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Alaska, TransCanada abandon AGIA; Parnell proposes state ownership share in LNG project

Alex DeMarban
Exxon Mobil, ConocoPhillips and BP now joining the pipeline builder to pursue a gas line through Canada to the Lower 48, as originally envisioned, but to down the middle of Alaska so gas can be transported to the port of Nikiski for export. Loren Holmes photo

In a speech that emphasized how the times they are a-changin’, Alaska Gov. Sean Parnell dusted off an old idea with plenty of populist appeal to help advance a long-sought project to bring North Slope natural gas to market.

Like Frank Murkowski did nearly a decade ago, Parnell said on Friday he wants Alaska to take an ownership stake in a large-diameter gas line that would allow the state to commercialize its gas after decades of trying.

An equity stake would allow Alaska to be at the bargaining table and increase its profits at all stages of the game -- as the gas is shipped to Nikiski by pipeline, as it is super-chilled into a liquid, and as it’s shipped overseas in freighters, Parnell said in a speech before the Alaska Support Industry Alliance.

“As a partner in the gas line project, Alaska will control its own destiny,” Parnell said. “Ownership ensures we either pay ourselves for project services, or negotiate and ensure the lowest possible costs. As a partner, Alaskans stand to gain more.”

House Speaker Mike Chenault, R-Kenai, said the proposal is a step in the right direction: “I’ve always thought the state ought to own a share of the pipe to keep us in touch with the project and what’s really going on.”

Rep. Eric Feige, R-Chickaloon, co-chair of the House Resources Committee, said ownership increases the state’s risk but could bring in several billion dollars a year in revenue, more than could be made if Alaska was not an owner.

Perhaps even Alaskans could have the chance to buy into the project by using a portion of their dividend, he said.

Such socialist talk has a long history in a state where every Alaskan gets an annual cut of the $49 billion Permanent Fund, built with oil money and investment returns. Four years ago, Democratic governor candidate Ethan Berkowitz campaigned on the concept. Parnell pooh-poohed the idea at the time, saying state ownership in a gas line should come only as a last resort.

Things are different now, Parnell said on Friday. More than once, he quoted a line from the movie Lincoln to explain his new approach: “Time is a great thickener of things.”

Another big change Parnell announced: The state and TransCanada have agreed to terminate their partnership under the Alaska gas line Inducement Act, a controversial hallmark of the Palin era. Shortly after the act was passed, the former governor and vice presidential candidate misleadingly proclaimed that Alaska had launched a $40 billion natural gas pipeline that would help bring America energy independence.

Parnell has repeatedly refused to back out of the controversial AGIA, until now. Under the act, the state in 2008 awarded TransCanada the exclusive license to advance the gas line, and up to $500 million in subsidies. About $300 million of that has been paid, said Joe Balash, Natural Resources commissioner.

With the state now out of the contract without penalty -- thanks to the amicable agreement between Alaska and TransCanada -- the state will keep the remaining $200 million, Balash said.

Also different, Parnell said, is a recently completed royalty study that said the state will see greater revenue from a gas line and export project if it has a 20-to-30 percent stake in the effort. With the gas pipeline, liquefaction plant and other facilities estimated to cost $45 billion to $65 billion or more, the state would be on the hook for at least $9 billion.

TransCanada has agreed to continue working with the state on the project -- sans AGIA -- as have Exxon Mobil, ConocoPhillips and BP, Parnell said.

TransCanada will help the state finance the upfront capital costs of building a pipeline from Prudhoe Bay to Nikiski more than 750 miles away, which will allow the state to repay much of its portion of the project over time, said Balash.

“TransCanada’s participation reduces the state’s cash commitment and increases the state’s return,” Parnell said in his presentation.

TransCanada said it would continue to work with the state and North Slope producers.

 “We all share the common goal of wanting to develop these important natural gas assets in a way that shows continued progress towards building Alaska’s energy future,” said TransCanada spokesman Davis Sheremata in an email.

The governor said he expects the parties to soon sign a non-binding guidance document known as a Heads Of Agreement that will lay out details such as in-state hire, workforce development, state ownership and project costs.

The document will be subject to public and legislative scrutiny, said Parnell. The governor said he’ll also propose legislation in the coming days to move the project forward outside the AGIA framework. More details will have to be hammered out in the coming months and those also will be subject to public review, he said.

That openness will distinguish this project from past efforts, he said.

Murkowski helped bring about his own political demise when it was reported in 2006 he’d long been secretly negotiating with oil companies to create a gas line contract.

“Unlike previous efforts to commercialize North Slope gas, the public and Legislature will have the basic ingredients of a deal in front of them as they consider legislation moving the project forward,” Parnell said.

Changes driving the state’s new approach include booming shale gas production in the Lower 48. That caused Parnell two years ago to say the state and industry should consider shipping liquefied gas overseas to Asia instead of sending conventional gas to the Lower 48 by pipeline, as was originally planned under AGIA.

Another change: While the gas line act was created so that only one company would work with the state -- TransCanada -- Exxon Mobil, BP and ConocoPhillips eventually joined the effort, he said.

Also important is a 2012 agreement between the state and Exxon Mobil that has paved the way for use of the huge gas reserves at Point Thomson. And for the first time, the state's major producers and a top pipeline builder are all pursuing the same project, Parnell said. 

Recognizing decades of failed efforts to build a gas line, Parnell said the state would continue to pursue a small-diameter gas pipeline under the Alaska gas line Development Corp.

That state-backed project is an “ace in the hole” that can allow the state to get North Slope gas to Alaskans if the large-diameter project falls through, Parnell said.

The legislation Parnell plans to introduce will do such things as allow the Department of Natural Resources to enter into shipping agreements to move the gas and modify certain leases.

It will also propose moving from a variable net tax to a flat gross tax for North Slope gas. Changing to a gross tax will allow the state to know how much daily gas it will have available for the long-term, a necessity for crafting agreements with buyers, Balash said.

“We need to know how much gas we’ll get every day, month and year,” said Balash.

If the Heads of Agreement is signed and legislation is approved, the state, TransCanada and the oil producers will “formally proceed” to refining engineering challenges and providing more details before parties commit the billions of dollars it will take to launch the project, Parnell said.

Parnell was angered earlier this year by the inability of the companies to agree. But things are different now, he said.

“That’s the message today. Time has thickened things,” Parnell said in an interview after his speech.

Contact Alex DeMarban at alex(at)alaskadispatch.com

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