Parnell can set stage for Alaska's gas pipeline deal

Posted: Thursday, September 17, 2009

The following editorial first appeared in the Fairbanks Daily News-Miner:

Gov. Sean Parnell has a chance to define himself as his own person in the next few months. He can be the one to close the deal on a North Slope natural gas pipeline - if he makes the right moves and if he makes them soon.

High among them is the recognition that the state needs to negotiate financial terms that are acceptable not only to the state but also to the companies that hold the leases to the gas.

The state can deal directly with only TransCanada since it locked itself into that company by granting state sanction for that company's gas line proposal under the Alaska Gasline Inducement Act. But TransCanada has since then linked up with Exxon Mobil, so it's a near certainty that any fiscal terms articulated by TransCanada - which has no gas of its own - are terms acceptable to Exxon, which hasn't committed to provide its gas to a TransCanada project despite working with TransCanada.

And the state - ideally through a united front of Gov. Parnell and the Legislature - must signal to ConocoPhillips and BP, the other major holders of North Slope gas leases, that it is willing to work with them to see that their financial needs are met. The gas held by those two companies, which are proceeding with their own pipeline plan, is seen as a crucial supply to make any gas line feasible.

The terms will without question involve an extended, perhaps decades-long, fixed tax rate. The companies have said repeatedly that a stable fiscal environment is needed for such a high-risk project to advance and bring the North Slope's estimated 35 trillion cubic feet of gas to market.

There's been speculation about when the discussion about fiscal terms will begin and who will begin it.

It should begin now, in advance of next year's "open season," the formal period in which a company proposing a pipeline seeks commitments of gas for that project. If the discussion about taxes doesn't conclude before that open season, the commitments of gas to the project next year are going to be based on the requirement for favorable terms. The financial discussion will still have to occur, and more time will have been lost.

In short, there's no escaping the fact that a company that has gas the project needs for it to become feasible is going to demand favorable terms for committing that gas. Alaska loses whatever leverage it has the longer it waits; other sources of gas have opened up to fill the need even as the global economic downturn has dampened that need. If Alaska is going to get in the game, it needs to do it soon.

That means Gov. Parnell and the Legislature should have the discussion about locking in the tax rates during the coming legislative session, which opens in January. The governor can be out front now to educate the public and reluctant legislators about the urgency.

Alaska cannot afford to wait.

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