JUNEAU -- Gov. Frank Murkowski proposed that the state invest $4 billion in a pipeline to transport North Slope natural gas to market in the Lower 48.
In a speech Wednesday at the Alaska State Chamber of Commerce convention in Valdez, the governor said the state investment is part of a "comprehensive draft proposal" for a gas line contract he submitted to the three major North Slope oil companies Tuesday.
The $4 billion is based on a 20 percent state ownership stake in the proposed line, and the state could end up paying more if the project ran into cost overruns.
The governor said the state could put in $1 billion in cash and finance the rest.
He said he expects a response from the oil companies by early next week.
While Murkowski didn't say it in his speech, a subsequent press release from his office threatened repercussions if the companies turn down the offer.
"I believe this contract proposal is good for Alaska, good for the nation and good for the producers," he said in the press release. "If they do not agree with my assessment, then I have an obligation to pursue other opportunities for marketing our gas."
Chuck Logsdon, spokesman for the governor's gas line negotiating team, said the state is "exploring strategies" for what to do if the companies rebuff the offer. He wouldn't give specifics.
But the oil companies aren't the only ones talking about building a gas pipeline. There are proposals from a Canadian pipeline company and a consortium of municipalities, although the oil companies have an advantage because they hold the leases for the North Slope gas.
Murkowski aides have been negotiating for a year and a half with the oil companies -- BP, Conoco Phillips and Exxon Mobil -- over a contract setting forth state taxes to be owed if the pipeline is built. The talks have also covered the governor's proposal for the state to own a share of the pipeline, although Wednesday was the first time the governor publicly disclosed how much the state would own.
Logsdon said he doesn't think this is the first comprehensive proposal the state has made to the companies, though it's the "first one in quite awhile."
"The governor is becoming concerned that the negotiations have gone on for quite awhile and there is a pretty good understanding of where each side is," Logsdon said. "I think he believes it is time to start making some decisions."
The Legislature would have to approve any gas pipeline contract. Murkowski has told the public to expect a special session of the Legislature this fall to do so. But time is running out to get a contract agreement in time to meet public notice requirements and still have a special session before the holidays.
The state's negotiations with the companies have been confidential.
Murkowski told his Valdez audience that his proposal to the oil companies includes giving some kind of state aid to local governments with money from a gas pipeline. Murkowski two years ago ended what had been a 34-year program for direct state cash assistance to local governments.
"Small rural Alaska communities with no tax base are in dire straits and need some support from the state," Murkowski said in Valdez.
The governor said his proposal for a $4 billion state share in the pipeline "anticipated a billion in cash and $3 billion from a debt instrument."
He didn't say where the $1 billion would come from but noted that the state is getting surplus revenue from the record oil prices. Some estimates peg that surplus around $1.5 billion by the end of June, depending on oil prices in the coming months.
Murkowski said the stake would give the state a say in how much the owners charge to ship gas down the line. That's been a subject of contention between the state and the oil companies, who have full ownership of the trans-Alaska oil pipeline.
The state would share in the rewards from the line and share the risk that natural gas prices could drop.
Murkowski said a gas pipeline could bring in $2 billion or $3 billion a year in revenue to the state. That would likely to be after 2012. There is no assurance a gas pipeline would be built even if Murkowski gets a contract with the companies.
The companies have said the next step after the contract would be their prep work for regulatory applications to federal energy boards in the United States and Canada.
BP's Daren Beaudo said that he couldn't comment on the speech. He said the state and companies have traded proposals throughout the talks.
"In general we have acknowledged that the state interest in ownership of the line, a piece of the pipe so to speak, is a positive thing. ... It gives them a little skin in the game and helps them see the kind of market dynamics we see in our business day to day," he said.
Daily News reporter Sean Cockerham can be reached in Juneau at scockerham@adn.com.
