Fairbanks Daily News-Miner: Federal Bill Gives Edge To Alaska Gas Pipeline

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Federal Bill Gives Edge To Alaska Gas Pipeline

Originally published in the Fairbanks Daily News-Miner on June 06, 2009

By: Rena Delbridge

The potential of super-low-interest federal loans and increased guarantees might lend greater appeal to proposals to build a large-diameter natural gas pipeline linking Alaska's North Slope resources and markets in Canada and the Lower 48.

U.S. Sen. Lisa Murkowski announced several provisions benefiting an Alaska gas pipeline that she's secured in a comprehensive energy bill in Washington, D.C. She's the ranking Republican on the Energy and Natural Resources Committee, chaired by Sen. Jeff Bingaman, D-N.M.

If approved by Congress, the bill would increase a federal loan guarantee for an Alaska gas pipeline project from $18 billion, set in 2004, to $30 billion plus inflation from 2004 values.

In addition, a project could tap into super-low-interest loans from the Federal Financing Bank, a federal corporation, and clarifies 2004 language to specify that the federal loan guarantee will cover a full 80 percent of the total project costs.

"This is a recognition that Alaska's gas resource is necessary for the country, and that we as a nation will step forward in helping to facilitate such a project," she said. "The federal government is not nationalizing this. We are not taking it over. But, we are helping to facilitate it.

"We're trying to fix health care; we're in the business of auto making," she said. "We really don't want to be in the business of building a pipeline."

All provisions are available to either TransCanada, licensed by the state under the Alaska Gasline Inducement Act, or Denali — The Alaska Gas Pipeline, a joint venture between producers BP and ConocoPhillips.

Joe Balash, intergovernmental coordinator for Gov. Sarah Palin, said the provisions "are huge" and essentially cover all debt associated with the pipeline projects. That could drive down tariffs charged by the pipeline owner to producers.

"That's good for everybody," he said, noting the deal isn't done yet but that it marks real progress by Murkowski, whose party is in the minority in Washington, D.C.

Producers after maximum returns on their resource might be enticed by the prospect of lower project costs, which in turn could up the state's take on gas sold.

TransCanada Alaska Vice President Tony Palmer said the 2004 guarantee was a positive action and any increases are good news.
"If Congress decides to supplement that federal loan guarantee ... certainly, TransCanada would view that as positive, also," he said. "If low-interest loans are available at a low interest rate, that would be very positive for the rates charged to customers."

Low interest rates could keep project costs down, a key factor in the $40 billion estimated total. Lower costs translate to lower transportation costs, which could make Alaska gas more competitive in markets Outside.

Palmer said not only would Alaska gas be more competitive at market with lower project costs, but the "net back" to the state also would likely increase. Lower rates for shipping gas in the line leave producers with greater profits. The state takes its share of producer profits through taxes and royalties.

Alaska gas's ability to compete has been a real concern among some who question the financial viability of a large-diameter line. Over-supply and decreased demand are keeping natural gas prices low in the Lower 48, as producers consider tapping into massive shale gas plays. Any domestic supplies in the Lower 48 would likely cost far less in U.S. markets than Alaska's gas, considering the transportation costs over several thousand miles.

"We are competing with other regions — that is something to keep in perspective," Murkowski said, noting new technology enabling unprecedented access to domestic gas. "Does it make me concerned about our gas supplies coming to the American market? It does, only if we sit on things."

She acknowledged a disconnect between the perception of Alaska's gas in state and in the Lower 48.

"As long as Alaska looks too far away and it doesn't look like the project is proceeding with great and appropriate haste, it is kind of out of sight, out of mind, for others," she said. "But for us in Alaska, it's not out of sight, and it's definitely not out of mind. We need to keep reminding the rest of the country that this resource is here."

She said "all eyes are on Alaska" for a long-term supply of clean-burning natural gas.

Meanwhile, the state's Legislative Budget and Audit Committee on Friday authorized hiring contractors to study ways to break apart Alaska's oil and gas tax structures. Some say doing so would bring down the taxes due on natural gas, and would extend greater fiscal certainty to producers debating whether to commit gas to a pipeline project.

Legislative Budget and Audit Committee chairman Sen. Kevin Meyer, R-Anchorage, said a Request for Proposals for economic analysis will go out soon and said he hopes to have a consultant on-board by fall.

"We're not going to just accept whatever numbers the administration and their consultants give us," he said.

With ConocoPhillips and BP partnering on their own pipeline, some energy experts say Exxon's involvement will be the blow that pushes one project above the other. Exxon controls about a third of the gas leases on the North Slope and operates the Point Thomson unit where exploration is under way.

Palmer wouldn't specify whether he's engaged in discussions with Exxon. He said TransCanada has been talking with various producers for several years and is prepared to offer equity in the pipeline to producers who commit gas during an initial open season. Likely producers with gas leases on the North Slope are BP, ConocoPhillips and Exxon Mobil.

"I could never advise you of where we are ... until we've struck a deal with them," Palmer said.

Both TransCanada and Denali have said they anticipate holding an open season in 2010. That's when the pipeline companies lay out terms to producers, who decide whether to bid on space in the line. Open season commitments can help projects secure financing.

Also included in the federal energy bill are provisions simplifying permitting for Alaska Outer Continental Shelf work and an allowance to build a small-diameter natural gas pipeline through Denali National Park and Preserve.

The Senate Energy and Natural Resources Committee is scheduled to take up the bill's oil and gas title on Tuesday. Murkowski said she's confident the language will meet with the committee's approval. The full energy bill might not advance beyond the committee for a week, she said.

Denali — The Alaska Gas Pipeline officials were not immediately available for comment.

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