Gov signs LNG bill, next steps start this year


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Gov. Sean Parnell signs Senate Bill 138 in Fairbanks on May 8. The bill authorizes the state to own 25 percent of the project by taking its taxes and royalties as gas and authorizes the administration to begin negotiations subject to legislative approval for agreements between the state, North Slope producers and pipeline company TransCanada.

Photo/Courtesy/Office of Gov. Parnell

Gov. Sean Parnell signed into law the bill authorizing the State of Alaska to participate financially in a proposed $45 billion to $65 billion natural gas pipeline and liquefied natural gas export project.

Parnell’s May 8 signature on Senate Bill 138, approved by the state Legislature in April, will allow state officials to begin negotiating formal contracts with the three North Slope producers and TransCanada, a pipeline company.

The state would be a partner with producers BP, ConocoPhillips and ExxonMobil as well as TransCanada under the plan.

Under the agreement the state would take its royalty and production tax in kind, or in the form of natural gas, which would amount to about 25 percent of gas production from the slope. The state would also own a portion of the natural gas liquefaction plant planned at Nikiski and would have an option to purchase part of TransCanada’s share of the gas pipeline and gas treatment plant on the North Slope.

Parnell signed the bill in Fairbanks at the Fairbanks Pipeline Training Center, where workers have been trained to work on North Slope pipeline construction projects. State legislators and several hundred people joined the governor in the signing ceremony.

With the legislation signed the companies and the state will now begin preliminary engineering and design work on the project estimated to cost $450 million. The state will share part of that cost under SB 138.

Under the project schedule a decision on construction would come in 2019 with operations beginning in 2024. Fifteen to 18 million tons of LNG would be exported annually, mostly to Asia, from an LNG plant at Nikiski, on Cook Inlet in southern Alaska.

“For the first time we have alignment among the necessary parties, authorization from the Legislature, and the beginning of engineering and design work on a project that will create thousands of jobs and provide fuel to Alaska homes and businesses for decades,” Parnell said in a statement.

The deal provides for the state take its royalty and tax share of production in the form of gas and to market it independently of the producers’. The state share would be about 25 percent of the LNG. State officials have also said LNG marketing activities would begin this summer.

The bill passed the state Senate 16-4 and the state House 36-4 in April.

Parnell still faces criticism over the plan, however.

Anchorage attorney Bill Walker, who is running against Parnell for governor as an independent, expressed disappointment over the bill signing. Walker believes the state should build the project itself, without the producing companies being involved.

“Governor Parnell has once again led Alaskans astray on a path of closed doors, giveaways and hidden agendas to enter into a new study (of the pipeline project).

“After five years of signing $300 million plus in checks to TransCanada and Exxon under AGIA (the Alaska Gasline Inducement Act) with nothing to show for it, Gov. Parnell starts over with yet another gas line study. He gives TransCanada Alaska’s seat at the table and again puts the control of Alaska’s future in the hands of companies with competing LNG projects worldwide.”

With the legislation signed, here are the next steps that will be taken:

• The state, through the state-owned Alaska Gasline Development Corp., will sign an Equity Option Agreement with TransCanada Corp. before June 30. This occurs under the Memorandum of Understanding with TransCanada approved under SB 138.

• The state will also sign a Precedent Agreement with TransCanada, the first stage in the state’s commitment to send state-owned gas through pipeline capacity to be owned by the pipeline company.

That commitment will come through a Firm Transportation Agreement (a binding contract) with TransCanada, to be negotiated in 2016, and which will need legislative approval. This is a big-bucks contract, a multi-billion dollar commitment to ship state gas.

• The state will also sign a Joint Venture Agreement with all the project parties including the producing companies, on the “Pre-Front End Engineering and Design” work, expected to cost about $435 million. An appropriation for this has been OK’d by the Legislature, so no further lawmakers’ approvals are needed.

• An agreement on local impact mitigation and PILT (Payment In Lieu of Tax) agreement with municipalities along the proposed pipeline route will be negotiated by the end of 2014. This will need legislative approval in 2015.

In 2015, besides the Firm Transportation Agreement with TransCanada, the state must decide whether to exercise an option to acquire 40 percent of TransCanada’s share of the pipeline and Gas Treatment Plant on the North Slope. 

A “liquefaction service agreement” between the state and AGDC will be needed for the state corporation to process state-owned gas into LNG through its share of the liquefaction plant at Nikiski.

Also in 2015, the LNG marketing agreements between the state and producers (to sell the state’s LNG) or other parties will be negotiated. Modification of leases to put the state’s taking of its gas production tax in-kind, or as gas, will also be done in 2015. This will not require legislative approval.

However, the actual marketing contracts of state LNG will require legislative approval.

A “balancing and offtake agreement” with the producing companies will be needed by late 2015. This will require legislative approval. 

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