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Gov. Parnell seeks to advance Alaska gas project

Posted: December 18, 2013 - 9:48pm

JUNEAU — Gov. Sean Parnell’s administration is looking to get out from under a 2007 law as it seeks to further advance a major natural gas pipeline project in Alaska.

Specifics on how that might happen, though, have yet to be decided, Natural Resources Commissioner Joe Balash said Wednesday.

The law, known as the Alaska Gasline Inducement Act, was aimed at encouraging construction of a pipeline to move North Slope gas to market.

Canada-based TransCanada Corp., a pipeline company, won an exclusive license to pursue it in 2008, with the state promising up to $500 million to cover reimbursable expenses. ExxonMobil Corp. later joined TransCanada’s effort.

Since then, the project has changed significantly. It’s no longer focused on a line that would extend into Canada and serve North America markets but rather on a liquefied natural gas project — supported by the North Slope’s three major players, ExxonMobil, BP and ConocoPhillips — that would allow for exports to Asia.

ConocoPhillips and BP opposed provisions of the 2007 law and pursued a rival line of their own before ditching it in 2011 and ultimately joining TransCanada and ExxonMobil in pursuing the liquefied natural gas option.

Parnell’s budget plan for next year would eliminate the state’s Alaska Gasline Inducement Act office, which is responsible for license monitoring and compliance. The budget plan says gas commercialization efforts are expected to transition out of AGIA by the start of the next fiscal year, July 1.

Balash said the hope is that getting out from under AGIA will allow more freedom for the state and companies to come to terms on advancing a line.

He said the AGIA license contemplates a project sponsor — one — in this case, TransCanada. But he said the project now being pursued is more akin to a joint venture. With a joint venture, he said the license holder can only be responsible for its own actions.

“The AGIA license isn’t really built well — the specific statutory framework — for a joint venture,” he said. “And so we expect to transition away from that.”

What shape that takes remains to be seen and depends on the type of progress the companies make, he said.

Balash said the parties could mutually agree to move away from AGIA or one of them could declare the project uneconomic, which he called a sort of “brute force method.” That could lead to arbitration or, if the other side agrees, effectively killing the license.

Balash estimated costs and reimbursements to TransCanada at about $280 million or so, so far.

The federal coordinator for Alaska gas pipeline projects, Larry Persily, said the administration putting its effort into addressing fiscal terms seems more important to the overall project than fighting over the remaining reimbursable costs, which could happen in arbitration.

A TransCanada spokesman said by email only that his company continues to work with the oil companies and state to advance the project.

The administration has floated the idea of taking a multibillion-dollar equity stake in the project as a way to protect its interests and help make the long-hoped-for project a reality. And Parnell has said he wants to see “demonstrable progress” on a line before introducing any gas-tax legislation.

“Ultimately what we’re looking for are some key terms that drive tariffs lower and result in higher royalty values and production tax values,” Balash said.

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