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Alaska's gas market is Asia, not North America

Governor Parnell recently acknowledged that due to shale gas developments Alaska must change course and export its gas to the premium Asian markets. Owners of Lower 48 and West Coast Canadian liquefied natural gas (LNG) receiving terminals are likewise accepting market realities and converting their LNG receiving facilities into export terminals.

Consequently, Parnell now agrees that it is time for Alaska to build a gasline to tidewater to export LNG to Asia.

While the Governor's laudable change of position was met with widespread support among Alaskans, close on its heels came the thudding response from TransCanada CEO Russ Girling. Girling said TransCanada would continue to focus on a Canadian project and that the North Slope leaseholders, not the State of Alaska as the resource owner, are in the driver's seat to decide when and how Alaska's gas will go to market.

Girling's comments sounded all too similar to those made by his predecessor, Hal Kvisle, the week after the award of the $500 million AGIA license to TransCanada in 2008. Kvisle pronounced what some have called the AGIA project motto, "Nothing goes ahead unless Exxon is happy with it."

The primary purpose of AGIA was to take the ironclad control of Alaska gasline development away from the leaseholders who have repeatedly stated they will not allow a project to go forward until Alaskans make significant, and irrevocable concessions on oil and gas taxes.

Yet shortly after the AGIA contract was awarded, Exxon Mobil partnered with TransCanada to become a primary beneficiary of the $500 million AGIA license dollars. Now TransCanada and Exxon Mobil doggedly stay the course to permit a gasline into the collapsed North American gas markets where, according to the U.S. Department of Energy, due to vast amounts of shale gas, gas will remain at low prices for the next 100 plus years. And while Exxon Mobil warehouses Alaska's resources, it develops less economic LNG projects around the world to serve Asian markets.

The comments by TransCanada's CEO should serve as a clarion call for Alaska to maintain control of as much gas on the North Slope as possible. Currently the State of Alaska controls the largest share of the gas reserves, but that will change if our officials return the Point Thomson Unit to Exxon Mobil as is anticipated.

TransCanada and Exxon Mobil will continue to resist Governor Parnell's call for a gasline to tidewater for LNG shipment because it does not go through Canada and because it would be in direct competition with Exxon Mobil's many other worldwide LNG projects. If there was ever a time for Alaska to retain control of the Point Thomson Unit, it is now.

Additionally, the State must take the wheel and exercise the off-ramp provision of AGIA whereby it is allowed to terminate the relationship if an arbitrator determines the Canadian project is no longer economic. Requesting this evaluation merely begins a process for acquiring the crucial fiscal and market information needed to assess the State's options to either remain in AGIA or exit it with no penalty. The State needs to begin that process now so that it, as the party with the largest commercial stake, can take control of the project and get it moving forward.

In summary, the first step to constructing a gasline is recognizing Asia, and not North America, is the proper market. The second step is to retain control of the Point Thomson Unit and re-lease the field with explicit requirements as to how and when the gas will be marketed to Asia. The third step is to exercise off ramp in AGIA. The fourth step is for the State to take control of establishing the commercial terms and setting the project development timeline.

Governor Parnell has reversed course and taken the first step and that is good. He must now demonstrate the courage and leadership required to take the remaining steps necessary to secure the State's economic future.

Bill Walker owns an Anchorage law firm that specializes in oil and gas and municipal law and serves as general counsel for the Alaska Gasline Port Authority. He ran for governor in the 2010 Alaska Republican primary.



By BILL WALKER