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Governor: Consider State Share in Gasline


October 14, 2004

Alaska Governor Frank Murkowski told a legislative committee Wednesday that he supports the state assuming a shipper's risk and taking an equity position in construction of a natural gas pipeline.

jpg Governor Murkowski

Governor Frank H. Murkowski tells the Legislative Budget and Audit Committee in Anchorage Oct. 13 he supports the state assuming a shipper's risk and taking an equity position in construction of a natural gas pipeline to bring Alaska's North Slope gas to market.

"Whether we are talking about an independently operated gas line or a producer-built and operated gas line, it has become clear to me that the most likely path for starting construction soon will require the state to take an ownership position in the project and bear a certain amount of shippers' risk," Murkowski told the Legislative Budget & Audit Committee.

With the state's congressional delegation's extraordinary success in obtaining the federal enabling and fiscal provisions necessary to construct the pipeline, it is appropriate for the Administration and Legislature to complete the Stranded Gas Act process, he said.

Murkowski said his administration supports the state taking a more active stake in a major pipeline project by assuming some level of shipper risk, serving as an equity partner or both. A similar state response during construction of the trans-Alaska Oil Pipeline could have resulted in billions more for state coffers, Murkowski said.

"We may have missed the boat when the trans-Alaska Pipeline was built and we have stood on the sidelines for nearly 30 years watching a lot of revenue flow to those who were willing to take the risk," the governor said.

Pedro van Muers, the state's natural gas project consultant, told the committee that every other nation that has sought to ship its stranded gas to market has adopted some form of equity share or shippers risk.

Administration officials are currently negotiating with the three major oil producers and the TransCanada Corp. over separate proposals to construct a pipeline from the North Slope to the Lower 48. State officials are also beginning negotiations with Enbridge Inc., which has filed a Stranded Gas Act application.

In addition, the state is assisting the Alaska Natural Gas Development Authority and the Alaska Gasline Port Authority in their efforts to develop a viable pipeline project.

Murkowski said negotiations with interested parties have progressed to a point that the state must address the issue of how much risk it is willing to consider in a pipeline project that is estimated to cost between $14 billion and $20 billion.

With the passage of key federal legislation -- such as loan guarantees of up to $18 billion and expedited permitting and judicial review -- significant roadblocks to moving the Alaska pipeline project forward have been removed.

"Both the governor and the Legislature have a job to do. It is my responsibility to bring you a draft Stranded Gas contract. It is your job to review and approve it," Murkowski said. "My administration is taking this responsibility seriously."

So far this year, the state departments of Natural Resources and Revenue have expended more than 15,000 employee hours and over $1.9 million for contractor services. The Department of Law has tallied $295,700 for inside counsel and an additional $597,200 for contract legal services.

The governor appealed to lawmakers to communicate their views on the state policy with the administration.

"I do not want our administration's team to spend months negotiating a contract with equity and shippers risks incorporated into a document only to have you suggest to me that this concept is a complete non-starter," the governor said.

Murkowski said gas markets in the Lower 48 are expected to remain strong for decades to come as gas is the favored fuel for heating and electrical generation. But with several Liquified Natural Gas projects on the horizon in the Lower 48, the state has a limited amount of time to get Alaska gas to market," Murkowski said.

"I want Alaskans for many generations to share in the upside of this project. Remember, once the gas line goes into service, it will operate for many decades," he said. "It could be a generation worth of benefits for Alaska families today and for generations to come."


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