My grandfather, Oscar Kerttula, used to say "don't stop the person who's doing something." Using his philosophy, it's time to explain what's actually happening with AGIA the Alaska Gasline Inducement Act. I've read a lot of misguided claims that the process has already failed, is a $500 million mistake, and worse. Recently, a bill was introduced to get the state out of the AGIA contract by declaring the project "uneconomic." This is a red herring. Everyone agrees a major gas pipeline wouldn't be economic at today's depressed gas prices. The project will succeed or fail based on the expected price of gas in 10 or more years.
AGIA sets a timeline. TransCanada had multiple milestones working toward an open season and federal permitting and met them all. There are other deadlines -- the most important occurring in five years. If at that time TransCanada is not able to commit to construction, they are in breach of contract. The state can then take over the project and keep TransCanada's entire work product. If we end the project now, all we get is a lawsuit and another long delay.
In the late 1970s, we were 10 years away from having a pipeline. We still are. Even moving at top speed, it will take five years to get all the studies and permits done, a year for engineering and procurement, and four years for construction. We've been stuck at the starting gate for 30 years. What AGIA has done is finally move us out of the gate.
The driving motive behind AGIA is to force progress on essential pre-construction work before we have final commitment from the North Slope producers to ship gas. TransCanada is taking a tremendous risk working toward the essential federal license without shipping commitments. That's why we are paying 90 percent of their expenses now. The Legislature set it up this way because we understood that the early open seasons could fail.
It is in our interest to have the pipeline owner be independent of the producers. The reason for this is simple. If the shipper is also the pipeline owner and the shipper pays taxes to the state based on the value of gas after subtracting transportation cost, artificially inflated transportation costs lower Alaska's share. This in a nutshell is why we have had lawsuits related to tariffs (shipping tolls) since the earliest days of the oil pipeline.
Allowing oil shippers to manipulate the tariff has cost the state billions in taxes and royalties, and more importantly, it deters new entries into the market outside the group of pipeline owners. Alaska cannot afford to repeat these mistakes. Some AGIA critics say it's somehow anti-capitalist for the state to subsidize a particular project. This is the opposite of reality. AGIA is about the free market, enabling the project to move forward despite the monopolistic behavior of the North Slope producers.
There's a lot of attention on what we've agreed to pay in AGIA but very little on what we get in return. Trans Canada is the state's subcontractor doing essential permitting and engineering work, as well as the complex negotiations. TransCanada has done everything it was supposed to do so far. It is doing essential work that will be needed for a pipeline even if this particular project doesn't get off the ground in the next few years, shortening the project's 10-year timeline. AGIA requires the pipeline will be managed to maximize future exploration and minimize tariffs. And even if TransCanada fails, the state gets the work product, giving us a leg up in any future project.
Longtime AGIA critics are still trying to derail the process. The bill introduced this session artificially pushes up one of TransCanada's deadlines by several years, creating a new standard that was never anticipated, wasn't part of their contract, and would be almost impossible to meet. We should resist the temptation to be impatient. We must continue to support TransCanada's efforts to move Alaska's gas line forward. As my grandfather said, let's not stop them now.
Rep. Beth Kerttula, D-Juneau, is minority leader in the state House of Representatives.
By REP. BETH KERTTULA