Port authority aims to buy state's share to push pipeline ahead

Plan would use state's royalty gas as starting point for supplying an all-Alaska gas line

Posted: Friday, July 29, 2005

FAIRBANKS - The Alaska Gasline Port Authority wants to buy the state's share of North Slope royalty gas to jump-start efforts to build a gas pipeline along an all-Alaska route.

The proposal submitted Wednesday to Gov. Frank Murkowski's administration and the Legislature calls for paying the state the market value for its share of the North Slope's 35 trillion cubic feet of known gas reserves. Natural gas currently sells for $7 per thousand cubic feet.

The port authority wants to use the state's royalty gas as a starting point for supplying an all-Alaska gas line, said Jim Whitaker, chairman of the consortium of the Valdez and Fairbanks municipal governments.

"The state just needs to get out of the way and let this deal happen," said Whitaker, who is also Fairbanks North Star Borough mayor.

Companies producing oil and gas on state land are required to pay royalties on development. The state can either take the royalties, which are negotiated at 1212 percent of production, in cash or in-kind which would provide the state with a supply of the resources.

The state currently does not receive royalty payments on the 8 billion cubic feet of natural gas processed daily on the North Slope, which is used to operate the oil fields.

Enough gas is produced as a byproduct of oil production to get an all-Alaska gas pipeline off the ground, Whitaker said. He wants the state to enforce its right to collect royalties and then sell the gas to the port authority, which said it has found a new buyer for the gas following a deal terminated last month by Sempra Energy Co.

"We trust the governor to enforce his right to make the lease holders either produce the gas or give up the leases," Whitaker said.

The governor's office has been negotiating for more than a year with the three major oil companies - BP Exploration (Alaska) Inc., ConocoPhillips and Exxon Mobil Corp. - to develop Alaska's natural gas reserves.

The current negotiations are focused on a pipeline from the North Slope through Canada to the Lower 48.

An all-Alaska pipeline would be completed by 2012 and would eventually deliver 4 billion cubic feet of natural gas to market daily, according to the port authority.

The pipeline would be built by the port authority, in part, with an $18 billion federal loan guarantee.

The port authority wants to have a deal in place by Aug. 10, in order to have an alternative ready by the time the governor calls a special session of the Legislature to consider a deal with the producers.

Murkowski remains committed to holding a special session of the Legislature this fall to approve a contract, spokesman Mike Chambers said.

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