Alaska News

Report: Alaska LNG could bring in billions more if state buys out TransCanada

A new report offers reasons why Alaska would benefit by buying pipeline builder TransCanada out of the Alaska LNG project, including that it would make an extra $7.4 billion over two decades of operation.

The downside is that without TransCanada, the state would have to pay an extra $7 billion to $8 billion upfront to cover construction and other costs.

But that's a cost the state must pay one way or another, according to the analysis by a state consultant, Black and Veatch. The state is on the hook for repaying all of TransCanada's costs, whether the company is bought out of the project this year, at a later date, or not at all, said an official with Black and Veatch.

Released last week, the report is one piece of information the Legislature will consider in a special session starting Oct. 24 as it weighs the benefits of buying out TransCanada before the end of the year, at a cost of $70 million.

Complicating the question are Alaska's enormous budget deficits amid low oil prices, putting a crimp on cash.

The state and TransCanada are partners in the $55 billion Alaska LNG project, along with Exxon Mobil, BP and ConocoPhillips. The deal calls for tapping North Slope natural gas, shipping it down an 800-mile pipeline and liquefying it in Nikiski for overseas shipment starting in a decade.

Walker has said he'd like the state to buy out TransCanada to give the state a bigger role in project decisions with an eye on accelerating construction.

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TransCanada currently serves as the state's agent in developing the pipeline and a gas treatment plant on the North Slope. The current plan calls for the company to make the upfront investments for the state's portion of those facilities, unless the state buys out the company.

Leading Republican lawmakers said they're analyzing the report but also need additional information for the special session, including legislation they must consider and a financial analysis suggesting how the state could come up with billions of dollars before gas flows.

"We need to know what the risk and rewards of a TransCanada buyout are and we need to know what kind of money we're talking about," said Rep. Mike Chenault, R-Nikiski.

Walker has also said he will introduce a second piece of legislation to tax gas reserves left in the ground, a controversial proposal some view as a threat to the oil producers that could derail the fragile project.

The report on the TransCanada buyout mentions the state's financial consultants, First Southwest and Lazard, have said the state could borrow from banks or raise money on the municipal bond market to cover early costs. That financial analysis is not included in the report.

Sen. Cathy Giessel, R-Anchorage, said she was "choking" on the thought of how the state needs billions of additional dollars upfront if it buys out TransCanada. But she said she's eager to hear more from the administration.

"I'm still waiting for that level of presentation to give me comfort that we could afford to do this on our own," she said.

Marty Rutherford, deputy commissioner for natural resources, said the state is working to release that and other information quickly to give lawmakers as much time as possible to prepare.

As for the possible buyout, a fundamental point is the state will still have to repay TransCanada its costs plus 7 percent interest, whether the project fizzles or whether it's completed, said Deepa Poduval, with Black and Veatch.

"The state has an obligation to pay every dollar TransCanada is putting into the project," she said.

If a project is built with TransCanada as a partner, the state would repay the company the billions of dollars it will have invested by then with a tariff, or fee, on the gas flowing through the pipeline.

The Alaska LNG deal with TransCanada was inked under Walker's predecessor, Gov. Sean Parnell.

But TransCanada's involvement with this Alaska gas line project began five years ago, after the state agreed to pay the company up to $500 million to pursue a conventional gas project under the Alaska Gasline Inducement Act.

Alaska ultimately paid $330 million under that contract, which was terminated last year, after TransCanada had agreed to work with the state to pursue the Alaska LNG project.

Removing TransCanada from Alaska LNG reduces operational costs for the state and produces about $400 million in extra annual state income for 20 years, the report says.

The additional revenues mean there's less risk that low gas prices in any given year will lead to losses for the state, the report notes.

Rutherford, who helped create AGIA, said TransCanada has played a key role in advancing Alaska LNG, paying for studies the state owns and providing unique technical expertise.

"They brought a lot to the project because they are a world-class Arctic pipeline company," she said.

Alex DeMarban

Alex DeMarban is a longtime Alaska journalist who covers business, the oil and gas industries and general assignments. Reach him at 907-257-4317 or alex@adn.com.

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