Anchorage Daily News

The State of Alaska is at a critical threshold in deciding the future course of the Alaska gas line. With two proposals on the table, this multi-generational dream ticket for economic prosperity is on the cusp of becoming real.

Credit the governor's proposed contract with TransCanada and current gas prices for "inducing" the producers' Denali gas line project. Now what's important is the state's next step.

Should we take the lead in bringing all parties together to develop a gas line on Alaska's terms? Or should we approve the contract before the Legislature giving TransCanada a $500 million subsidy as the state's exclusive partner in applying to the Federal Energy Regulatory Commission (FERC) for the license?

Unite or divide?

The answer should depend on which strategy is most likely to get the line built.

After waiting decades to get to this point, we shouldn't forget the difficulty and complexity of constructing a pipeline with an unprecedented price tag, engineering challenges, and land issues that involve Alaska, the U.S. and Canadian governments, three Canadian provinces, and indigenous peoples. Overcoming these barriers and satisfying U.S. and Canadian regulators and financial markets will require the expertise and support of owners of the gas leases, pipeline owners and all levels of government.

Recognizing these challenges, unity may be the essential way forward. Alaska oil and gas expert Brian Davies testified at the recent hearings that there were very strong public signals that the three producers and TransCanada recognize they need each other to complete the project. Only the state didn't seem to recognize that relationship.

Why would the state resist a collaborative effort?

It is claimed that the contract provisions for which we will pay $500 million are better for the State of Alaska than what we could ever get the producers to accept. However, on the issues most important to Alaskans -- such as in-state access to the gas, hiring and training Alaskans, and using Alaska businesses -- there is no difference between what TransCanada has agreed to and what the producers have acknowledged are required.

It is also asserted that a significant benefit of the contract is that TransCanada has agreed to advocate the state's position before FERC on the issues of debt/equity ratio, "rolled in rates" and "open access." Of course, it is FERC, not the contract, which will ultimately decide these issues.

While there is questionable benefit to paying $500 million for "advocacy" of certain positions before FERC, it is disturbing that the contract would prevent the state from negotiating fiscal terms with any other pipeline proposal before TransCanada either abandoned its effort or began operations. Violation of this provision, potentially lasting eight to 10 years, would require the state to pay treble damages to TransCanada. Why should we ever surrender our responsibility to advocate development of the gas line with the best terms available for Alaskans?

Conoco Phillips and BP plan to spend $600 million on the Denali project to develop construction cost estimates for a pipeline. This "due diligence" would determine what tariff would be charged to ship the gas. This information is vital to the companies owning the leases on the gas to convince them to irrevocably commit to shipping 4 billion cubic feet of gas per day for 25 years.

That shipping commitment is essential for a pipeline project to obtain the certificate from FERC and financing from the capital market.

Clearly, the producers would commit their leased gas to their own project. What would be the purpose of Alaska underwriting a proposal that has no gas shipping commitments and little chance of FERC approval or financing?

There is clearly strength in unity. We should not be afraid to take a leadership role in making this happen. We have strong indications that a pipeline company with significant assets, experience and Canadian connections and major producers of North Slope gas are prepared to join with the State of Alaska to develop a unified Alaska natural gas pipeline.

This is the opportunity we have been waiting to pursue. And, oh yes, we'd save $500 million in the process!

Tony Knowles was governor of Alaska from 1994-2002 and was the Democratic candidate for governor in 2006.

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