TransCanada role in LNG project scrutinized

State legislative committees continue to work their way through Gov. Sean Parnell’s proposed natural gas pipeline deal with North Slope producers and TransCanada Corp.  Some concerns are developing over the role of TransCanada as a partner for the state, however.

“At this point we haven’t drilled very deeply into this. We’re still at the high-level overview stage,” said Senate Minority Leader Hollis French, D-Anchorage, who has been attending briefings as a member of the Senate Resources Committee.

Under the proposal, the state would not invest directly in the pipeline and gas treatment plant and would leave that to TransCanada. The state would sign a long-term contract with TransCanada, however, to ship its state-owned royalty gas.

TransCanada would use the state’s contract, which would be binding, to finance about three quarters of the capital it would contribute toward costs of its part of the project, estimated at $6 billion to $8 billion. The pipeline company would pay directly for one-fourth as an equity investment, however.

TransCanada will not be an investor or owner in the large natural gas liquefaction plant planned for Nikiski, near Kenai. The state-owned Alaska Gasline Development Corp., or AGDC, would invest and own a share of the LNG plant sufficient to process the state royalty gas into LNG, and would finance mostly with revenue bonds.

Legislators are asking why the state feels obligated now to go with the pipeline company as a partner if a license TransCanada holds under the Alaska Gasline Inducement Act is terminated, or whether proposals from independent pipeline companies should be solicited.

There is a feeling that the AGIA contract results were not what had been hoped for, and a sour feeling over the $500 million the state committed as a subsidy to TransCanada, about $300 million of which has been paid out.

“I think we should know what the costs are to go with TransCanada and what costs there are to go without them, and the benefit, if any, to go with someone else,” French said in an interview.

A consultant to the Legislature, Janak Mayer, told the Senate Resources Committee Feb. 3 that having an experienced pipeline company as a partner in the project could be a real advantage to the state.

The goals of the North Slope producers, as pipeline owners, will be to maximize overall profits from gas production, transportation and sales, but an independent pipeline company like TransCanada makes its money by transporting gas and earning a profit on its ownership of all or part of a pipeline, he said.

Because of this a pipeline company is motivated to find ways to ship more gas and expand, while other owners, the producers, do not share that bias. The state, as a direct owner in the pipeline instead of TransCanada, could also push its partners for expansion but would not have the experience in this that a pipeline company has, Mayer said.

Mayer also warned of potential delays in the project if the state has to take time to solicit and evaluate bids from other potential partners.

“You might wind up with a better deal or you might not, and you may no longer be able to get the deal you have now,” with TransCanada, he warned.

The year or two that this process could take might impair the current momentum for the project. Potential customers are now sensing real progress with the Alaska gas project and they are taking note of it, Mayer said. If there are delays as the state tries to find other partner those customers may see it as yet another setback for Alaska, and the project will lose credibility, he said.

French said a big question he has is what the possible downsides of the overall deal might be for the state.

“What’s our exposure? No one has quantified this yet,” he said. “Also, if the state has to make a direct investment at some point, will we have the cash to do this, given our revenue outlook?”

There is a lot of caution about the long-term obligations.

“We have learned some lessons from the AGIA deal. A lot of legislators who voted for the AGIA contract with TransCanada four years ago are now feeling a bit of buyers’ remorse,” and don’t want to repeat the experience, French said.

11/15/2016 - 4:12pm