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TransCanada at bat Offers pipeline plan, proposes Alaska buy gas, guarantee shipments Larry Persily Petroleum News Government Affairs Editor
Alaska’s elected leaders have yet another proposal to consider for moving North Slope natural gas to market. TransCanada Corp. officials recently briefed the governor and legislative leaders on a plan for the Calgary-based company to build the pipeline if the state would buy the gas from the producers at the wellhead and guarantee shipments to fill the line.
The company is looking for guaranteed shipments for at least 15 years for a line carrying 4 billion to 4.5 billion cubic feet per day.
“They want the state to take the risk,” said Sen. John Cowdery, R-Anchorage, chair of the Senate Transportation Committee and one of several Republican and Democratic lawmakers who met with TransCanada the week of March 8 in Juneau.
TransCanada made the point that the state stands to earn billions of dollars in taxes and royalties from the line, so it makes sense for Alaska to take some of the risk, too.
Although his preference would be for the state to stay out of private-sector dealings, House Finance Co-Chair Bill Williams said Alaska might need to consider “sharing some of the risk” if that’s what it takes to get the pipeline built. “I don’t know what that ‘some’ is,” said Williams, a six-term Republican from Saxman.
“We’re taking their suggestion under advisement,” said John Manly, spokesman for Gov. Frank Murkowski. Manly declined to confirm any details of the TransCanada proposal. Governor calls meeting of gas line players Meanwhile, the governor has called a meeting in the state capital for Monday, March 22, with TransCanada, the three major North Slope producers and MidAmerican Energy Holdings Co. to discuss all of the participants’ proposals for building a gas line. The purpose of the meeting, Manly said, is to ask the question: “How do we get there from where we’re at?”
TransCanada is the latest gas line proposal presented to the administration. The producers and MidAmerican have each filed an application under Alaska’s Stranded Gas Development Act to negotiate a long-term fiscal contract for payments in lieu of state and municipal taxes for the project. Negotiations continue on the applications, both of which were submitted in late January.
Although MidAmerican had told legislators it wanted to finish its contract negotiations by mid-March, few expected the company and administration would meet that deadline, said House Speaker Pete Kott.
“The administration is recognizing that it is a little more complex than they originally thought,” the six-term Eagle River Republican said.
Kott said he hopes to see a contract before the end of the year. State stands to gain billions TransCanada did not submit its proposal as a Stranded Gas Act application, but rather as an informal proposal for how the state could help get the pipeline built. It’s in the state best interest, the company told legislators, even if it means sharing some of the financial risk.
The Alaska Department of Revenue estimates annual production tax and royalty payments from a gas line at $600 million a year or more, depending on the price of gas. Known reserves on the North Slope could supply a line at 4 bcf per day for more than 20 years.
“The governor is prodding everybody to come up and see what we have and what they can do to help,” Williams said. “Maybe one of them will happen.”
TransCanada declined to discuss its proposal or its meetings with the governor and legislators. “We don’t discuss our private meetings publicly,” said Hejdi Feick, company spokeswoman.
The company continues to push for a pipeline to bring North Slope gas to market, just as it has done for the past 20 years, she said. “We have had ongoing dialogue with the governor of Alaska.”
TransCanada and its wholly owned subsidiary Foothills Pipe Lines Ltd. own more than 24,000 miles of gas line in Canada, along with partial ownership in half a dozen other companies that own 4,500 miles of gas pipe in the United States. It takes a lot of gas to fill all that pipe, and the company is looking to find new supplies to replace declining production from the Western Canada Sedimentary Basin in the lines. Financing requires long-term contracts However, it will be tough to build the Alaska project unless someone is willing to sign long-term contracts to fill the line, TransCanada President Hal Kvisle said at the Canadian Energy Research Institute’s natural gas conference March 2 in Calgary.
Such contracts usually serve as proof to investors that a large pipeline project will generate sufficient revenue to pay off its bonds.
Kvisle told reporters at the conference his company would be willing to join up with North Slope producers and MidAmerican to get the Alaska line built, according to Natural Gas Week.
That makes sense to Alaska’s House speaker. “There should be some shared risks,” Kott said. “I believe at some point that’s what’s going to happen.”
Cowdery is of the same opinion. “I think everybody’s got to be a risk-taker in this.”
As a businessman, he said, he understands the producers’ reluctance to carry all of the risk that at any time during operation of the line prices might not be high enough to cover the cost of moving the gas to market. For example, at a tariff of $2.50 per thousand cubic feet to condition the gas on the North Slope and move it to the Midwest, the charges alone would cost more than $4 billion a year for a line with 4.5 bcf per day.
“The producers, they’re just as greedy as anybody else,” Cowdery said. “At this time, the reason they haven’t jumped in … is the risk.” Senator all parties would benefit from cooperating “All the players should get together and talk,” he said, adding it would be to everyone’s benefit to turn the gas into money.
TransCanada added to its ownership of U.S. pipe — and its interest in bringing more gas to market — when it announced last month the $2.2 billion purchase of Gas Transmission Northwest Corp., which includes 1,350 miles of pipe from Kingsgate, British Columbia, to the Oregon-California border. The Kingsgate line primarily moves Canadian gas into the Pacific Northwest, California and Nevada.
In addition to wanting to be part of any deal that builds an Alaska gas line, TransCanada also believes it has international law on its side. The company believes a U.S.-Canada treaty, a 1977 U.S. regulatory certificate and 1978 Canadian certificate give it exclusive rights to build an Alaska natural gas line.
The approvals, however, apply to the Alaska Natural Gas Transportation System, a specific project designed almost 30 years ago to carry 2.4 billion cubic feet per day from the North Slope into Alberta. The certificates and 1977 U.S.-Canada treaty detail an exact route, sites for compressor stations and other specifics for the line that was never built, and the 2004 proposals do not match the details of the certificates and treaty — calling into question whether the exclusive rights apply to a different project.
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