Gas line negotiations reach final stages
By Tim Bradner
Alaska Journal of Commerce
alaskajournal.com
Web posted Sunday, September 25, 2005
Gov. Frank Murkowski said the state administration and developers of a North Slope gas pipeline are going over final details of a deal that could lead to construction of the long-planned, $20 billion-plus project. The state submitted a final proposal to the three major North Slope gas producers Sept. 14 and received a response the next week, Murkowski said Sept. 20.
The governor would not divulge any details of the confidential negotiations, but said "we're going over the details at this stage," an implication that the deal may be near final agreement.
The state and the three producers - BP, ConocoPhillips and Exxon Mobil - are negotiating a special fiscal contract under the state Stranded Gas Act that would allow special royalty and tax terms. The terms would aim to reduce risk on the massive project.
In an address to the Alaska State Chamber of Commerce Sept. 14, Murkowski said there are five principles in the state's latest proposal: A fair share of revenues from the project; opportunities for Alaskans to gain access to gas from the pipeline for local use; assurances that gas found in future exploration by other companies would have access to the pipeline; that the state would own part of the pipeline; and finally, that Alaska workers and firms would be involved in the project to the maximum extent.
Once the administration and companies reach agreement, a proposed contract would be put out for a 30-day public review period and would then be submitted to the state Legislature for approval.
Murkowski said the state is considering a $4 billion equity investment in the proposed natural gas pipeline, and that state ownership would be part of a deal with the three major Slope producers. The same would apply to the Canadian piplien company TransCanada, if that company's proposal for an independent pipeline is selected. The state has been negotiating with the producers for several months on a special fiscal contract, while also having talks underway on a separate track with TransCanada.
The governor said the state investment in a pipeline could involve $1 billion in a cash contribution with the remaining $3 billion financed through debt.
"The advantages of owning a part of the pipeline are obvious," the governor said in his address to the state chamber of commerce.
One advantage is that the state would make money as a partial owner through shipping its own royalty gas to market. Another is avoiding disputes over pipeline tariffs. "We spent years in litigation with the industry after the (trans-Alaska) oil pipeline was built and we paid for a lot of lawyers' kids getting their MBAs. That's an expense we don't want to have to bear," Murkowski said.
Alaska industry executives have endorsed the concept of a state equity investment in the project because it would allow the risk to be shared and would better align the interests of the state and the producers.
In a recent talk before the Alaska Support Industry Alliance in Anchorage, BP Exploration (Alaska) Inc. president Steve Marshall said having the state at the table as a part owner would avoid future misunderstandings and disputes. Disagreements over taxes and royalties spawned litigation following completion of the trans-Alaska oil pipeline in 1977 which cost the industry dearly in legal fees, Marshall said.
Murkowski also said the state has asked that gas take-off points be provided for in a special contract with the state. One would be where the pipeline crosses the Yukon River, for possible supply of propane or liquefied natural gas to small communities in the Yukon River valley. A second would be in Fairbanks to supply that community and provide for a possible spur pipeline to Southcentral Alaska. A third would be at Delta, east of Fairbanks, for a possible future spur pipeline to Valdez to supply a possible liquefied natural gas plant there.
In mentioning the Valdez LNG project, the governor seemed to offer an olive branch to the Alaska Gasline Port Authority, the municipal organization promoting a pipeline from the Slope to Valdez and an LNG plant as an alternative to a pipeline down the Alaska Highway.
The port authority has been highly critical of the governor's negotiations with the producers and TransCanada, and has said it will present its own plan to the Legislature as an option.
In mentioning the spur line from Delta to Valdez, the governor, in effect, said the state could eventually have both projects if both are economically viable. He also said a spur line delivering gas to Southcentral Alaska might sustain the present LNG plant at Nikiski, near Kenai, which may face future shortages of gas.
The port authority would be open to such a concept, its attorney, Bill Walker, said Sept. 20. The authority has explored the idea of a "Y" pipeline in the past, with a branch to Valdez off the main pipeline at Delta. "We prefer to think of the pipeline to the Lower 48 as a branch from our line," Walker said.
Tim Bradner can be reached at tim.bradner@alaskajournal.com. |
