ConocoPhillips wants fiscal agreement
ConocoPhillips Alaska Inc. wants an agreement with the state on fiscal terms for a North Slope gas pipeline by February if the company is to begin preliminary field work for the project next summer, company officials said Dec. 13.
ConocoPhillips submitted a proposal to Alaska Gov. Sarah Palin Nov. 30 for a 48-inch pipeline built from Alaska to Alberta. The proposal was made outside the state’s formal solicitation for pipeline proposals. Alaska received five proposals under its solicitation.
Officials with the Palin administration did not return calls.
Brian Wenzel, ConocoPhillips’ vice president for Alaska gas development, told the Alaska Support Industry Alliance that a long-term agreement on fiscal terms for its pipeline is needed before producing companies will sign 20-year to 25-year contracts to ship gas, which could entail financial commitments for as much as $150 billion.
Wenzel said his company is ready to meet with state officials and hopes to have a fiscal agreement by February. The deal would still have to be approved by the state Legislature, but that could also be accomplished this spring.
To meet a planned 2018 startup for the project, fieldwork must begin in summer 2008 to allow a non-binding open season in 2009 and a binding open season in 2010, Wenzel told the contractor group.
To start fieldwork in June the company will have to start planning in January, Wenzel told the Alliance. If the agreement with the state comes together, ConocoPhillips will also start assembling a project development team by summer and would contribute $10 million to workforce training by the end of 2008, as well as fund an Alaska gas-needs study, Wenzel said.
The $10 million for training would be in addition to $7 million appropriated by the state for training and $20 million that would be provided by the federal government once a pipeline proposal is approved.
ConocoPhillips submitted an independent proposal rather than one under the state’s solicitation under its Alaska Gasline Inducement Act because there are terms under the act that are unworkable, Wenzel said.
The company is willing to include an independent pipeline company in its project, Wenzel said, and hopes to work with the state in selecting a company, but a pipeline company licensed under the state’s AGIA process would not be acceptable to ConocoPhillips because of the state’s requirements, he said.
A key objection by ConocoPhillips and two other major North Slope producers, BP and Exxon Mobil, is that the state is requiring a pipeline company to support rolled-in tariff rates for pipeline expansions that would have tariffs paid by original shippers increase by as much as 15 percent for each expansion. Wenzel said this amounts to a subsidy of new gas shippers by the original shippers.
Under ConocoPhillips’ plan, the pipeline would support rolled-in rates for expansion tariffs that would expose original shippers to a potential 5 percent increase of the original tariff but that would be a ceiling no matter how many expansions are made, Wenzel said.
If Palin chooses one of the proposals that were submitted under the state solicitation, the Legislature will have to either reject the proposal so that the pipeline company is relieved of objectionable requirements, such as subsidies for new gas shippers, or the AGIA law itself will have to be changes, Wenzel said.
Another key ingredient missing in the state’s solicitation under AGIA is a lack of any long-term fiscal terms covering taxes and royalty terms for producers shipping gas. Legal questions have been raised as to whether the state can make any long-term deal fixing tax terms under the state constitution, but Wenzel said that there may be ways to accomplish this as a form of contract that would pass legal muster.
In its proposal, ConocoPhillips seeks an agreement to fix terms only on natural gas production taxes. In a previous joint-proposal to the state made in 2006 by ConocoPhillips, BP and Exxon Mobil, sought to include fixed terms on oil as well as gas taxes. This prompted objections from state legislators last year. The references to oil taxes have been dropped in the latest proposal, Wenzel said.