SitNews - Stories in the News - Ketchikan, Alaska


TransCanada for AGIA License Recommended by Governor & Commissioners
LNG Options Still Available


May 22, 2008

Alaska Governor Sarah Palin, Department of Natural Resources Commissioner Tom Irwin and Department of Revenue Commissioner Patrick Galvin today released the AGIA Findings and Determination of the natural gas pipeline project as proposed by TransCanada Alaska Company, LLC and Foothills Pipelines Ltd. (TC Alaska) to the State of Alaska.

The commissioners' conclusion and analysis of the natural gas pipeline project proposed by TC Alaska is that it merits issuance of the AGIA license because it maximizes the benefits to Alaskans.

Click on the arrow to listen to the Governor's press conference.

"This plan puts Alaskans first," Governor Palin said during a press conference. "Everything we asked for in AGIA to protect Alaska's interests is in the TC Alaska project. In fact, because of the competitive process, TC Alaska's proposal is a better proposal than we'd even hoped for and everything in its proposal is binding and enforceable."

The TC Alaska application proposes a 4.5 billion cubic feet per day (bcf/d), 48-inch diameter, mostly-buried pipeline running 1,715 miles from a natural gas treatment plant at Prudhoe Bay on the North Slope to the Alberta Hub in Canada. The Alaska section will be approximately 750 miles in length with six compressor stations at startup and five natural gas delivery points in Alaska. The application includes an expansion capability of up to 5.9 bcf/d. Further expansions would include a combination of additional compression and looping.

TransCanada Corporation has successfully constructed many natural gas pipelines and now operates more than 36,000 miles of natural gas pipelines in North America. TC Alaska's project will provide positive economics to the state and federal governments, the major North Slope producers and to TC Alaska.

"We spent months reviewing the TC Alaska project and there are many reasons why this project stands above other proposals and deserves to receive the AGIA license," DNR Commissioner Tom Irwin said. "Among the reasons: benchmark timelines ensuring the gasline project moves forward, expansion opportunities and lower tariffs which protect and ensure Alaskans' economic opportunities and long-term careers, and distance-sensitive rates which ensure more affordable gas for Alaskans. But the one thing that makes this project stand out above anything else is that each and every commitment by TC Alaska is binding and enforceable. Taken together, this project will ensure Alaska's future for decades to come."

Throughout the AGIA proposal, TC Alaska commits itself to binding and enforceable commitments to move a truly "open access" gasline project forward. Just some of those commitments are listed below.

  • Benchmarks. TC Alaska has committed to enforceable benchmarks. For example, TC Alaska will hold an open season and file for regulatory permits by certain dates. Alaska has never seen enforceable timelines in any previous gasline plan.
  • Reasonable transportation rates. TC Alaska has committed to providing transportation through its pipeline at reasonable transportation rates, or "tariff." A low tariff not only increases the netback for Alaska, but it encourages long-term exploration and development by newer players on the North Slope.
  • Distance-sensitive rates for Alaskans. TC Alaska has committed to "distance-sensitive" rates for Alaska's gas. TC Alaska's proposed distance-sensitive rates ensure that Alaskans will pay just the costs incurred to ship gas from the North Slope to one of the five off-take points within Alaska, unlike today where Alaskans pay the competitive price on the world markets.
  • Expansion capabilities. TC Alaska has promised to expand its pipeline system on reasonable terms. Expansion is a key component, especially for smaller and newer gas producers on the North Slope to get our gas to market. Making this line expandable to accommodate new gas discoveries means more exploration and development, and finally opens up the North Slope basin.
  • LNG Y-line offered. TC Alaska has offered to construct a "Y line" from Delta Junction to an LNG processing facility in Prince William Sound if shippers express sufficient demand for that project as the work on the overland project progresses. Approving the TC Alaska project will enhance the likelihood of a successful "Y line" LNG project.
  • Bullet line to Southcentral. A smaller "bullet line" from the North Slope to Southcentral Alaska will not interfere with the TC Alaska project. Rather, moving both projects forward simultaneously could produce unique synergies. There are adequate supplies of natural gas to fill both pipelines.
  • Spur lines to Alaskans. Committing to five off-take points along the main line, the TC Alaska project also offers the potential for construction of spur lines that will make natural gas available as a source of energy to communities throughout the state.

