State finds TransCanada plan economical, likely to succeed

Posted: Thursday, May 29, 2008

Gov. Sarah Palin's gas line team released its official findings and determination on the TransCanada gas pipeline proposal on Tuesday, providing the state's first detailed assessment of how much money the state and others would make from the project and how likely the project is to succeed.

Chris Miller / The Associated Press
Chris Miller / The Associated Press

According to the findings, the state could expect to bring in more than $260 billion during the next 25 years through taxes and royalty payments resulting from the gas line. Major North Slope producers also would see hefty cash flow from the deal, receiving $147 billion during the same period.

When the time value of money - the fact that a dollar received today is worth more than a dollar received 10 years from now - is taken into account, the project is still profitable for the state and the producers, even if the size of the project is smaller than expected and construction costs are higher, according to the findings.

The findings claim that it would take a "perfect storm" of bad scenarios to make the project uneconomic for the producers.

The findings also state there is a "reasonable likelihood" that TransCanada will be able to overcome the major hurdles to the project, including getting the necessary commitments from North Slope gas producers to use the pipe.

"The potential benefits to be gained from the TC Alaska project, and the risks to all of the parties of not taking reasonable actions to make the project a success, are simply too large for the parties to allow the project to fail," it reads.

The findings claim the major producers would have strong economic incentives to join the project and would be legally obligated to use the pipeline even if they were reluctant to.

Steve Rinehart, a spokesman for BP, one of the major North Slope producers, said it was too early for his company to comment on the state's economic assessment.

The findings and determination cover more than 300 pages, and accompanying documents span another 2,000 pages, according to Joe Balash, a special assistant to the governor. They include an in-depth analysis of the TransCanada proposal and compare it against the competing pipeline proposal by two North Slope producers and projects using liquefied natural gas, or LNG.

The release of the document follows an announcement last week by Palin that she would seek legislative approval to issue an exclusive state license to TransCanada. The Canadian pipeline company's application under the Alaska Gasline Inducement Act was the only one deemed complete by the administration.

The Legislature is scheduled to consider the proposal during a special legislative session starting June 3 in Juneau.

Lawmakers reached Tuesday said they hadn't had time to review the findings but looked forward to learning more at a series of presentations by the administration and hired consultants starting Wednesday in Anchorage.

The decision of whether to issue a license to TransCanada - and allow a $500 million state subsidy - is complicated by the pipeline project being pursued by North Slope producers ConocoPhillips and BP outside of the AGIA process.

The producers argue their project can be completed sooner and would save the state from having to provide the $500 million subsidy.

But in its findings and supporting documents, Palin's administration argues that only a pipeline built under AGIA would ensure the state's interests were met.

An analysis by the administrative consultant Black & Veatch states that the producers' pursuit of their own "Denali" pipeline project could undermine a TransCanada project, but recommends issuing a license to TransCanada as a way of encouraging collaboration between the companies.

"TransCanada's prospects for success and the state's reasons for proceeding with AGIA at this point are based on the expectation that TransCanada and Denali will eventually merge into a 'settlement' project," it reads.

The report adds that for such an agreement to happen, "AGIA must proceed by awarding a license."

Balash said the administration considers a collaboration under AGIA "certainly one of the possible scenarios."

BP's Rinehart said his company is willing to "engage with third parties who could bring value to the project," but he refused to say whether BP was considering a partnership with TransCanada under the AGIA process or only as part of the Denali project.

Sen. Gene Therriault, R-North Pole, said he saw a partnership as the best option because it would resolve the concern that the major producers would boycott a TransCanada pipeline.

"If keeping TransCanada in the game ultimately forces or promotes a collaboration," he said, "... then that's a win for the state."

Trending this week:


© 2018. All Rights Reserved.  | Contact Us