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TransCanada responds Palmer tells legislators ANNGTC only Alaska, and not using any old permits Kristen Nelson Petroleum News
Alaska legislators have had a lot of questions about the TransCanada application under the Alaska Gasline Inducement Act or AGIA; Feb. 6-7 they got a chance to ask those questions of Tony Palmer, TransCanada’s vice president for Alaska business development, who talked to Senate Resources and the House majority caucus.
A big ticket item was the money that could be owed to withdrawn partners in the Alaska Northwest Natural Gas Transportation Co. — some $9 billion, mainly interest — if that project were ever built. The amount is shown in Federal Energy Regulatory Commission filings for ANNGTC (see “TransCanada: no liability” in Feb. 3 issue of Petroleum News at www.petroleumnews.com/pnads/374395925.shtml).
TransCanada has said that even if any of this money ever had to be paid, it would not be part of a tariff for the gas pipeline.
Palmer said before any monies were owed the ANNGTC project would have to be built and then the partnership’s board would have to determine that the money could be paid without hurting the partnership.
ANNGTC was the partnership formed to build the Alaska portion of the late 1970s-early 1980s project to take Alaska North Slope gas to Lower 48 markets via a pipeline into Canada.
Palmer said since the ANNGTC partnership was for the Alaska portion of the gas pipeline system under the Alaska Natural Gas Transportation Act of 1976, it’s the Alaska partnership assets that could be an issue.
Because of that, he said, TransCanada decided not to use any of the ANNGTC assets, which consist of old engineering studies and permits: It will be starting from scratch in Alaska and will not be using the rights of way or permits obtained by ANNGTC.
The existing ANNGTC federal right of way in Alaska expires in 2010, he said, before TransCanada would apply for a right of way.
Gas would move through Alberta Hub Palmer said that while TransCanada moves 15 billion cubic feet of gas to market, it does not own any of the gas it moves. It does, however, own the Alberta Hub, through which 11 bcf of gas moves physically, with 60-70 bcf traded on the hub every day. He described it to Senate Resources as the most liquid hub in North America. Gas from Alaska would flow on through the hub to the Lower 48 and TransCanada expects about one-third of the capacity on its lines going to the U.S. to be available by the time Alaska gas reaches Canada.
In response to a question from Rep. Ralph Samuels, R-Anchorage, about the cost for Alaska gas to move on existing TransCanada lines, Palmer said there is a toll for entering the system and a toll for exiting; there is no charge, he said, for gas trading once gas is on the TransCanada system.
Competition expected Palmer said he expected there to be “comprehensive competition” in the AGIA applications and said TransCanada bid to win, stretching its offer in a number of ways to ensure it had the best offer. He said the TransCanada system design is competitive and has a very low fuel ratio, 2.3 percent used in the pipeline, for a 1,700-mile pipeline. TransCanada would prefer not to own the gas treatment plant on the North Slope, he said, but will do so if no third party is willing to build it.
For gas owners willing to commit threshold levels of gas at an initial open season, equity ownership in the line will be available.
Palmer said he realizes there is a concern about how motivated TransCanada would be to manage pipeline construction costs, and said the company’s AGIA proposal includes a penalty on its rate of return if there are cost overruns. TransCanada built 7,000 miles of pipeline in the 1990s within 0.6 percent of budget, Palmer said. It’s not a perfect record, he added, noting that the company has experienced cost increases in the last few years.
Too quick to open season? TransCanada plans to move quickly to an open season to move the project forward. Palmer said having a later open season would not result in a better set of costs: The same amount of work needs to be done, he told Sen. Tom Wagoner, R-Kenai, in response to a question about whether TransCanada was shortcutting the time to an open season.
TransCanada has a class 5 cost estimate, he said, and will have a class 4 engineering estimate at open season. The company has significant data in Canada, he said. By the time TransCanada is through FERC certification it will have a class 3 estimate.
He said at the Alaska Support Industry Alliance Feb. 14 that with a class 5 engineering estimate costs can go up 30 percent or down 20 percent and with a class 4 estimate costs can go up 20 percent or down 15 percent. He said TransCanada is “doing the normal amount of work that we would do, considering the materials and information we have, to have a class 4 estimate before an open season.”
Gas at open season a concern Getting gas committed to the line in open season is a concern.
Rep. Jay Ramras, R-Fairbanks, said the pipeline is just part of what’s needed and said the administration is not being conciliatory to the producers.
Palmer said that by the summer of 2009 TransCanada would have a firm offer of service in front of the producers. He acknowledged that open seasons don’t always succeed; sometimes they don’t succeed until the second open season; sometimes they don’t succeed at all.
Ramras said he was concerned about both pieces — pipeline and shippers — not being ready; he told Palmer he didn’t intend to participate in a 10 minutes to midnight scenario.
Palmer said every commercial negotiation reaches the point where it breaks down or moves ahead.
TransCanada has proposed that the U.S. government could participate as a bridge shipper and by allocating a portion of the $18 billion loan guarantee to any capital cost overruns. Palmer says these are ways to improve the probability of success — not conditions of the TransCanada application.
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