Palin leaving, but Alaska gas pipeline will go on

Posted: Sunday, July 12, 2009

ANCHORAGE - Gov. Sarah Palin's unexpected midterm departure should not affect the project she touted as one of her primary successes, a massive natural gas pipeline, according to state lawmakers and sources in the industry.

Construction of a multibillion dollar pipeline tapping Alaska's vast North Slope gas fields instead will hinge on market forces and tax terms to be set by state lawmakers.

"This project will be successful depending on the economy of building it, the fiscal certainty associated with it and the gas markets," said Marilyn Crockett, executive director of the Alaska Oil and Gas Association.

Palin announced last week she resign at the end of July to avoid being a lame-duck governor.

Former House Speaker John Harris, R-Valdez, said the state process for encouraging a pipeline can continue without Palin.

"I don't think it will make any difference," said Harris, who will challenge Palin's successor, Lt. Gov. Sean Parnell, for the Republican gubernatorial nomination in 2010.

Spokesmen for two pipeline proposals said they will continue preliminary work with an eye to seeking commitments from producers for pipeline space next year.

"Our plans haven't changed," said Tony Palmer, TransCanada's vice president of Alaska development.

"We remain on track to hold our open season next year," said Dave MacDowell, spokesman for The Alaska Gas Pipeline, also known as Denali. "Everything we're doing is focused on that important milestone."

Competition from cheaper sources of natural gas are more likely to sink an Alaska gas pipeline than the absence of Palin.

Alaska gas will include the cost of shipping over a line that carries a conservative cost estimate of $26 billion, and perhaps as high as $40 billion, according to Palin. A pipeline as envisioned could ship up to 4.5 billion cubic feet of gas per day and represent a construction boom putting Alaskans to work for most of a decade.

As proposed, a pipeline could cover 734 miles in Alaska before continuing nearly 1,000 miles through Canada to a distribution hub in Alberta.

A natural gas pipeline on the scale of a trans-Alaska oil pipeline has been a dream of Alaskans for more than three decades.

Palin's immediate predecessor, former Gov. Frank Murkowski, negotiated with major petroleum producers in private for terms of a prospective pipeline. His plan included a promise that Alaska would lock in tax rates for up to 45 years.

In her drive to be governor, Palin castigated Murkowski for secretive negotiations and trounced him in the 2006 GOP primary. She offered voters the promise of open negotiations and the result was the Alaska Gasline Inducement Act, passed with strong bipartisan support in 2008.

The law set up a state pipeline license and the promise of $500 million in reimbursement to a successful bidder. That company, TransCanada Corp., agreed to build a pipeline under terms that include future open seasons for new gas that's discovered.

TransCanada last month announced it was teaming with Exxon Mobil Corp. to jointly advance a pipeline project.

Palmer, the TransCanada vice president, said the company looks forward to working with Parnell. More than 70 people from TransCanada and Exxon are working on a pipeline, along with 110 contractors. The work includes design, engineering and environmental studies with an eye toward a cost estimate at the end of March and an initial open season - where it's hoped that producers will bid on space in the line to ship the gas - at the end of July 2010.

"We believe that Lt. Gov. Parnell will also be a very strong proponent of the project," Palmer said. "We're encouraged that he'll be keeping the same administration in place."

Palin's pipeline push is credited with motivating two other producers, BP and ConocoPhillips, to combine on a competing project, Denali.

Construction is far from certain, however. The companies that would build it must be sure their investment would be profitable.

Exxon Mobil, which holds the most reserves in Alaska, wants assurance that Alaskans will not raise tax rates after companies commit billions to the massive project. That could put state leaders into the same negotiation position as Murkowski.

Rep. Harris said that in every conversation he's had with Exxon officials, they have made clear that they want a stable tax structure.

"Without some sort of long-term fiscal certainty, there's not going to be a project," Harris said.

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