Lawmakers to gas pipeline analysts: What's in it for us?

Posted: Thursday, June 05, 2008

Their questions were basic, at times tedious, but state lawmakers say they are being diligent in dissecting TransCanada Corp.'s multibillion dollar natural gas pipeline proposal.

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

The Legislature kicked off public hearings Wednesday in a special legislative session that could last up to 60 days into early August.

Lawmakers spent the day posing questions to economists and engineers they hired to analyze TransCanada's proposal to ship North Slope natural gas to major North American markets.

They set the tone for what many expect to be drawn out hearings often featuring technical terms more suited for oil industry executives.

"These are important questions; they need to be asked," said House Minority Leader Beth Kerttula, D-Juneau. "We'll see how the rest of this process goes."

They'll return for a second round of hearings today, picking up where they left off Wednesday - a financial comparison between TransCanada and ConocoPhillips and BP.

BP and ConocoPhillips have a competing project outside the state's bid requirements under the Alaska Gasline Inducement Act.

Lawmakers, however, must decide only whether to back or reject Palin's recommendation that TransCanada be awarded a license toward pipeline certification and construction.

Lawmakers methodically waded through issues such as the destination for the gas, its transportation costs, and the project's possible effect on soaring Alaska's energy prices.

About 35 trillion cubic feet of proved natural gas reserves are believed to lie beneath North Slope permafrost and energy analysts believe that figure will rise.

TransCanada is proposing a line that would move gas 1,715 miles from the North Slope to a pipeline hub in Calgary, Alberta, that connects to all major markets on the continent.

A natural gas pipeline has long been touted as significant for powering homes and business in the Midwest but lawmakers wanted assurance that North Slope gas would make it to the Lower 48.

"We are talking about energy security for America," said House Rules Chairman John Coghill, R-North Pole, during a break. "We want to know the comfort level on that.

"We're a sovereign nation, so we expect gas to be helpful to the Midwest, but it's also true that it may more valuable to be consumed by the petrochemical industry in Canada."

Economist Barry Pulliam said gas leaving the North Slope doesn't necessarily travel all the way to the Midwest.

"When you put gas in a pipeline, all of it gets commingled," Pulliam said. "Any gas you put in the pipeline system in Alaska, it is going to displace gas in that same system and effectively push gas into the United States."

Lawmakers also wanted clarification on tariffs, which cover the costs of shipping gas in the pipeline.

Tariffs get deducted from the market price of natural gas before the state collects royalties and the calculation of production tax.

That means low tariffs would result in a higher state royalty and tax revenue.

The state is also hoping for five off-take points that would supply gas to Alaska communities facing rising fuel costs.

"We need to understand what does it cost to go from point A to point B and where does Alaska fit in," Coghill said. "Do we get a tariff break so we can use the gas instate or is it more valuable to ship it out, get the best cash for it and bring the cash back to Alaska?"

The proposed license for TransCanada does not guarantee construction because it's not a contract.

But if awarded, TransCanada must move forward on a process toward federal permitting to build the pipeline.

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