Alaska's oil pipeline history drives gas line fight
When Gov. Sarah Palin was elected to office less than two years ago, she took a dramatic shift in strategy for getting Alaska's natural gas to markets. It was one the state's oil companies bitterly opposed.
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While the big three producers, ConocoPhillips, BP and Exxon Mobil encouraged Palin to continue former Gov. Frank Murkowski's strategy of negotiating tax breaks to encourage them to build, Palin went a different route.
The new governor persuaded the Legislature to nearly unanimously adopt the Alaska Gasline Inducement Act. That set up a process where Alaska decided what it needed in a pipeline - the state's so-called "must haves" which would ensure that it would be run in the state's interest instead of the producers' interest.
That means getting a deal, encouraged by a $500 million inducement, that provides for an open access pipeline with low shipping rates, called tariffs.
Sen. Hollis French, D-Anchorage, said that strategy has worked.
"Instead of trying to negotiate with the best negotiators in the world, we used our power in the best way possible," he said.
What Palin, French, and other allies such as Sen. Gene Therriault, R-North Pole, and Rep. Beth Kerttula, D-Juneau, wanted to do was avoid repeating the history of the trans-Alaska oil pipeline, where they say the oil producers have used their control of the Trans-Alaska Pipeline System to control the entire North Slope.
For several decades, they say, that's meant limited exploration and development on the North Slope by independent companies, because they'd have to ship any oil they found through a pipeline controlled by their competition, and pay their competitors steep tariffs to do so.
"The producer-owned TAPS pipeline has charged excessive rates, which may have impeded the full exploration and development of the state's North Slope oil resources," according to the written findings supporting TransCanada, produced by Alaska's commissioners of the Departments of Natural Resources and Revenue.
French called the oil pipeline tariff the state negotiated a "spectacular failure," and praised Palin's new strategy.
Ironically, ConocoPhillips may have once agreed. In 1993, it was an independent company that did not then own a share of TAPS. It had developed the Milne Point oil field, but could not produce oil profitably from it because of the high tariffs charged on TAPS by its competitors.
The company's CEO at the time, Archie Dunham, traded away that field to one of those competitors and left Alaska. It was a deal he said broke his heart, but the company had no choice.
"All of the value of that property was taken away from us in the pipeline tariffs," Dunham said at the time.
State officials and analysts say overcharging has cost the state $10 billion or more over the years as the state has received less for its royalty oil and in taxes.
The producers deny overcharging, but the Regulatory Commission of Alaska and staff of the Federal Energy Regulatory Commission have concluded there was overcharging as well.
Rep. Anna Fairclough, R-Eagle River, opposed TransCanada pipeline, while acknowledging the problems with a producer pipeline in the past. Alaska may be overreacting to what happened in the past, she said.
"There is a tremendous fear that we are going to re-experience the TAPS situation," Fairclough said.
FERC regulates oil and natural gas pipeline differently, she said, and will ensure the state is protected even if the producers control the pipeline.
Kerttula said the state needs to protect its own interests, and an independent pipeline company will do that.
"Alaska needs to assert its own sovereignty, and that's what AGIA does," she said.
ConocoPhillips later returned to Alaska when it bought ARCO's Alaska operations when ARCO was bought out by BP.
BP's David Van Tuyl said a producer-owned pipeline could benefit the state, however. Because the producers own the gas that is shipped, they want the tariff kept low.
"Our objective is to have the lowest tariff possible. The biggest element of the tariff is the cost of construction," said Bud Fackrell, President of Denali, the BP-ConocoPhillips joint venture pipeline.
Marty Rutherford, deputy commissioner of the Department of Natural Resources, said the producers' history with owning the existing oil pipeline proves that wrong.
"Given its record with TAPS, BP's assertions about cost control cannot be taken seriously," she said.
Rutherford said the "must haves" in AGIA mean that even if the producers had submitted an application under AGIA or join TransCanada's effort, the pipeline will have to be operated like an independent pipeline and the state is protected.
After Friday's Senate vote in favor of providing the AGIA license to TransCanada, Palin praised the Legislature.
"Our lawmakers have protected Alaska's sovereignty. They've really taken it back," she said.
• Contact reporter Pat Forgey at 586-4816 or patrick.forgey@juneauempire.com.