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Gasline negotiations wait on bill Governor, North Slope gas owners, say talks start when House Bill 16 is law Kristen Nelson Petroleum News Editor-in-Chief
State fiscal certainty isn't the only necessary element for an Alaska natural gas pipeline project, but it is the element on which the governor and Legislature can act.
That action could begin soon.
On March 26 the Alaska House unanimously passed and sent to the Senate amendments to the statute allowing the state to negotiate with gasline project sponsors.
On March 27, the governor sat down with North Slope gas owners to discuss the next step.
BP, ConocoPhillips and ExxonMobil — the North Slopes major natural gas owners — told Alaska Gov. Frank Murkowski that if House Bill 16 reauthorizing the Alaska Stranded Gas Development Act and expanding it to include a gas pipeline project becomes law, they are prepared to begin negotiating “fiscal certainty and clarity” for the Alaska gas pipeline project.
“The producers are optimistic that these negotiations could begin soon after HB 16 is signed into law,” BP Exploration (Alaska) Inc., ConocoPhillips Alaska Inc. and Exxon Mobil Corp. said in identical language in March 28 statements. “These negotiations could produce contract terms by year-end, which could allow for approval by the state Legislature in early 2004,” the companies said.
Other links necessary to forge a project from the North Slope to the Lower 48 include cost reduction and settlement of issues with both the U.S. and Canadian governments.
Murkowski told a March 28 press conference that he had requested a meeting with senior management officials from ConocoPhillips, BP and ExxonMobil, a meeting which took place March 27 in Juneau.
“The significance of that meeting was … that we had the principals here,” he said. Attending were: Jim Mulva, president and CEO of ConocoPhillips; Steve Marshall, president of BP Exploration (Alaska); David Welsh, president of BP Alaska/Canada Pipeline; Kevin Meyers, president of ConocoPhillips Alaska; Tom Walters, vice president North American Production for ExxonMobil.; Rex Tillerson, senior vice president upstream for ExxonMobil; and Jack Gordon, BP Group vice president.
The administration was represented by the governor, Attorney General Gregg Renkes, Commissioner of Revenue Bill Corbus, Commissioner of Natural Resources Tom Irwin and the governor's chief of staff, Jim Clark.
Application upon passage of HB 16 An application to the state for a project triggers negotiations under the stranded gas act.
Once “the bill is signed into law, the producers will submit an application to the state. And that will allow the producers to enter into negotiations regarding the issues that they feel are paramount,” the governor said, “…fiscal certainty and clarity of the Alaska gas pipeline project.”
“I think it's a major milestone in the advancement of the project,” Murkowski said.
“We have parameters around it that we did not have before. We have a commitment to initiate and complete this by year-end and basically the intent is at that time we would have a decision on go or no-go,” he said.
The HB 16 amendments to the stranded gas act reauthorize the act and expand it to include gas pipeline projects. The original act covered only liquefied natural gas projects and had a June 30, 2001, deadline for applications. The new deadline is March 31, 2005. Cost reductions Murkowski said the producers are working on reducing project cost from an estimated $20 billion. “I'm told now we're looking at … perhaps less than that. Perhaps 18 (billion dollars).”
But at what cost is the project feasible, he asked: “It gets pretty attractive at 15 (billion dollars). Eighteen (billion dollars) is marginal. Twenty (billion dollars) is too high.”
The governor said the companies reviewed project cost reductions they have achieved, including work on the route of the pipeline which reduced its length by more than 100 miles, new technologies in welding and lighter high-pressure pipe that is already being tested in Canada.
On requests the companies have made for federal assistance in the project, Murkowski said the incentives in Congress are the same as in the last Congress. We'll have to wait and see what happens there, he said.
“But rather than wait specifically for that, the starting point is initiated by action of the Legislature in passing HR 16. That's when the process really starts.”
Other issues out of state's control He said the producers and the state also discussed the situation in Canada.
There was “recognition that the Mackenzie line is going to be built, but most of that gas is going to be consumed within Canada, a significant portion of it will be used for oil recovery in the tar sands process.”
A Mackenzie gas pipeline is not Alaska's competition, he said. That gas is primarily for a domestic market. Our competition, he said, is “primarily from LNG,” where technology and transportation changes have reduced costs.
The governor noted that there are other things affecting the project that are out of the state's control, such as the world price of gas and the availability of gas.
“But I'm personally convinced that Alaska has a window of opportunity,” he said. “That window is determined by the increased demand for natural gas in the United States, the recognition we're pulling our domestic reserves down faster than we're finding replacements and that this void will be filled. It will either by filled by Alaska gas or it will be filled by LNG imports coming into the United States.”
Who would negotiate? The governor said the state has not selected a negotiating team but is talking with experts.
There is also expertise within the state, he said, including expertise in geology at the Division of Oil and Gas.
The governor said he had built up considerable knowledge in the Senate, especially on the Senate Committee on Energy and Natural Resources. Both Attorney General Greg Renkes and Brian Melnick, under contract to the state in Washington, D.C., are past staff directors for the Senate energy committee, he said.
“I'm not suggesting we're experts in negotiation, but we know where the experts are,” the governor said.
“We're going to get the best (negotiators),” he said, “and the reason you go out and get the best is they have a reputation at stake and they maintain their reputation by making the best decision.”
The governor said he would be discussing the negotiations with the legislative leadership as they progress because the agreement the administration reach will require legislative approval.
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