Controversy swirls around Alaska NG pipeline process
eyeforenergy.com
JUNEAU, Alaska (January 5, 2004) - Alaska Gov. Frank Murkowski has pledged to present a contract for building the long-awaited Alaska natural gas pipeline to the Alaska legislature this session. The current session ends in May.
Murkowski’s office is negotiating potential contract terms with at least seven different players, including the consortium of the three largest producers (BP, ConocoPhillips and ExxonMobil); TransCanada; MidAmerican Energy Holdings Co.; the Alaska Natural Gas Development Authority; the Alaska Gasline Port Authority; Enbridge; and Calpine.
Although the producers’ consortium appears to have the inside track on the pipeline since the U.S. Congress approved $18 billion in loan guarantees plus tax breaks and incentives in October, controversy and competition continue to swirl around their proposal. Among the debates:
Whether the state should support the consortium’s plans to build a 3,500-mile pipeline through Canada to Chicago, which will take at least a decade, or opt for an alternative proposal for an 800-mile pipeline to Valdez, Alaska, where it would be converted to LNG and shipped to the mainland U.S. by sea. Backers say their alternative would increase the mainland supply of natural gas at least four years sooner than the longer route and generate much larger revenues for budget-challenged Alaska.
Whether the producers’ consortium members, if chosen to build the pipeline, will give other producers access to it. The producers have proven reserves of about 35 trillion cubic feet of natural gas, but experts estimate another 200 trillion cubic feet of natural gas is yet undiscovered. Chances are that much of the undiscovered gas will be developed by companies other than the Big 3 – provided they have a way to ship what they find.
Whether Alaska will be allowed to connect spur lines to the pipeline to supply natural gas to its own residents and industry.
Who will control the Canadian portion of the pipeline – TransCanada or Enbridge -- if a Canadian route is chosen, and whether TransCanada’s 26-year-old pipeline treaties giving it the rights are still valid.
While most of the other players are pushing for a trans-Canada route, the Alaska Gasline Port Authority (AGPA) supports an All-Alaska route from the North Slope to Valdez. Members of the AGPA include the City of Valdez, the Fairbanks North Star Borough and the North Slope Borough. The group’s charter is to keep all related infrastructure investment in Alaska to ensure local supply and competitive pricing for natural gas.
AGPA’s proposal recently gained momentum when it entered a development agreement with Sempra LNG, the LNG unit of San Diego-based Sempra Energy, and purchased the rights of way and associated permits held by Yukon Pacific to build a gas pipeline that would run parallel to the existing Trans-Alaska oil pipeline.
Although defunct, Yukon Pacific had secured virtually all of the rights and permits necessary to construct a gas pipeline along that route. Sempra, meanwhile, recently awarded construction contracts on its new LNG receiving terminal near Ensenada, Mexico, south of San Diego. The terminal, projected for completion in 2008, is designed for a capacity of 1 billion cubic feet of natural gas per day. Sempra also has received approval to build an LNG terminal in Louisiana and has a third project undergoing permit review in Texas.
“We are convinced that this project can deliver Alaskan gas to a comparable marketplace, while providing much greater benefits to Alaskans than alternative projects,” said Jim Whitaker, chairman of AGPA.
Whitaker estimates the AGPA proposal would generate as much as $1 billion for the state in its first full year of operation, while the producers’ plan would generate $300 million for the state in its highest revenue year. Whitaker also said he believes the All-Alaska project offers the greatest opportunity for in-state use of gas, competitive access to the pipeline, and a direct revenue-sharing to all communities in Alaska.
Although Gov. Murkowski hailed the news when the producers submitted a pipeline proposal after 20 years of delay, he also has urged the Federal Energy Regulatory Commission, which will conduct environmental reviews of the proposals, to look out for the interests of his state and of other producers in setting the rules that will govern the permits it issues. FERC is scheduled to issue those rules in February.
At a hearing in December, Murkowski urged FERC to amend its proposed rules to “address in-state access to natural gas that will be important to all Alaskans.” He pointed out that the enabling legislation approved by Congress in October permits FERC “to order that the pipeline owners provide the state with ‘reasonable access’ to the pipeline for the in-state use of Alaska’s royalty gas.”
Murkowski also urged that the rules be written to require that regardless of who builds and owns the pipeline, it have the capacity to accommodate all serious long-term bids in the initial open season and be designed to permit later expansion to accommodate newly discovered resources.
Mark Hanley, a former Alaska legislator who serves as a spokesman for Anadarko Petroleum, says that independent gas explorers like his company worry they will have no way to move their discoveries to market if the rules are not written to ensure open access.
“This pipeline is unlike any other in the United States,” Hanley said in testimony to the FERC. “It’s expensive, it’s long and it’s likely the only one ever built. That means there’s no competition. It is a monopoly and it is a unique monopoly and we think that justifies a difference in how it is regulated.”
The producers, argue, however, that those who contribute to the $20 billion cost of the pipeline should have the first chance at profits from its gas shipments. “To enter into long-term gas and shipping contracts, there can be no risk of being displaced by later field developments,” said Rick Mott of ConocoPhillips.
Initial indications from FERC are that its members take the issue of pipeline access seriously and will work to revise the rules to ensure a fair balance.
For further information please contact:
Bernadette Hearne at +44 (0) 20 7375 7201 or service@eyeforenergy.com. |
