Governor's gas goals presented
PIPELINE: Official outlines meaning of "fair share" of revenue.
By KRISTEN NELSON
Petroleum News
adn.com
Published: May 25th, 2005
Last Modified: May 25th, 2005 at 01:09 AM
The governor's goals in his negotiations on North Slope natural gas development are that the state get a fair share of revenue; that some of the gas be used by Alaskans; that anyone who produces gas can access the pipeline; that the pipeline may be expanded; partial state ownership of the pipeline; and jobs for Alaskans and job training, said Steve Porter, Alaska deputy commissioner of revenue.
Porter briefed people attending the Interstate Oil and Gas Compact Commission's midyear meeting in Anchorage last week.
A fair share, he said, applies to the pipeline owners, the gas owners and the state.
"Each party has to receive a fair share of revenue based on the risk they take to bring Alaska's gas to market," Porter said. That, he said, is the standard the state is looking for across all applicants.
The state is negotiating tax and other terms with three bodies that are considering taking on the multibillion-dollar project to move the North Slope's huge natural gas reserves to consumers. The big three North Slope producers -- Conoco Phillips, BP and Exxon Mobil -- and a Canadian pipeline company called TransCanada are separately negotiating tax terms for a pipeline that follows the Alaska Highway into Canada. A third proposal would route a pipeline to Valdez, where the gas would be chilled into a liquid then shipped to the West Coast.
Backers of the Valdez proposal are pushing their project in newspaper, radio and TV ads. Porter addressed that by saying it's useful when the public focuses on what its needs are and what it wants the state to accomplish. The debate is not useful when it centers on which project the state should choose.
The state is persuaded by one thing, Porter said: "a commercially viable project that brings more value to the state than any other project."
The producers own the gas: "They have the responsibility to build the pipeline, ship the gas or sell the gas," he said.
Canada will be a hurdle, Porter said: If TransCanada is right that it has the exclusive right to build the Canadian segment, then the producers will need to deal with TransCanada. If TransCanada is wrong and doesn't have exclusive right, the producers still have the option of negotiating with TransCanada or they could permit their own Canadian project. "Permitting your own project in Canada isn't a simple task," he said.
If the producers take 4.5 billion cubic feet a day to Chicago, Porter said, that volume of gas will cause "at least a short-term depression on price in the Chicago market" and that price depression could last months or years. The producers could mitigate that by taking the gas to Alberta and moving it from there through existing pipelines to disperse the gas more widely.
Taking gas only to Alberta and using existing pipelines would also be cheaper for the producers, Porter said.
TransCanada brings "the ability to build a low-cost pipeline with the lowest possible tariff," Porter said. "And this is where they need to place their focus."
Their challenge is "to bring a commercially viable proposal to the owners of the gas," including the state of Alaska, "that will convince them to ship their gas in their pipeline," he said.
If TransCanada does have exclusive rights to build the Canadian segment of the line, then they bring that value to the project, and if their permits are still effective they could use them to bring Alaska gas to market "sooner than some of the other options," he said.
The Alaska Gasline Port Authority plans to sell about 2 billion cubic feet per day on the West Coast. "Our research indicates that the impact of that amount will have a more depressing effect on the West Coast price than the producers selling 4.5 billion cubic feet a day into the Chicago market, and we also think that that effect may last longer," Porter said. That can be mitigated if the port authority finds buyers elsewhere, he said, thus reducing the amount of gas they send into the West Coast "or by figuring out another way to move that gas out of the West Coast."
The port authority also has to build a liquefaction plant, multiple regasification plants and several tankers at U.S. shipyards. "This added transportation cost places them in a position of paying more to get Alaska gas to market and receiving less for it when it gets there," he said. The port authority would need a waiver from federal law to use foreign-built tankers "or some other form of economic incentive that will reduce the overall cost of the pipeline," he said.
And because the port authority is proposing to market less than half the gas of the other projects, he said, "they'll bring in substantially less revenue than the other proposals even if they didn't have a more depressing effect on the market or the challenge of the transportation."
Porter said the port authority is also relying on a U.S. Internal Revenue Service ruling that the project would be tax-exempt, but he said it would need to assure the state that its present project, which is a little different from the one the IRS ruled on, would also be tax-exempt.
The port authority also faces the regulatory difficulty of permitting West Coast plants to turn the liquid gas back into a gaseous product on the West Coast. "This may be actually their greatest trouble as they break into the gas market," he said, because new industrial facilities on the West Coast "suffer from substantial opposition from the local communities."
The last hurdle will be convincing gas owners the project is commercially viable so they will either ship on the pipeline or sell to the port authority. |
