State, companies enter negotiations for gas pipeline

Governor expects a contract to be sent to Legislature in January

Posted: Sunday, June 20, 2004

ANCHORAGE - The field appears to be set - for now - for the players interested in building a natural gas pipeline from Alaska's North Slope to markets in Canada and the Lower 48, a senior Department of Revenue official says.

The state on Thursday approved TransCanada Corp.'s stranded gas application, opening the way for fiscal and tax contract negotiations between the company and Alaska officials.

The week before, an application by Enbridge Inc., another Canadian firm, was approved, and negotiations are already under way between the state and the North Slope oil producers - BP, Exxon Mobil and ConocoPhillips.

Two other applications had been approved but are not being actively pursued.

State Department of Revenue Deputy Commissioner Steve Porter said Friday there are no more potential applicants on the horizon, and the state is moving forward with the three in hand.

"We're not anticipating any more (stranded gas applications) at the present time," Porter said.

But, he said, "there are enough players that it's possible more players could come to the table."

The deadline for stranded gas applications is March 31, 2005.

North Slope natural gas reserves are estimated at more than 35 trillion cubic feet. The state has been trying for decades to get a pipeline built to bring the gas to market.

Gov. Frank Murkowski has said he expects one or more of the companies to make a decision by the end of the year to present a contract to the Legislature in January.

"The winner is the party that decides to take the risk to build the pipeline," Porter said. "They commit the capital to move the project forward."

Taking that risk - estimates of building the pipeline have run to $20 billion - could result in an Alaska gas line moving 4.5 billion cubic feet per day, or almost $5.8 billion worth of gas a year.

Alaska officials will negotiate separately with the three applicants on payments the companies would make to the state during the construction and operation of a pipeline, up to 35 years.

"It's supposed to provide the project applicant with some additional certainty as to the taxes the state would charge over the life of the project," Porter said.

Several additional factors - such as the actions of the federal government, the market and other companies - will influence whether a company or a consortium will commit to building the pipeline.

Besides a palatable deal with the state, friendly federal legislation needs to be in place, along with a clear and efficient regulatory process in Canada and a continued effort to reduce the costs and risks of the project, said BP spokesman David MacDowell.

And this current step - negotiating with the state - is critical, because the next phase of permitting and engineering is likely to require a $1 billion investment, MacDowell said.

"We need to be sure that everyone understands the rules and the rules are durable over the life of the project," MacDowell said.

Hejdi Feick, a spokeswoman for TransCanada, said her company expects to begin negotiations within the next two or three weeks. The Calgary-based pipeline company has also applied with the state for right of way leases. It already has certificates for the right of way through the federal land.

Ultimately, the size and risk of building a North Slope gas pipeline will require cooperation between several companies, Feick said.

"We recognize that this is an enormous project," she said. "This is not a one-man band."

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