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Driving a good bargain Torgerson, administration, explorers say SB 360 gives gas owners what they want to build North Slope gasline and is good for state; producers disagree Kay Cashman PNA Publisher
Almost eight months have passed since Sen. John Torgerson and his colleagues in the state Legislature expected to be in discussions with the North Slope gas owners about legislation that would help make a gas pipeline project from the North Slope to Lower 48 markets possible.
All lawmakers needed, Torgerson said, was clarification from the gas owners about what they meant when they said they needed state “fiscal stability/certainty” to help make the gas project economically competitive.
The legislators also waited for BP Exploration (Alaska) Inc., ExxonMobil Production Alaska and Phillips Alaska Inc. to give them promised proposals “relating to issues … like permitting and access,” Torgerson said.
Torgerson and his colleagues expected to have gasline legislation written and ready to act on early in the current session. Still waiting for report They also expected to have the results of the gas owners’ $125 million study by the end of last year, which would give lawmakers vital information about the economics of the project.
“We’re constitutionally mandated to go home next month and we still don’t have those study results,” Torgerson told PNA April 12.
On March 1, Torgerson shared his concerns with the three gas owners in a formal letter telling them they had until March 15 to provide the information they had promised the Legislature. If they didn’t, the senator said he “would begin to explore other options to get natural gas developed.”
March 15 has come and gone and while the gas owners did defend their lack of action in separate letters to Torgerson prior to March 15, the committee he chairs, Senate Resources, introduced legislation in mid-April that is designed to be the framework of the deal the state wants to cut with the North Slope gas owners to get a gasline built.
The Alaska Natural Gas Project Act, which passed out of Senate Resources on April 17, amends the Right Of Way Leasing Act and “seeks to expedite the construction and operation of an Alaska gasline from the North Slope south through Canada to the Lower 48 or to Alaska tidewater for shipment as liquid natural gas,” its sponsors said in a written statement.
Basically, Senate Bill 360 promises to give serious consideration to everything lawmakers envision the gas owners will want from the state for the project in exchange for allowing gas explorers fair access to the gasline, satisfying in-state demand for gas and giving preference to local labor and suppliers for construction and operation of the line.
With some caveats, here are the primary things SB 360 gives the gasline owners: tax exempt railroad bonding to finance construction of the line and related facilities; property tax and royalty relief if, among other things, construction begins by a specified date; expedited permitting from all state agencies; limited judicial review for claims brought by state entities; waivers of law from the governor if a provision of law impedes the project. No incentives if they don’t deal The bill also says that any project sponsor can apply for a right of way lease under the current Alaska Right Of Way Leasing Act without obtaining the certificates outlined in SB 360. They will not, however, be eligible for any of the incentives the legislation offers.
Gas explorers, the Department of Natural Resources and the Department of Revenue testified in support of SB 360; BP, ExxonMobil, Phillips and the Alaska Northwest Natural Gas Transportation Co., the pipeline company consortium, testified against it.
Supporters of the bill had suggestions for changes and amendments to the bill, most of which were made prior to the bill passing out of Senate Resources. No access, no gas industry Allen Sharp, director of northern business development for EnCana Corp. , formerly PanCanadian Energy Corp. and Alberta Energy Co. Ltd., told Senate Resources April 15 that BP, ExxonMobil and Phillips could keep the gasline “full for 20 years” without gas from any other companies.
EnCana is the largest independent in North America and a major leaseholder on Alaska’s North Slope where Sharp said only a “very small area” has been explored.
If explorers such as EnCana and Anadarko Petroleum Corp. aren’t able to get access to the pipeline to ship gas they discover, the state, Sharp said, won’t be able to have lease sales in gas prospective areas such as the Brooks Range foothills.
Sharp said SB 360 provides “the framework to regulate initial design, expansion and access,” all “critically important” issues to ensure the gasline will spawn a natural gas industry that will include investment from more than just the three major North Slope gas owners.
Anadarko’s Alaska spokesman, Mark Hanley, reminded the committee that the recent state foothills lease sale attracted bidders such as “Unocal, Chevron, Burlington Resources and Petro-Canada, who are also interested in gas exploration in Alaska.”
He testified in favor of the bill “because it helps provide fair and reasonable pipeline access” and should help attract gas explorers to Alaska.
ExxonMobil says bill will increase project costs ExxonMobil’s Alaska Gas Development Manager Robbie Schilhab said “any mandates such as route or labor or material sourcing will only serve to increase the cost of a project and hamper the prospects of a project being economic.”
Schilhab said expansion of the pipeline to accommodate new discoveries is “already addressed as part of the federal Natural Gas Act and Federal Energy Regulatory Commission rules and regulations.”
Phillips says Washington legislation key Joe Marushack, vice president of ANS gas commercialization for Phillips Alaska, said the gas owners have been focusing on areas they believe are “most likely to result in an economically viable gas pipeline project,” giving emphasis to federal legislative changes to advance the project.
“New federal legislation … creates permitting certainty.”
Marushack said the most “critical element” in moving the project forward is a federal tax mechanism that would provide a price guarantee if the price of gas drops to an economically unacceptable level.
SB 360 is “in essence a process bill” that “prescribes no particular tax or royalty relief for a project but outlines a process by which a project sponsor could initiate discussions to progress a viable fiscal system,” he said, contending that existing state statutes already provide the necessary framework for fiscal certainty and permitting discussions.
An attorney representing the Alaska Highway pipeline consortium, the Alaska Northwest Natural Gas Transportation Co., said it is currently working with state officials to make amendments to the Right of Way Leasing Act and the coastal zone management program to add clarity and predictability to the permitting process.
SB 360, he said, would “create additional uncertainty and risks for our project which could delay, rather than advance, the issuance for our right-of-way lease at the earliest predictable date.” Torgerson says no to retaliation Torgerson told PNA April 12 that he “doesn’t want to even begin to threaten retaliatory action” against the North Slope gas owners “until we see their numbers,” referring to the $125 million study results promised by the gas owners.
His bill, which is being referred to by industry observers as Torgerson’s “trump card,” is “not a 180 degree change from my existing position.
“The producers are having a little bit of trouble wearing two hats — that of a pipeline company and a producer. I think they’re rolling their numbers together, amortizing numbers from both areas,” he said, referring to the producers’ Prudhoe Bay and Point Thomson operations and the proposed gasline project.
“Pipeline companies don’t care whose gas is in their line; they just want it full. … They’re not worried about net back to well head,” Torgerson said.
Pipeline companies are content to “sit there and make whatever profit FERC lets them, which is generally 8 to 12 percent.”
The producers, he said, want a 15 percent profit, which he acknowledged might be acceptable for a producer but far above what FERC allows for a pipeline.
SB 360 was moved out of Senate Resources April 17 and goes next to Senate Finance.
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