State legislators question calls for gas competition

Some say producers' suggestions aren't fair to independents

Posted: Friday, May 04, 2007

Oil companies are lining up to oppose the Alaska Gasline Inducement Act, but there's one part of it they say they like.

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The AGIA process calls for open competition among companies, something the big Alaska oil producers have all endorsed in testimony before legislative committees.

Members of Palin's gas line team, including Department of Revenue Commissioner Pat Galvin, say, however, they are privately hearing something else entirely from producers:

"The state doesn't need to bring in competition; just go back to talking to us alone," Galvin said.

In public, the major players are endorsing competition.

"We are ready to participate in an open, competitive process," said Martin Massey, an Exxon Mobil Corp. executive responsible for Alaska natural gas issues.

"We really do want to be able to compete in the AGIA process," said Dave Van Tuyl, gas commercialization manager for BP.

ConocoPhillips' Brian Wenzel said the uncertainty inherent in the competitive process will prompt his company and others to bring their best proposals forward.

"That's the discipline you get from competitive bidding," Wenzel said.

Last year, former Gov. Frank Murkowski chose to negotiate exclusively with the producers who hold rights to known reserves of natural gas at Prudhoe Bay and elsewhere on the North Slope.

The producers' notion of competition appears to differ markedly from Palin's.

Exxon Mobil's Massey said what's wrong with AGIA is that it's too rigid to encourage his company's kind of competition.

"AGIA, as it's written today, does not encourage market-based competition due to its prescriptive nature," he said.

The process that Massey and representatives from ConocoPhillips and BP say they prefer would have those three companies submitting a combined proposal to build a pipeline. Then they would work together to compete with anyone else.

Who actually builds the pipeline is critical, Galvin said, because it may determine how much value Alaska gets from its vast North Slope gas resources. The AGIA process guarantees the state benefits regardless of who builds the pipeline, he said.

In committee hearings, some legislators have questioned whether the process advocated by the established producers would really provide the competitive process they claim to want.

"My background tells me the proposal, were all three of you to get together on it, is not a competitive proposal," said Rep. Mike Kelly, R-Fairbanks. "It's an only-game-in-town proposal."

Kelly, a retired utility CEO from Fairbanks who was active in gas pipeline negotiations last year, acknowledged the producers were willing to compete against independent pipeline builders. But he said those companies couldn't submit a viable bid if the producers wouldn't sell them gas from their reserves.

"They're not getting to first base without gas," he said.

Wenzel said the Legislature should take Palin's minimum requirements out of the AGIA bill, and then let the state negotiate the best deal possible with whoever applies.

"I do favor the competitive bidding approach," he said. "I think it can work here."

He said AGIA needs radical changes to get his company to make a bid to build the gas pipeline.

Even though the producers now hold the gas reserves, competitive bids could still come from independent pipeline companies, he said. Companies such as Enbridge Pipelines, TransCanada and MidAmerican Energy have all testified before the Legislature.

"We would still have to worry about what other proposals might come in. That's the benefit of competitive bidding; you don't know how many other proposals are coming,"

Kelly was skeptical.

"How do they offer a competitive proposal if you guys are locking arms? How do you pretend that's competitive?" he asked.

Sen. Tom Wagoner, R-Kenai, said the current AGIA bill gives the producers the competitive process they claim to want.

"It's what AGIA does. It allows everybody to compete fairly and openly," he said.

If they refuse, the Legislature should revisit the idea of imposing a tax on gas reserves.

"If they don't commit their gas reserves to a pipeline project ... I think we should have a right to right to receive the value of our gas," he said.

• Pat Forgey can be reached at patrick.forgey@juneauempire.com.



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