Sempra opts out of gas line
By DIANA CAMPBELL, Staff Writer
Thursday, June 02, 2005
news-miner.com
Sempra Energy is pulling out of the Alaska Gasline Port Authority's efforts to build an all-Alaska gas pipeline to ship liquefied natural gas to the West Coast for distribution to energy-hungry markets.
As a reason, the company stated it has made almost no headway with Gov. Frank Murkowski, Sen. Ted Stevens or the three North Slope gas producers, "the most important players in the process," wrote Darcel Hulse, president of Sempra Alaska, a subsidiary of the San Diego-based Sempra Energy, in a May 27 letter.
Without a clear commitment, Sempra can't depend on Alaska natural gas to fill its gas terminals and can no longer ignore other gas producers vying for a place, Hulse wrote.
"The protracted political wrestling taking place in Alaska is costly and very time-consuming," said Hulse. "While all this is taking place, the West Coast market is being actively pursued by others."
Murkowski called the move a disappointment, while Borough Mayor Jim Whitaker, port authority chairman, said it all but closes the West Coast markets to Alaska natural gas.
Sempra signed with the port authority late last year, paying $750,000 a month for the privilege, Whitaker said. The agreement between the two had the port authority trying to seal a deal with the state to build an all-Alaska gas pipeline from the North Slope to Valdez. This would allow gas to be liquefied and loaded onto tankers bound for the West Coast to a gas terminal, to be built and owned by Sempra.
The plan has had several hurdles, the largest of which is the purchase of gas from the three North Slope producers: ConocoPhillips Alaska, ExxonMobil and BP Alaska, who have their gas pipeline project idea: they all want a pipeline to go from the North Slope into Canada via the Alaska Highway and from there, shipped to Midwestern U.S. markets through an existing pipeline network.
TransCanada, a Canadian pipeline company, is also proposing an Alaska/Canadian route.
All entities have been in negotiation with the state to gain approval for their projects.
Murkowski expressed surprise over Sempra's departure, saying that while the process is daunting, "the rewards that come with success are equally great." He reaffirmed his commitment to work with the port authority.
Negotiations are time-consuming, said Becky Hultberg, the governor's spokeswoman.
"We've been working with the producers for two years and TransCanada for one year," Hultberg said. "These timelines are reasonable."
The port authority officially submitted its project application to the state in March, but it has been talking with the state for over a year.
The state gave conditional approval for the application in a letter dated May 5, but required that the port authority show proof of a firm purchase contract for at least 10 percent of North Slope gas, a ruling from the Internal Revenue Service that says the port authority is tax-exempt and permanent exemption from the Jones Act, a federal law that requires gas tanker ships to have American-made hulls and crews and ship under an American flag.
Hulse said the state's letter was evidence that the project was losing ground and the reason Sempra dropped out.
"It is our view that the North Slope producers will not make a decision to send gas to the West Coast," Hulse wrote. "If they ever did, it would be much too late for the market to accept the needed volumes to make the AGPA project economic."
The port authority was not the problem, nor is its project undoable, said Art Larson, Sempra Energy spokesman. But markets move fast and decisions must be made faster.
Sempra warned the port authority early on that they would face rivalry from at least a dozen companies trying to get into the West Coast markets by using Sempra's gas terminal, Whitaker said.
BP is one of those companies. Last October, Sempra signed an agreement to reserve 50 percent of its Mexico plant for gas from an Indonesia field largely owned by BP. The plant will begin taking gas shipments in 2008 to supply Mexico and the U.S.
"What we need to understand is that Alaska gas is in direct competition with BP gas in Indonesia and elsewhere, ConocoPhillips gas in the Middle East and Indonesia and ExxonMobil gas from all over the world," Whitaker said. "That is a fact that Alaskans can no longer ignore."
The port authority is pursuing other West Coast options, but Whitaker declined to name them. None would have the same market share as Sempra, so capturing enough of the West Coast markets to make the port authority's project feasible will be difficult.
"We've lost a market," Whitaker said. "But Alaska Gasline Port Authority is committed to an Alaska line and is alive and well."
Diana Campbell can be reached at 459-7523 or dcampbell@newsminer. com.
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All-Alaska gas line loses funds
adn.com
SEMPRA: Energy company drops support, citing lack of progress with "the most important players."
