State signs AGIA license granting TransCanada $500M

Photo/Rob Stapleton/AJOC

Alaska officials signed a state license agreement Dec. 5 giving TransCanada Corp. access to $500 million in state funds to aid its efforts to build a $30 billion-plus natural gas pipeline from northern Alaska to Alberta.

As the license was signed, at a ceremony in Fairbanks, energy prices continued to plunge in international and North American markets. Energy analysts predicted significant oversupply of gas and low gas prices for five to six years.

Such an oversupply would extend a planned open season solicitation beyond 2010, a critical date when both TransCanada and rival Denali, sponsored by BP and ConocoPhillips.

Gov. Sarah Palin was on hand for the signing ceremony, along with TransCanada CEO Hal Kvisle and Vice President Tony Palmer. Alaska Natural Resources Commissioner Tom Irwin and Revenue Commissioner Pat Galvin signed the license, as required by the Alaska Gasline Inducement Act. AGIA is the state law that provides for state funds to be awarded to a company agreeing to certain terms, as TransCanada has done.

At the ceremony, Palin praised the company’s record.

“TransCanada’s record of delivering projects on time and on budget is unsurpassed in the industry,” the governor said. “Their commercial skill and approach to solving problems will no doubt be of value to us as we continue to take the necessary steps forward on this project.”

TransCanada proposes a 4.5 billion cubic feet per day, 48-inch diameter, mostly buried pipeline running 1,715 miles, from a natural gas treatment plant at Prudhoe Bay on the North Slope to the Alberta Hub in Canada.

The Alaska section will be approximately 750 miles in length with six compressor stations at startup and five natural gas delivery points in Alaska.

“An Alaska pipeline will bring huge economic benefits to the state of Alaska, its people and its producers,” said TransCanada President Kvisle. “And TransCanada is excited by the opportunity to take on this important role.”

TransCanada started work earlier this summer using its own funds, doing aerial photography and some engineering work. Having the license means the company will now be reimbursed for 50 percent of its expenses until a planned open season in 2010.

The reimbursement rate will increase to 80 percent if the open season fails to attract enough gas shipping contracts, and TransCanada continues work on the project. The state grant is for a maximum $500 million.

A spokesman for the rival Denali pipeline group said the license award to TransCanada doesn’t affect its work program.

“Denali is moving ahead outside the state’s AGIA framework. We welcome competition, but we believe Denali has the best chance of delivering a successful Alaska gas pipeline project,” said Denali spokesman Dave MacDowell. “Our owners have always said they are open to any involvement of any party who can add value and take on some of the risks association with the project.”

Denali began work this summer on field studies to prepare for an open season also planned for 2010. The company will spend $600 million of its owners’ funds in preparation for the open season.

The deepening economic recession is raising new concerns over whether the giant project will be able to attract the needed shipping contracts. Even if the U.S. economy recovers from its current economic recession, natural gas markets not be particularly robust in 2010.

There’s also a lot of new competition. Jen Snyder, head of North American gas research for Wood Mackenzie Ltd., a leading consulting firm, told an energy conference in Houston that new shale gas plays in the continental U.S. could be producing enough new gas to keep gas markets in an oversupply situation.

Snyder said there would be significant amounts of gas made available at $5.50 per million British Thermal Units from shale gas plays. Competition for the electric power market will also be coming from new coal-fired power plants and wind-power projects, she said, as well as imported liquefied natural gas.

11/15/2016 - 12:06pm