Legislature approves TransCanada buyout
The state of Alaska will now own more of the big Alaska LNG Project. It will have to shell out more money for it, too.
Alaska’s Permanent Fund may have to be put up as collateral, also.
Legislators have been meeting in special session in Juneau since Oct. 24 to review Gov. Bill Walker’s proposal for the state to buy out TransCanada’s share of the planned $45 billion to $65 billion pipeline and liquefied gas project.
On Nov. 3 and 4, the state Senate (16-3) and House (39-0) gave their approvals.
The acquisition is to be effective Dec. 1, under terms of the legislation.
SB 3001 appropriates $68.4 million to repay TransCanada for its expenses to date in preliminary engineering on its share of the project. The bill also authorizes Alaska Gasline Development Corp., the state gas corporation that will step into TransCanada’s place, to spend $75.6 million to pay would have been the pipeline company’s share in completing preliminary engineering now underway.
Preliminary engineering is expected to be finished in mid-2016.
Delaying the purchase would have hiked the state’s costs.
“Today is better than tomorrow to take this off-ramp” with TransCanada, said Sen. Anna MacKinnon, co-chair of the Senate Finance Committee. “This legislation is a debt we need to pay TransCanada, and our state administration, which wants a gas pipeline as much as we do, needs our support.”
TransCanada, the state, and three North Slope gas producers, BP, ConocoPhillips and ExxonMobil, are in a partnership to build Alaska LNG, a $45 billion to $65 billion North Slope gas pipeline and LNG project that would export up to 20 million tons per year of liquefied gas.
The state actually holds 25 percent of the project in line with its share of North Slope gas reserves but in a 2014 agreement with TransCanada brought in the pipeline company as an investor and owner of the state’s one-quarter share of the 800-mile pipeline and large gas treatment plant on the North Slope.
The state itself would invest in, and own, 25 percent of the large LNG plant planned at Nikiski. About half of the project’s overall investment would be in the LNG plant.
The contract with TransCanada had a provision for the state to buy back the pipeline and gas treatment plant holding by December 2015, repaying the pipeline company for its investment to date. That is now being done.
The governor proposed the buyout on the grounds that the state would be financially better off in the long term owning its full 25 percent share rather than splitting it with TransCanada.
Marty Rutherford, Deputy Commissioner of Natural Resources, said the state could earn up to an additional $400 million per year from the project through owning the full quarter of the project. That’s mainly because the state will have cheaper financing costs, as a government, than would TransCanada and won’t have to pay shipping tariffs.
In an interview, Rutherford also said the state needs to be at the table now, representing its upstream interests, during discussions of final engineering and cost allocations on the gas treatment and dispositions of byproducts like carbon dioxide.
“We have a more direct interest in these, as an upstream resource owner, than does TransCanada, which would have been a midstream owner. We have to engaged ourselves in negotiations and not have to rely on TransCanada as our representative,” Rutherford said.
Decisions of allocation of upstream costs related to the project could result in billions of dollars of gain or loss to the state over the life of the project, Rutherford said.
Although most state legislators backed Walker’s decision on the acquisition there is still serious concern as where the state can adequately manage its 25 percent share, and also how the state will acquire the financing for hefty investments TransCanada would have made.
The state is already running huge budget deficits due to the slide in crude oil priced and state oil revenues.
As the full one-fourth owner Alaska will have to come up with an estimated $675 million if the project moves into the final engineering phase, or front-end engineering and design, and an estimated $13 billion to fund one fourth of construction costs.
Cash calls for the building the project would come from 2019 through 2024, years when construction would be underway.
State officials are looking at a variety of ways the financing could be done including issuing state general obligation bonds, which would require voter approval, or revenue bonds under a project financing plan that would pledge future revenues to repay the bonds.
Some form of financial guarantee from the state would likely be required by lenders under a project financing plan, Rigdon Boykin, a consultant who is the state’s lead negotiator in talks now underway among the gas project partners, told a state legislative committee in early September.
The state’s Permanent Fund, a $53 bill savings fund from accumulated oil revenues, could be used as part of a guarantee. Alaska’s constitution prohibits spending money directly from the Permanent Fund but there are ways the savings fund can be used to help leverage a financing package.
In legislative hearings this week and last in Juneau, lawmakers also grilled state administration officials on whether Alaska Gas Development Corp. or AGDC, has the experience or staffing adequate for overseeing the state’s interest for the full 25 percent share.
MacKinnon, co-chair of the Senate Finance Committee, said one of the original reasons for bringing in TransCanada was to have the pipeline company’s expertise available to the state.
Dan Fauske, CEO of the state gas corporation, told legislators that AGDC has built its staff and honed experience over the last year while completing final engineering on a smaller gas pipeline that could be built from the North Slope in case the large project falters.
Final permits for the smaller Alaska Stand Alone Pipeline are also being secured, Fauske said.
“We’ve demonstrated that we can do this. This (ASAP) project is ready to go if we need it,” he said.
There was some reluctance among some legislators to vote for the legislation, despite widespread support. Rep. Wes Keller, R-Wasilla, said he wanted to vote “no” as a protest over the administration’s reluctance to share information with the Legislature in a timely manner.
Rep. Dan Saddler, R-Eagle River, said he is also concerned.
“There hasn’t been a lot of clarity from the administration, particularly about who is in charge,” within the administration’s negotiating team, he said on the House floor. “I’m also concerned about the administration’s undue focus on failure rather than success. For example, the governor’s insistence on a withdrawal provision,” to cover contingencies of a withdrawn partner, might be more of a distraction for the project negotiations than a positive move.
Tim Bradner can be reached at [email protected].