Primer on AGIA helps explain issues

Hundreds of people spent three of the sunniest days this season inside the Anchorage Sheraton with the governor’s gas line team talking about AGIA and TransCanada. At any one time there were 40 or so legislators, 20 or so highly rated and well-paid consultants, Governor Palin, the governor’s gas line team, and a lot of other people from the oil companies, as well as members of the public. Under discussion was TransCanada’s application to the state to build a 1,700-mile pipeline from Prudhoe Bay to Alberta. Information was also presented on BP/Conoco’s Denali project, which was compared to the TransCanada offer. An LNG project including bullet lines were also considered. This is what three days looked like.

The big questions: Is Trans-Canada the right party to get the job done and can they do it? Secondly, how does the TransCanada proposal compare to the Denali project?

As many know, TransCanada was the only applicant to submit an application that met all of the 20 state requirements. In addition to meeting the 20 requirements, the state demanded they meet two additional considerations that were deal killers unless the state approved them. (1) The NPV (Net Present Value) of the offer had to be satisfactory to the state and (2) The likelihood of success (could they get it built on time and on schedule with minimal over runs) had to be realistic.

In the eyes of the Palin Gas line team, TransCanada appears to have met both these standards and has moved to the head of the line. The administration, based on its own investigation, firmly believes TransCanada is a pipeline builder with the know-how and experience to complete this project.

There is some discussion about the Denali plan offered by BP/Conoco being superior to TransCanada. No plan was presented by the producers. If I were presented with their plan I could make a side-by-side comparison and judgment. No legislator I have talked with has seen a plan. No plan has been in the media and no plan appears to be available. I have been to chamber discussions and have seen a very nice slideshow but no substantial information. The TransCanada proposal looks like two phone books and the hearings at the Sheraton add two more. I would be delighted to see the BP/Conoco documents prior to our vote, wouldn’t you?

How will the Legislature

handle the vote?

It is the Legislature that makes the final decision on whether the vote to award an exclusive license to Trans-Canada is approved. We will begin deliberations June 3 and meet for 10 days but no vote will be taken. Immediately following the 10-day session some legislators will travel to various communities to listen to the thoughts and opinions of our citizens. Once completed, legislators will then return to Juneau for committee hearings where TransCanada representatives, as well as other interested individuals, get to voice their opinion on how legislators ought to vote. We will listen to as many as want to be heard.

Finally we move to floor session. There the House and Senate each make a single vote, up or down, on whether or not TransCanada is the chosen one. A majority vote in each body is required for approval. No vote will be taken on any other issue because no other issue can or will be before us. If 21 House members vote YES and 11 Senators vote YES, that will end the discussion and awarding of the license to TransCanada moves to the governor for her signature. If either vote is “NO” then TransCanada is out, we revert to the beginning, and ask for new applicants or we negotiate with the Denali project offered by BP/Conoco. The governor, her gas line team, the consultants, and others at the Sheraton clearly endorse the TransCanada proposal. There are also many who oppose and the vote can go either way.

Why does the State recommend a YES vote and an award of $500 million to TransCanada?

The administration believes Trans-Canada gives enormous value to the state, value far in excess of the $500 million inducement offered under AGIA. The state insisted the most important issues in awarding a contract to anyone must be based on the two requirements of open access and expandability.

Open access means any new explorer, not just the majors, is invited to apply for permits to drill for gas and oil knowing that if it find sufficient quantities it will be allowed to send its gas down the same pipe and pay the same tariff as the big players.

Expandability means the pipeline operator will ramp up the pressure as needed to accommodate new gas from new finds and allow them to go down the same pipe. This second requirement of expandability is interesting. When new players first send gas through the line, the tariff will actually be reduced for the original shippers.

We also expect to see Exxon’s Pt. Thompson gas but Pt. Thompson gas is at a very high pressure, around 10,000 psi, contains substantial oil, and other valuable liquids, and Exxon will not be allowed under the AOGCC rules to ship gas until most of the oil is first recovered. That is necessary because the gas is necessary to recover the oil. If gas were to be shipped early on, than the oil would be lost forever and no sensible person would allow that. Experts say Pt. Thompson will ship oil and condensates but not gas for 10 to 20 years from first operations, which are still years away from starting.

As I understand it, the supplies at Prudhoe Bay can be shipped without Pt. Thompson gas for quite some time. As new explorers find gas and enter the pipe, demands for space increases and the tariff could begin to increase. Still the original shippers will not be subject to tariff increases above 15 percent. That’s part of the agreement. Another part of the agreement is the state’s offer of no tax increases for 10 years. TransCanada wants to build the pipeline, needs cooperation from the producers, and appears to be making progress.

More Exxon news

As reported by KTUU news, a group of lawmakers wrote a letter to Exxon asking for clarification on shipping their gas should the TransCanada pipeline become a reality. A legal consultant notes the Exxon letter, now a public document, seems to indicate Exxon would be willing to put gas into a pipeline not owned by Exxon. According to the same experts, the other producers must also commit their gas because they are obliged to according to the lease contact they signed 30 years ago. Could the producers sue to not ship? Of course but experts cite Supreme Court decisions clearly favoring the state. When asked for the timeframe for a legal challenge, those same experts indicate a maximum of two years to resolution, not the 15 years touted by opponents.

If selected TransCanada intends to move forward toward obtaining a FERC (Federal Energy Regulatory Commission) certificate to build a pipeline. When does first gas flow? Eight to 12 years, depending on events.

State Rep. Carl Gatto, a Republican, represents District 13, Palmer.