By SEAN COCKERHAM
Anchorage Daily News
Published: June 2nd, 2005
Last Modified: June 2nd, 2005 at 06:38 AM
JUNEAU -- The backers of an all-Alaska natural gas pipeline have lost the financial backing that allowed them to launch a statewide advertising blitz starring former governors.
The proposal by the Alaska Gasline Port Authority is one of three to move natural gas from the North Slope to market. The loss of backing by San Diego-based Sempra Energy puts the proposal in question.
Sempra blamed political obstacles.
"The protracted political wrestling taking place in Alaska is costly and very time consuming," Sempra president Darcel Hulse wrote in a letter to port authority officials. "While all this is taking place, the West Coast market is being actively pursued by others."
The company claimed a lack of progress with "the most important players," mentioning Gov. Frank Murkowski and U.S. Sen. Ted Stevens. It also said it didn't believe the major oil companies on the North Slope would cooperate in the project.
Sempra gave $6.25 million to the port authority, a municipal agency led by the Fairbanks North Star Borough and the city of Valdez. The port authority has no other source of revenue.
It is pushing for a pipe from the North Slope to Valdez. The gas was to be supercooled there into a liquid and shipped by special tanker to the West Coast, where Sempra is developing a receiving terminal to serve the California market.
Meanwhile, a coalition of the major oil and gas companies on the North Slope -- BP, Exxon Mobil and Conoco Phillips -- is considering building a pipeline from the North Slope through the Alaska Interior, then south into Canada to connect with the North American distribution grid into the Midwest.
Calgary-based pipeline company TransCanada has the third proposal, which would also run from the North Slope to the grid in Alberta.
The oil companies and other critics of the port authority's proposal with Sempra say the West Coast is not a big enough market to absorb the huge volumes of Alaska natural gas, which could be more easily handled by a pipeline into the larger midcontinent market.
The Sempra money allowed the port authority to launch a statewide television, print and radio ad campaign touting its all-Alaska pipeline as the best. The ads featured endorsements from political all-stars: former governors Jay Hammond and Wally Hickel, ex-Wasilla Mayor Sarah Palin, and retired state Senate President Rick Halford.
With Sempra dollars, the authority hired Halford as its state and federal lobbyist this spring, at $25,000 a month.
Fairbanks North Star Borough Mayor Jim Whitaker, the chairman of the port authority, said Sempra's decision leaves his group at a crossroads.
"Obviously we're going to have to step back, rethink and move forward again," Whitaker said.
Whitaker said the port authority has more than a million dollars left and is not going to give up. The authority is now focusing on the Midwest market, he said, which could be served by shipping gas in tankers to port facilities on the Gulf of Mexico, where several receiving terminals are proposed.
"We are having discussions with a number of potential participants ... they are active participants in the marketplace. They requested there be confidentiality, and we have to honor that," Whitaker said.
Whitaker said Sempra gave Alaska every opportunity to take advantage of the West Coast market, but there was a limited time to fill it and tough competition from international gas sources. He said the same could happen with the Midwest market.
"We had damned well better move quickly or that market will no longer be an opportunity," Whitaker said.
Sempra spokesman Art Larson said the company had hoped to see tangible political support by May.
"Not only is there no progress of note, but it appears that the project continues to lose ground," according to a letter from Sempra, which port authority officials said they received on Tuesday.
The company cited a May 5 letter in which the state Revenue Department told the port authority it wasn't qualified under the Stranded Gas Act to negotiate with the state over taxes and royalties.
The state said the port authority didn't meet the requirements of either holding the rights to gas or having enough financial assets. Port authority officials have said they believed they could meet the state's requirements.
"We have been working with the port authority, trying to help them," said the state Revenue Commissioner Bill Corbus.
Whitaker did not blame the governor, but the Sempra letter said there was not enough progress being made with the governor.
Gov. Frank Murkowski issued a written statement on Wednesday, saying he was "both disappointed and surprised that Sempra felt the challenges too great to proceed." He said he would continue to work with the port authority.
Murkowski has, in the past, publicly pointed out what he considers obstacles to the authority's proposal. For example, the project would need a special federal ruling to use foreign-built tankers. Alaska's senior U.S. Sen. Ted Stevens told state legislators this spring that it would be very difficult to get such an exemption.
Sempra is the second company to break off talks with the state on a gas line. MidAmerican Energy Holdings, which is controlled by Warren Buffet's Berkshire Hathaway Inc., shut down its efforts for the second time this spring.
Daily News reporter Sean Cockerham can be reached in Juneau at scockerham@adn.com. |
