SIDEBAR: $400 million proposed for gas pipeline investment

Kristen Nelson

Petroleum News

High oil prices are projected to give the State of Alaska a surplus of $1.2 billion for the current fiscal year, Gov. Frank Murkowski told Commonwealth North Dec. 15. In addition to earmarking about half of that surplus, $565 million, for education and $130 million for other state needs, the governor proposed saving $400 million for investment in the gas line.

Cheryl Frasca, director of the Office of Management and Budget, told the press that details weren't available, but would be included in legislation introduced during the session for a "corporate structure that would be responsible for advancing the state's role as owner in the pipeline." The $400 million would probably be a capital appropriation, she said, "and by statute capital appropriations last for five years."

Those monies would be part of what the state would put into a gas pipeline project, probably around a billion dollars, in equity before project financing is available from bonding, said Steve Porter, deputy commissioner of the Department of Revenue. For a $20 billion project, with the state taking 20 percent, and 80 percent project funded and 20 percent equity funded, the state needs to come up with "about a billion dollars" in equity, he said. "Equity generally funds the front end of a project, before you can bond the project finances, so most of the equity funding would be in the first four or five years of the project."

Frasca said the $400 million isn't based on specific items but is based on "carving out some of the surplus from this year" to fund the gas pipeline.

"Actually," quipped Porter, "I wanted a billion and they wouldn't give it to me."

The $1.2 billion surplus is mostly current 2006 fiscal year monies.

For the 2007 fiscal year (the budget presented Dec. 15) the governor proposed additional investment in infrastructure, including industrial roads, and investing in University of Alaska research to make that an industry, with a focus on biomedical, behavioral health and Arctic-related research.

In the job training area the governor proposed funding to help prepare the work force needed for the gas pipeline.

He also proposed a feasibility study involving the state and the Yukon and U.S. federal government to extend rail service from Alaska into Canada. He said there are 1,000 miles of line to build, but it would be possible to complete the project before gas line construction begins, reducing the cost of the gas pipeline and thus reducing the tariff and increasing the value of the state's gas.

--Kristen Nelson