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.
"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
- 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
- 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
- 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
"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
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
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
- Is less likely to succeed,
because it is:
- More complex;
- More costly;
- More difficult to finance;
- 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
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
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
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
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
- Would suffer from antitrust
- 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.
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.
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
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