|
Alaska Gasline Port Authority clears another hurdle IRS ruling exempts revenue from federal taxation; savings to project projected at $2.4-$3.1 billion Kristen Nelson PNA News Editor
The Alaska Gasline Port Authority, approved by Fairbanks, North Slope and Valdez voters in October, cleared a major hurdle Jan. 24 when the Internal Revenue Service ruled that revenues from the authority would be exempt from federal taxes.
Bill Walker, general counsel to the port authority, said Feb. 16 at the Pacific Rim Construction Oil & Mining Conference that the ruling gives the project a $2.4 billion to $3.1 billion savings, depending on the BTU content of gas — the lower the BTU content, the lower the savings.
Walker said the port authority was asked a few weeks ago what would happen if the IRS failed to deliver the expected tax exempt ruling. That would have been the end of it, he said, because the savings from the tax exemption make the project viable.
The port authority plans a gas pipeline and liquefaction facility to produce LNG for sale to the Far East using permits which Yukon Pacific Corp. has put together over more than a decade. The pipeline would run from the North Slope to Valdez, with natural gas available to communities along the route, and a liquefaction facility at Andersen Bay to produce LNG for shipment to Asia. LNG tankers are not part of the port authority project — it ends at dockside, Walker said.
Waiting for gas since the 1970s Fairbanks and Valdez have been waiting for gas since the 1970s, Walker said. When the trans-Alaska oil pipeline was being built the assumption was that a gas pipeline would be built next, he said, and some oil pipeline workers even quit before that line was complete to be in a better position to be hired first on the gas pipeline.
The mayors of the North Slope Borough, the Fairbanks North Star Borough and the City of Valdez began to meet a few years ago to try to figure out a way to get gas to their communities and formed a group to promote a trans-Alaska gas pipeline. Gov. Tony Knowles introduced legislation in 1997 to establish the Alaska gas commercialization team and the state funded a study on what it would take to make Alaska’s gas competitive — which turned out to be cutting $3 billion off project cost; getting concessions from federal, state and local governments; and reducing the risk of changes in taxation after the project began.
The Alaska Stranded Gas Development Act provided some tax relief for gas development and the gas sponsor group was formed following passage of that legislation. That group was originally ARCO Alaska Inc., Phillips Petroleum Co., Foothills Pipeline, Marubeni Corp. and Yukon Pacific Corp. Yukon Pacific has since dropped out and BP Exploration (Alaska) Inc. has joined.
In 1999, Rep. Jim Whitaker of Fairbanks introduced House Bill 170 to create a state-owned gas pipeline to eliminate the federal tax burden on a gas development project and the mayors sat down with Whitaker to see what they could contribute to the process.
Window in 2005 Walker said the mayors’ group had been told that there was no market. Then, he said, we “were told there was a unique market right now because of things happening in the Asia power industry — a market in 2005.”
HB170 wasn’t moving fast enough to meet that window, so the mayors’ group started to look for other approaches, and consultants they worked with suggested a port authority.
Fairbanks North Star Borough, North Slope Borough and Valdez votes approved a gasline port authority by 78 percent in October and a nine-member board was appointed. The request for the IRS ruling went out in November.
In mid-November the port authority signed a memorandum of understanding for design and construction of the project with the Bechtel Corp. Bechtel currently has 40 employees working on construction estimates, Walker said, and the port authority’s goal is to go to the financial markets in 18 to 24 months. They’ll be going back to the gas markets soon to see what the reaction is to a government-owned entity doing an Alaska liquefied natural gas project, he said.
And the gas? Walker said that the port authority has been talking to the North Slope producers about purchasing gas, but has no commitments.
He said the authority needs to make project economically beneficial to producers that they will participate, and plans to pay for everything downstream so that the producers would just have to turn a valve on the North Slope.
The authority is looking at fair market value of gas, Walker said, and while it would prefer netback, has also offered a fixed price. So far, he said, the authority has no deal with the producers.
$150 million to get to market The port authority communities each put up $100,000 to get the project started, but it will take about $150 million to get the port authority project through to the financing stage, Walker said.
“We don’t have that money — others do, others that believe in this project,” he said. The Bechtel work, he said, will produce a hard-dollar estimate on this project.
“We think the only way that we can meet that 2005 market window is through the permitted route. It’s a very aggressive… but you’ve got to remember, we’ve been waiting a long time for this gas pipeline. But we feel that if we miss that market, the next one comes along maybe in 2010,” Walker said.
Having major permits is crucial in meeting the 2005 window, Walker said. He’s been told anywhere from three to five years to permit such a project from scratch. “I’ve heard some say that some of the permits may not be reproducible,” he said.
“The permits are absolutely critical to the construction estimates for the project. Bechtel was very adamant about that. When you do an estimate you need to know what you’re going to do, where you’re going to do it and how you’re going to do it — how the agencies say you’re going to do it — in order to figure out the estimate. That is just absolutely critical.
“So that’s why we put a lot of importance on the fact that we’ll be using existing permits.”
Alaska use a priority Walker noted that the port authority is set up to distribute 60 percent of net revenues to the state, 30 percent to communities and 10 percent to the port authority communities.
“One hundred percent of revenues stay in Alaska,” he said, “other than what is paid for gas at the wellhead.”
The philosophy behind the gasline port authority is Alaska-focused, Walker said: “We’re more interested in getting gas to Tok than Tokyo, but we can’t get to Tok without selling 90 percent of it to Tokyo. We want to use it in the state as the first priority.”
“A spur line to the Cook Inlet is an absolute must, so that’s not even a question,” he said.
Gas within Alaska will be priced at the off-take point, he said, so gas in Fairbanks will be cheaper than gas in Valdez.
Galena has already inquired about taking gas off the line at the Yukon River, Walker said.
“And you know, that’s what this is all about. The IRS ruling, when we used the language, ‘some of our communities heat with wood, coal and diesel and we would like to use the natural resource’ — that was pretty effective to the IRS.”
| 