Lawmakers not quite done in Juneau, but gas project is approved
The Alaska Legislature may not be quite finished with its work in Juneau but one major piece of business, approval for state participation in a large North Slope gas pipeline and liquefied natural gas project, is finished.
The Legislature approved a plan late Sunday for the state to negotiate a partnership with North Slope producers BP, ConocoPhillips, ExxonMobil and TransCanada Corp., a pipeline company, in the proposed pipeline and liquefied natural gas, or LNG, export project.
Gov. Sean Parnell must still sign the bill, but that is expected. The Legislature’s approval to Senate Bill 138 came as lawmakers worked to finish their other business in their 2014 session in Juneau.
The plan is essentially for the state to take its royalty and tax revenue share of natural gas production “in kind,” or in gas instead of cash, and to invest in 25 percent of the project, or sufficient capacity for the state to ship its own share of gas production, state Department of Natural Resources Commissioner Joe Balash has said in briefings.
SB 138 also provides for the state to separately negotiate a deal with TransCanada to invest in and own the state’s 25 percent share of the proposed 800-mile, 42-inch pipeline and a large gas treatment plant on the North Slope, Balash said.
The state would retain ownership, however, of its 25 percent of the LNG plant, which is planned at Nikiski, near Kenai, through a state corporation, the Alaska Gasline Development Corp.
“This is truly a historic moment for Alaskans,” Parnell said in a statement. “By passing Senate Bill 138, the Legislature has put Alaska on a path to controlling her own destiny by becoming an owner in the Alaska LNG Project. Alaskans have waited a long time for a gasline, and for the first time in our history, we have alignment, authorization from the Legislature, and a clear path forward. The Alaska LNG Project has begun.”
Preliminary estimates for the cost of a project range from $45 billion to $65 billion, but those estimates are to be refined in further engineering studies. In operation, it would produce between 16 million and 18 million tons of LNG yearly, mostly for export markets.
While state participation in large oil and gas projects in common in many parts of the world this would be the first time a U.S. state has entered such a partnership.
The legislation passed Sunday will allow the producers to begin the Preliminary Front-End Engineering and Design stage of the project to further refine cost estimates, Parnell said. Work will begin this summer on that, and the state is to share part of the costs.
The producers will also begin a more formal LNG marketing effort that will include the state’s 25 percent share of LNG, he said.
Negotiations will also begin on a formal participation agreement between the state and producers and, separately, between the state and TransCanada. Those are expected to be concluded in 2015 and must also be approved by the Legislature.
If the projects appears feasible after completion of refined cost estimates in the pre-FEED , the consortium will proceed to a multi-billion-dollar Front-End Engineering and Design, or FEED, stage that will accomplish final engineering and set the stage for a Final Investment Decision to proceed with the project. That is expected in 2019.
If all proceeds as planned, the project would begin operating in 2024.
Legislators have been working on SB 138 since January, when their 2014 session was convened. There were points when disagreements developed, mainly over TransCanada’s role.
Some lawmakers felt the state didn’t need to partner with TransCanada and that it could finance its full 25 percent share itself, without the participation of the pipeline company. A former Alaska governor, Frank Murkowski, also lobbied legislators to kick TransCanada out, arguing that the terms of the proposed deal with the pipeline company were too much to TransCanada’s advantage.
In the end TransCanada stayed in the deal at the urging of Balash and Alaska Commissioner of Revenue Angela Rodell, who argued the advantages for the state in partnering with an experienced pipeline company in dealing with the three major slope producers outweighed the financial consequences.
In his statement, Parnell said the passage of SB 138 also expands the role and mission of AGDC, the state gas corporation, empowering it to carry the state’s equity interest in the project’s infrastructure, particularly the liquefaction and marine facilities.
AGDC will also continue to aggressively pursue the advancement of the Alaska Stand Alone Pipeline, or ASAP, project parallel to the Alaska LNG Project, Parnell said.
ASAP is a plan for a state-led 36-inch pipeline that could proceed if the big pipeline and LNG project fails. The state corporation has been working on the ASAP project as a backstop to the large project, and that work will continue.
“SB 138 is a huge validation of the Legislature’s decision to create an Alaskan-owned pipeline development company,” AGDC President Dan Fauske said. “AGDC will now lead the state’s participation in this exciting LNG export project, while continuing to advance ASAP, the smaller in-state alternative. The work we've done to date is of significant value to the Alaska LNG Project, and going forward, AGDC will leverage the work of both efforts until we've gathered the facts necessary to make the most informed decision. Ultimately, the goal is to sanction a project that is in Alaska’s long-term best interests. AGDC’s management and board recognize the tremendous responsibility we’ve just been given, and are ready to get to work.”
Parnell commended legislators for their work on SB 138.
“I want to really commend legislators for their hard work and thorough review of this legislation, especially Sen. Anna Fairclough and Rep. Eric Feige for carrying our bill in their respective bodies,” Parnell said. “Alaska’s future is bright, especially as it relates to getting Alaska’s gas to Alaskans. I look forward to working with legislators along the way to continue to advance the Alaska LNG Project and get gas to Alaskans.”
Tim Bradner can be reached at email@example.com.