Alaska must hold the line

Posted: Tuesday, October 20, 2009

In May 2007, the Alaska Legislature created a commercial vehicle called the Alaska Gasline Inducement Act to bring North Slope natural gas to market. Since then, Alaskans have witnessed progress never before seen on a North Slope gas pipeline. Following a competitive and transparent bidding process, the Legislature awarded the state's license to TransCanada Alaska, who began immediate field, engineering and planning work in preparation for an open season scheduled to begin April of next year.

In June, TransCanada announced its project partnership with ExxonMobil. Together, they have significantly increased front-end development work on the project to provide potential gas shippers with more refined project design and cost estimates at the time of the initial open season.

The open season will give shippers an opportunity to make conditional commitments to ship North Slope gas, either through Canada to the Lower 48, or to Valdez for shipment overseas as liquid natural gas. As the project continues to advance beyond open season toward the more significant milestone of project sanction - the decision to actually break ground - stakeholders will work to resolve those outstanding conditions, and establish commercial alignment.

Alaskans should know that, for a project of this magnitude and complexity, conditional commitments are the industry norm. The reason is simple: A great number of uncertainties must first be resolved. The regulatory gauntlet - a process not finalized prior to 2014 - must be run, final and detailed design must be completed, final cost estimates that reflect 2014's market conditions must be developed, and specific financing approaches must be decided. Meanwhile, a host of difficult commercial negotiations among the North Slope producers, as well as those between the producers and the pipeline, must be completed.

Although the state is not currently "at the table" to offer up tax concessions, we are presently, in fact, engaged in a long and complex type of negotiation. The framework of AGIA ensures that progress will continue, regardless of the outcome of the open season. With each step forward, the project's uncertainties diminish. As uncertainties are resolved, we become better positioned for any future fiscal discussions. The state can address specific demonstrated project needs, while protecting the long term interests of the state, at the appropriate time.

Over the past several months, the gas line has faded from newspaper headlines, creating an opportunity for some to speculate on the project's status. Alaskans must be careful not to confuse relative silence with inaction. The progress we have witnessed is unprecedented. Despite numerous efforts to advance a North Slope natural gas pipeline project, there has never been an open season for North Slope gas, and never before have Alaskans seen this level of participation from the major North Slope producers. Importantly, because of the project milestones guaranteed under AGIA, TransCanada and Exxon have been actively engaged in the more technical, though less glamorous, work typical of any large infrastructure project. It is working hard, away from the spotlight - no glossy advertisements - just to prepare for next year's open season.

The participation of ExxonMobil and the competition of the Denali project are evidence of AGIA's continuing success, and legislators should be proud of their foresight and wisdom. The commercial vehicle that they created ensures that progress will continue beyond the open season and through the entire regulatory process. And while we continue to move forward, Alaskans must keep in mind that this project is one of tremendous magnitude, and that diligent planning and good work require time.

The greatest threat to our current momentum is if Alaskans fail to maintain unity around our common interests. If we are impatient and allow ourselves to be driven apart by the rhetoric of special interests, we resign ourselves and our children to a very different future. Alaskans understand the importance of working together when faced with challenges, and the North Slope gas pipeline is the challenge of this generation.

• Kurtis Ginson, a lifelong Alaskan, is the deputy director of the state's Division of Oil and Gas. He has a degree in Petroleum Engineering from the University of Oklahoma, with 20 years of energy industry experience focusing on technical issues, energy asset management, commercial strategy and negotiation.

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