"Competition spurred this incredible proposal," Governor Palin said. "TC Alaska knew that it had to create an attractive plan which was good for Alaskans in order to win the bid. They succeeded. And it means that Alaska's gas will make it into our homes and America's homes sooner."

"The dollars generated by the TC Alaska project take your breath away," Revenue Commissioner Patrick Galvin said. "Reading the expert reports that are part of the AGIA Findings and Determination leads to only one conclusion - the TC Alaska project will provide extraordinary profits for all project stakeholders, including the producers."

Galvin added, "Alaska's current fiscal system, including natural gas production taxes, are not an impediment to the profitability of this project. The $500 million matching contribution to TC Alaska is a prudent investment for the state, with a potential return of billions and billions of dollars. Rejecting the TC Alaska project in favor of the producers' project would provide the state with no certainty on forward movement, nor result in an effective open-access pipeline. The state's interests are best protected by encouraging the producers to join the TC Alaska project."

LNG Lives Through TC Alaska

This process has provided the state a wealth of information regarding various project sizes and scopes. Among the things learned is that an LNG project, relative to the proposal made by TC, is not preferred.

When compared to an exclusively LNG project, the overland gasline project proposed by TC Alaska will provide greater benefits to the people of Alaska over the life of the project and will provide an opportunity for a successful LNG "Y line" project, or "spur line."

An LNG pipeline must secure and commit to supply a specific market. The current markets for Alaska LNG are in Asia, thus an LNG project would not address North American energy needs and would likely face significant political opposition when seeking the required export license. Once a market commitment is made, the amount and type of natural gas developed and shipped is limited to the needs of that long-term contract.

Because of the need for firm, long-term supply commitments, an LNG pipeline project will rely almost exclusively on existing natural gas reserves, thus limiting the need and opportunities for new natural gas exploration and development. Because the career opportunities and revenues associated with future development and expansions offer great value to Alaska, the limitations on those factors associated with an LNG project make it less attractive.

In summary, on its own an LNG project does not maximize the benefits to Alaskans; however, in conjunction with the TC Alaska Project, LNG lives on. The following contains reasons why LNG is not as attractive on its own:

  • Provides less revenue and Net Present Value (NPV) to the state, because it is:
  • Not quicker; and
    Not cheaper.
  • Is less likely to succeed, because it is:
  • More complex;
  • More costly;
  • More difficult to finance; and
  • Likely regulatory barriers to export to Asia.

LNG's viability is enhanced by TC Alaska's Project as a "Y-line."

State's Matching Dollars

In exchange for the commitments required in AGIA, the Alaska legislature offered a package of inducements that included reimbursement of up to $500 million of the costs incurred to obtain a Federal Energy Regulatory Commission (FERC) certificate, an AGIA project coordinator to facilitate the process, a stable production tax rate for 10 years; and fixed royalty valuation methods to anyone who commits to purchase capacity to ship natural gas on the AGIA gasline during its first binding open season.

The legislature recognized the state's vital interests in encouraging exploration and development of Alaska's natural gas resources by ensuring an open access pipeline and the lowest reasonable tariff rates. AGIA license applicants were required to commit to a tariff structure that would ensure the lowest possible rates and expansion terms to encourage natural gas explorers and prospective developers to compete to explore for and develop Alaska's North Slope natural gas resources and bring them to market. The legislature made the inducements available to an AGIA licensee if the licensee would agree to meet the requirements and make the binding commitments that the legislature deemed necessary to protect the state's interests.

In summary, the matching $500 million secures a gasline that maximizes the benefits to Alaskans. The benefits more than outweigh the $500 million investment and cannot compare to the billions producers have asked for in fiscal certainty.

Producer Proposal (Denali)

ConocoPhillips publicly discussed its intent to construct a natural gas pipeline on the day before the AGIA applications were due. Recently, BP and ConocoPhillips proposed another natural gas pipeline project: Denali - the Alaska Gas Pipeline (Denali proposal).

The Denali proposal is to build a four bcf/d, 2,000-mile long buried large-diameter pipeline to the Alberta Hub with extension of the pipeline to the Lower 48 if an extension would improve project success or reduce transportation costs. The proposal includes a natural gas treatment plant on the North Slope near the Prudhoe Bay facilities. The proposal will support in-state natural gas distribution efforts and will provide at least five Alaskan natural gas delivery points, including Fairbanks.

