Alaska editorial: State plays strong hand by holding on to gas line plan

Posted: Thursday, July 17, 2008

Former Gov. Tony Knowles says the Alaska Legislature should stop short of consummating the TransCanada gas line deal. Just put the whole issue on hold, he says, and let the North Slope gas holders negotiate with the Canadian pipeline builder to join forces on a unified pipeline proposal.

After all, he says, everyone agrees that the best way to get a North Slope gas line built, with its astounding $25 billion-to-$30 billion price tag, is for both camps to come together on a single project. And the state might save up to $500 million that it would otherwise spend to keep TransCanada in the game.

So, he asks, what's the harm if the state steps back and lets TransCanada and the gas holders try to work out a deal?

We share our former governor's desire for a successful gas line project. We share his conclusion that a collaboration between the pipeline company and the gas holders might be ideal.

We think he's wrong on how to keep the project moving forward.

Suspending the Alaska Gasline Inducement Act process now would work against the interests of Alaskans. When you're in a multibillion-dollar poker game, you don't put down your cards just because another player asks you to. If the guy across the table says, "Hey, that pot's big enough for all of us. Let's put down our cards and talk things out," you can reasonably assume you have the upper hand.

And the state definitely keeps the upper hand if we take TransCanada's offer.

TransCanada is an independent pipeline company. It doesn't drill for or produce gas. It makes its money by shipping gas, period. The more gas it ships, the more money it makes.

The more gas that moves through the line, the more money the state makes, too, through taxes and royalties. The more gas that gets shipped, the more jobs and income Alaskans get from exploration and development.

The state's interests and TransCanada's interests are fully aligned.

The state's interests and the gas holders' interests are not.

The current gas holders - Exxon, Conoco and BP - want to ship their own gas; they don't need to encourage competition from other gas drillers. By building and running their own line, Exxon, Conoco and BP have leverage to discourage competition. And if they control the only gas line project that's moving ahead, you can bet they'll be back to the state to say, "We may not be able to build this pipeline without tax breaks and a whole lot of 'fiscal certainty."'

If the Legislature approves an AGIA license for TransCanada, the state will have a partner committed - by legally enforceable contract - to advance the project, and to do so on terms the state wants, terms that will promote more exploration and development of the state's hydrocarbon riches. Conoco and BP have offered no legally enforceable promises on anything with their project. If the TransCanada option goes away, those promises may go away as well.

Passing AGIA does absolutely nothing to prevent Conoco Phillips, BP and TransCanada from sitting down and trying to strike a deal to build the pipeline together. In fact, if TransCanada has the license and the backing of the state, BP and Conoco will have more incentive than ever to start talking about how to merge the projects.

The Legislature should back the TransCanada bid. It's the best way to encourage all the parties to start talking about how they can work together to make the project happen.

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