TransCanada buyout will cost $7B, but likely be worth it
Gov. Bill Walker’s proposal to increase the state’s share in the Alaska LNG Project could put Alaska on the hook for more than $14 billion, but also generate about $400 million in additional annual revenue, according to a report from Department of Natural Resources consultants.
The report released Sept. 30 performed by Black and Veatch, a consulting company that has evaluated the Alaska LNG Project in the past, firmed up an earlier estimate that the near-term cost for the state to buy out TransCanada Corp. would be $108 million.
Alaska would then be on the hook, however, for TransCanada’s 25 percent portion of financing the North Slope gas treatment plant and the 800-mile pipeline south to Nikiski.
The state’s share in construction costs would roughly double, from $6.5 billion to $13.1 billion without TransCanada’s involvement.
Buying out TransCanada is an agenda item for the special legislative session Walker called to start Oct. 24 in Juneau.
The $400 million in annual cash flow increase — in 2015 dollars — by terminating TransCanada’s role, would come from not paying the company’s tariffs on the state’s gas through the North Slope plant and the pipeline.
Overall cash flow to the state over the first 20 years of operations would increase $7.4 billion, or about 6 percent, without TransCanada, according to the report. It estimates annual state revenues in the $3 billion to $5 billion range, totaling $76.7 billion over 20 years with TransCanada’s participation and $84.1 billion without the extra partner.
Black and Veatch also concluded that the net present value to the state without TransCanada could be up to $1.2 billion because of the state’s ability to secure better financing for project infrastructure.
Estimates in the report assume a baseline $45 billion cost for the Alaska LNG Project and long-term oil prices in the $80 per barrel range, also in 2015 dollars.
Currently, TransCanada, an Alberta-based pipeline company, has the state’s portion of the gas treatment plant and the pipeline and is responsible for financing a quarter of the engineering, design and construction of the infrastructure.
The State of Alaska owns a 25 percent share of the liquefaction plant on the Kenai Peninsula, which is projected to be nearly half of the total project cost. The three major North Slope producers, ExxonMobil, ConocoPhillips and BP, make up the other 75 percent of the project, with shares equity shares equal to their ownership in their natural gas planned for export.
The state has two buyout deadlines for TransCanada based on the current project agreements, Dec. 31, 2015, and Dec. 31, 2018, which would be just prior to construction.
Buying out TransCanada late in 2018, after the front-end engineering and design, or FEED, stage would cost the state about $490 million. That would be roughly TransCanada’s development costs in the project, according to the study.
Elwood Brehmer can be reached at [email protected]. Look for updates to this story in an upcoming issue of the Journal.