Incomplete information: Gov. Murkowski’s study compiled with lack of ‘Authority’

Voices of the State

Posted: Tuesday, May 23, 2006

The final strategy in Gov. Frank Murkowski’s play book to ensure that a Canadian highway/producer gas line is the only option to be considered by the Legislature and Alaskans reared its ugly head at recent press conferences. Gov. Murkowski now proudly waves a state-sponsored study by PFC Energy attacking the viability of the all-Alaska pipeline and liquefied natural gas project.

In his zealous effort to slam the people-mandated all-Alaska project, the governor failed to mention that the $200,000 study was completed without PFC making a single inquiry of anyone associated with the Alaska Gasline Port Authority. This glaring omission resulted in a study rife with inaccuracies and inexcusable errors. Had just one phone call been made to the Alaska Gasline Port Authority, PFC would have been armed with facts on the following critical topics:

· Receiving terminals. While the PFC study performed an analysis of five proposed West Coast LNG receiving terminals, they failed to mention the only receiving terminal actually under construction. This is the Sempra LNG terminal, located about an hour south of San Diego near Ensenada, Mexico. The first phase capacity is already fully subscribed by BP and Exxon, among others. However, Sempra is proposing to expand that same facility. AGPA representatives recently attended a shippers meeting in Mexico for Sempra’s open season and this month submitted a proposal to Sempra.

· Jones Act. PFC wrote to U.S. Customs and we believe mischaracterized the AGPA project, obtaining a response stating that AGPA would need Jones Act-compliant tankers from Valdez to Kitimat, B.C. Had PFC representatives taken the effort to call anyone at AGPA, they would have learned about two proposals that have been submitted to AGPA for shipping Alaska’s LNG on Jones Act-compliant vessels. Both Totem Ocean Trailer Express and a world-class LNG shipper have proposed to ship LNG from Alaska to market on U.S.-built vessels at rates that we believe are competitive with foreign built vessels.

· The Y Line. The study was devoid of any mention of one of the defining hallmarks of the AGPA project, the Y Line concept. The Y Line is the alternative for the best of both markets, whereby AGPA is proposing to pre-build (oversize) the gas pipeline to Delta Junction to enable a future line through Canada once the myriad legal entanglements in Canada are sorted out. In the meantime, the Alaska LNG project could move forward.

· Access to gas. The Point Thomson lease which former DNR Commissioner Tom Irwin placed in default following 20-plus years of nondevelopment has sufficient gas, along with the state’s Royalty gas from Prudhoe Bay, for the All Alaska/LNG project.

· IRS tax exempt benefit. While the Murkowski administration has often questioned the validity of the IRS ruling granting exemption from federal taxation to the AGPA project, it now claims that ruling is of no value to a gas line project. Alarmingly, this position is contrary to the opinion of the state’s own expert, Pedro VanMeurs, who in 2000 issued a written opinion to AGPA, stating that the value of AGPA’s tax exempt status was $10 billion to $20 billion.

The governor attempted to further support his attack on LNG viability by citing Sempra’s 2005 withdrawal of financial backing of AGPA. Gov. Murkowski knows full well that he and the attitude of his administration were among the catalysts for Sempra’s withdrawal, just as it was with Warren Buffet’s MidAmerican Energy Holdings Co. Both companies, we believe, pulled out upon discovering that the political reality is that nothing will be done by the Murkowski administration to loosen the oil companies’ control of Alaska’s gas.

Bill Walker is general counsel for the Alaska Gasline Port Authority.



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