on the other hand, have space reserved by prior contract and regulatory agencies can't mandate shipment. In order to ship, you have to contract for space in what is called an open season. Those contracts are on a ship or pay basis — so once contracted, a shipper pays whether or not it ships gas. If you don't contract for space in the open season, then you have to buy space from an existing shipper.
If a pipeline is owned by a pipeline company, Marston said, "market pressures and profit-making motives of the pipeline company should provide access (because) as long as the pipeline company is happy with the tariff it would add capacity" to ship additional volumes. What producers would do, she said, could be different.
Committee Chair Bill Corbus asked Marston the difference between common and contract carriers as investments, and Marston said that because a pipeline is a regulated utility, the rate of return is capped by the regulating agency — whether the pipeline is contract or common.
Should Alaska take an ownership position? The committee also heard from Bill Garner from Petrie Parkman, which has a contract with the Department of Revenue to look at how the state might finance its portion of a pipeline. Garner said the firm has not completed interviewing producers and pipeline companies on the subject of state ownership, but he provided some preliminary observations.
He said that while there is no strong opposition to state equity participation, the companies are "a little puzzled as to why the state would want to invest." Such investment is unprecedented in the United States today, Garner said, although it does occur in developing countries for political or national security reasons, or just to get a project built. Industry is saying, Garner told the committee, that if the state invests it should look at the pipeline as a private industry project invest for economic reasons, not to get a seat at the table, since the state already has considerable access through regulatory agencies.
As to the percentage of state investment, Garner said the industry consensus was that the state's equity should be the same as its royalty share, in the low teens.
|
