Alaska Editorial: Parnell edges away from a flawed gas pipeline development model

The following editorial first appeared in the Fairbanks Daily News-Miner:

Five years ago this month, the Daily News-Miner had this observation about the Alaska Gasline Inducement Act: “The vision remains blurred by too many uncertainties and pitfalls.”

Gov. Sean Parnell now seems to have come to that conclusion as well. His administration is seeking to extract itself from the agreement the state signed with TransCanada in 2008, under AGIA’s terms, during the administration of former Gov. Sarah Palin.

Much has changed in the world of natural gas since 2008. The boom in shale gas has cut Lower 48 prices, so a pipeline to that region is no longer viewed as viable. Gas prices remain higher overseas, so all eyes have turned back toward the old idea of shipping liquefied North Slope gas to Asia from a terminal in Southcentral Alaska.

Eyes have also returned to the idea of a joint venture, perhaps even with a stake held by the state.

AGIA theoretically could work to build a line to Alaska’s southern coast, but not well. “The AGIA license isn’t really built well — the specific statutory framework — for a joint venture,” Commissioner of Natural Resources Joe Balash said this week. “And so we expect to transition away from that.”

It’s about time.

AGIA never was likely to succeed. “The North Slope producers — BP, Conoco Phillips and ExxonMobil — own the gas,” the News-Miner editorial from Dec. 6, 2008, observed. “They have consistently stated that they cannot work within the terms outlined in the Alaska Gasline Inducement Act and reflected in the agreement with TransCanada. So how, exactly, will the state convince these gas owners to put their product in a pipeline built under those terms?”

The state has not been able to make that convincing case, but it couldn’t do much about it for the past five years.

“Since AGIA does not allow the administration to negotiate with the producers outside the process that has led to the TransCanada agreement, the state’s options are limited,” we wrote in 2008. “We hope those limits do not doom the agreement to failure or years of delay.”

That’s just what we got, though.

Now the state is finally trying to get out of the AGIA agreement so it can negotiate other options. Whether it will be able to extract itself without going to arbitration is a big question. The state has paid only $280 million of the potential $500 million it committed to help make the TransCanada project reality. That’s a lot of money left over, enough to encourage some argument.

All parties concerned should see the wisdom of backing out, though. AGIA was unlikely to succeed five years ago, and time hasn’t done it any favors.

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