Consultant urges patience in pipeline project

Posted: Thursday, April 08, 2004

If Alaska's Big Three oil producers move ahead with a $20 billion North Slope natural gas pipeline, it would eclipse any project they have ever undertaken, said the state's chief oil and gas consultant.

An unsuccessful pipeline project could ruin ConocoPhillips and financially hobble BP Exploration (Alaska) and Exxon Mobil, consultant Pedro van Meurs said.

Against that backdrop, van Meurs urged Alaska lawmakers to be patient while the state negotiates a potential project with pipeline suitors.

"This is the largest project in the world and large projects take time," van Meurs said.

The Murkowski administration brought van Meurs to the Capitol on Wednesday to brief state lawmakers on the gas pipeline project.

His appearance comes as Alaska considers a flurry of proposals after three decades of seeming inaction.

The three major oil producers filed a stranded gas development application and are the only group currently in negotiations with the state.

Canadian companies Trans-Canada and Enbridge Inc. each have expressed interest in negotiating with the state.

The Alaska Gasline Port Authority, which includes the Fairbanks North Star Borough and city of Valdez, is interested in building a municipally owned pipeline. But the state has not begun negotiations with that group.

MidAmerican Energy Holdings Co., a pipeline company owned in part by billionaire Warren Buffett, walked away from negotiations last month after the state refused to grant it a five-year exclusive deal to build the line.

Van Meurs said it would have been a "disaster" for Gov. Frank Murkowski to agree to MidAmerican terms that could have set back progress on a pipeline by several years.

The major oil producers seem the most likely shippers for the estimated 35 trillion cubic feet of North Slope natural gas, van Meurs said.

But the project will not be financially viable without state incentives and federal incentives, such as those in the energy bill now before Congress, van Meurs said.

The federal incentives include an 80 percent loan guarantee on $18 billion of the project, accelerated depreciation and provisions for a gas treatment plant.

The state must carry some of the financial risk of the project, van Meurs said.

House Minority Leader Ethan Berkowitz, D-Anchorage, said the Legislature needs an independent consultant to offer a "second opinion" on the progress of negotiations.

Berkowitz, who has been highly critical of the Republican governor's handling of the MidAmerican negotiations, said van Meurs places too much emphasis on the major oil companies' role in the pipeline project.

Under the state's oil tax structure, the major oil companies stand to lose millions by developing gas, and that issue wasn't raised by van Meurs, Berkowitz said.

The state needs to develop a natural gas pipeline deal quickly and in the best interest of the state, and it should have "serious reservations" about entering a deal with oil producers, Berkowitz said.

"What I've learned in the last couple of days is that the folks still left at the table have lots of incentives to go slow," Berkowitz said. "I just smell delay tactics here."

A Murkowski spokesman said van Meurs' briefing was intended to outline the complex issues that have to be considered with a pipeline project.

"His message, and our intent here was to help the legislators understand the complexity of the process, the enormity of the project and the ramifications that it engenders," said Murkowski spokesman John Manly.

"For everyone to get wrapped around the axle because one of the applicants walked away is being kind of shortsighted," Manly said.

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