No commercial terms are specified and, unlike TC Alaska, the Denali proposal makes no enforceable commitments. There is no commitment to move the project past an open season to FERC certification. There is no commitment to offer tariffs with the terms required by AGIA. Because they do not define important commercial terms, and the fiscal terms and certainty the major North Slope producers say are essential haven't been identified, the cost and benefits to the state cannot be determined.

Additionally, proponents of the Denali proposal say they will act now and demand fiscal terms later. Based upon the previous gas pipeline terms negotiated by the Denali proponents, those fiscal terms could cost the State of Alaska more than $10 billion.

In summary, the producer plan:

  • Contains no commitments to a project timeline;
  • Fails to ensure tariff and expansion terms that would maximize North Slope gas exploration and development;
  • Would suffer from antitrust problems; and
  • Likely would require the state to provide the producers with massive additional fiscal concessions.

What's Next for TC Alaska

The commissioners' determination, with written findings addressing the basis for the determination, and a notice of intent to issue a license, are forwarded to the Alaska State Legislature. The legislature then has 60 days to pass a bill approving the issuance of the license.

TC Alaska would then hold an open season, where the pipeline builder solicits firm shipping commitments for natural gas. Producers that commit to ship natural gas get reserved capacity on the pipeline and fixed tariff rates. The pipeline company gets commitments to transport natural gas that will help it finance construction of the natural gas pipeline.

After an open season, TC Alaska will apply for a FERC certificate of public convenience and necessity from FERC. That federal agency reviews the commercial viability of the project and approves the proposed tariff terms.

After obtaining a FERC certificate, the complex process of pipeline construction begins. Because of the remote location and large size of this pipeline, the process of ordering materials and bringing them to the site will require extensive logistical planning. Construction of the pipeline and the associated processing plants will take at least three years.

After natural gas shipments through the line commence, TC Alaska's focus will shift to future expansions. TC Alaska is required by law to determine if there is demand for more capacity in the pipeline and whether that demand can be met with adjustments to the existing pipeline structure ("compression") or if new construction ("looping") is required.

In Summary

A TC Alaska gas pipeline has the potential to offer significant benefits to Alaska. Alaska's economy will benefit from short-term construction jobs, but more significantly from long-term careers as new natural gas fields are developed because the path to market has been built.

Alaska will benefit from a pipeline that will be expanded to accommodate additional natural gas supplies that can be dedicated to meet Alaska's energy needs. Alaska will benefit from a pipeline tariff structure that maximizes state revenues, provides true open access to all potential shippers and accommodates expansions. Alaskans will benefit from the opportunity the TC Alaska project creates for a "Y line" LNG project and the "bullet line" to Southcentral Alaska. Alaska will benefit from the potential for lower energy costs as natural gas is made available to communities throughout Alaska through off-take points along the pipeline route and spur lines.

The construction of a natural gas pipeline is an exciting start to a new era in Alaska's economy, one where more Alaskans have careers in natural gas development, where the state and its citizens enjoy a continuing stream of tax and royalty revenues and where local energy costs are reduced.

The TC Alaska project offers significant benefits to the state and its citizens. TC Alaska has the incentive to develop the state's natural gas resources in a timely manner and to their maximum potential. This same goal serves state interests and the alignment presents an enormous opportunity for Alaska. TC Alaska's project sets the stage for a competitive exploration climate on the North Slope natural gas basin during and after pipeline construction. TC Alaska stands alone in its willingness to commit to Alaska's requirements. The legislature will take the essential next step toward achieving our collective goals by approving the award of an AGIA license.

The TC Alaska project provides several opportunities to address Alaska's and America's need for low-cost energy.

AGIA Timeline

Governor proposes AGIA concept -- January 2007

SOA submits AGIA to legislature for consideration -- March 2007

Legislature passes AGIA 59 to 1 -- May 2007

SOA releases Request for Applications (RFA) -- July 2007

Applications due -- November 2007

SOA determines TC Alaska meets AGIA requirements -- January 2008

TC Alaska moves to legislature -- January 2008

Public input received on TC Alaska -- March 2008

Gasline team reviews TC Alaska for license recommendation -- March ­ May 2008

Governor and gasline team announce findings -- May 2008

AGIA Forum on the findings -- May 2008

AGIA Special Session begins -- June 2008




Source of News:

Office of the Governor


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Stories In The News
Ketchikan, Alaska