Buyer drops out of gas line proposal

Sempra Energy Co. opts out of agreement, citing 'protracted political wrestling,' doubts

Posted: Thursday, June 02, 2005

Sempra Energy Co., citing "protracted political wrestling" and doubts that North Slope producers would cooperate, has dropped out of a natural gas line proposal being considered by the state.

Sempra Alaska, a subsidiary of the San Diego-based energy company, had signed an agreement with the Alaska Gasline Port Authority to help develop, construct and operate the gas line and liquefication plant the port authority has proposed.

Sempra also was to buy and market on the West Coast the gas produced from Alaska.

Sempra Alaska President Darcel Hulse, in a May 27 letter to the port authority, said the company will end the agreement effective June 26.

In the letter, Hulse says that "despite every reasonable effort having been made," no progress has been made with the most important players in the process, namely Gov. Frank Murkowski, U.S. Sen. Ted Stevens, R-Alaska, and the three major North Slope producers, who own nearly all of the proven gas reserves and also are negotiating with the state for their own gas line.

"The protracted political wrestling taking place in Alaska is costly and very time consuming," Hulse wrote. "While all this is taking place, the West Coast market is being actively pursued by others. It is our view that the North Slope producers will not make a decision to send gas to the West Coast. If they ever did, it would be much too late for the market to accept the needed volumes to make the (port authority) project economic."

Art Larson, a spokesman for Sempra, said the company had hoped to see tangible support for the project materialize by the end of May.

"Our decision was not due to our relationship with the port authority or a change in belief that the project could be successful," Larson said. "The fact of the matter is capturing natural gas markets in a competitive market requires quick and decisive action."

Jim Whitaker, chairman of the port authority and mayor of the Fairbanks North Star Borough, called the loss of Sempra "a significant setback" but said losing its buyer would not kill the port authority's proposal.

The group will pursue other market opportunities, which Whitaker would not specify, although he acknowledged none of those is even close to the level of involvement to which Sempra had agreed.

"We have a great deal of respect for Sempra," Whitaker said. "They were forthright from the beginning: They made it clear they would participate in a project that would move forward, but participating in a never-ending political process was not acceptable to them."

Whitaker said he did not believe a serious gas line proposal was imminent from the other two groups negotiating with the state, although Murkowski has said he plans to have at least one contract proposal for fiscal terms by late summer or early fall.

Whitaker also compared Sempra's pullout to that of MidAmerican Energy Holdings Co. in 2004. MidAmerican at the time blamed the state for the negotiations on its proposal breaking down.

"There are some similarities - wanting to move a project forward, willing to move a project forward, willing to commit assets, yet unable to do so," Whitaker said.

MidAmerican officials had wanted the state to negotiate only with them, and wanted exclusive rights to own and operate the gas line.

Becky Hultberg, Murkowski's spokeswoman, said the port authority's application was received at the end of March, while the other two applications have been considered for a year and two years, respectively.

"The timelines that we have been working with are very reasonable given the depth and complexity of these negotiations," Hultberg said.

She declined to comment on Hulse's statement of doubt that BP PLC, ConocoPhillips and Exxon Mobil would send the gas to the West Coast.

Daren Beaudo, spokesman for BP, said the company has said all along that others are welcome to create spurs off the producers' proposed pipeline.

"There is nothing to prohibit the in-state offtake from the proposal that BP supports," Beaudo said.

Beaudo also said there has never been a specific timeline for reaching an agreement with the state, but the producers were working on negotiating fiscal terms with the state.

The producers' proposed route, and also TransCanada's, would go through Canada and to the Midwest.

The port authority's proposal would go from the North Slope to Valdez, where it would be liquefied and shipped to the West Coast.

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