Tag Archives: alaska natural gas pipeline

Murkowski writes letter to legislators urging them to scrutinize TransCanada’s role in pipeline

On Tuesday, former Gov. Frank Murkowski wrote a letter to legislators, urging them to dig more deeply into TransCanada’s role in the contracts that are being negotiated to build the large diameter natural gas pipeline, which is estimated to cost as much as $65 billion.

“I am prompted to write each of you to express my growing concern over a major uncertainty associated with Senate Bill 138 – that is, how much revenue will the State lose by turning over to TransCanada what would otherwise be the State’s interest in the gasline?” Murkowski wrote. (See the full letter below.)

The state is partnering with TransCanada to own an equity stake in the pipeline and, among other things, is guaranteeing the company a 12 percent return on equity, which as Murkowski points out, is more than “twice what the State could borrow by issuing revenue bonds or tax-exempt bonds.”

In turn, TransCanada is financing much of the state’s investment. The question remains, however, if that arrangement is in the best interest of the state.

“This is a major policy call that has taken place without Legislative scrutiny,” Murkowski wrote.

Murkowski is urging legislators to pass one part of the agreement which would align the state with the producers who have lease rights to the gas, but to wait to pass the other part which establishes the state’s relationship with TransCanada.

When Murkowski was governor, he was also in the process of negotiating a large diameter natural gas pipeline, which at the time received much criticism. Gov. Sarah Palin, however, won the race before the contract could be finished. During her administration, legislation was passed and another contract was negotiated with TransCanada. That contract is still legally binding, and explains why the state has not looked for partners outside of the company.

Read the full letter below:

I am prompted to write each of you to express my growing concern over a major uncertainty associated with Senate Bill 138 – that is, how much revenue will the State lose by turning over to TransCanada what would otherwise be the State’s interest in the gasline?

SB 138 contains two parts: the Heads of Agreement which I urge that you pass this session. This brings gas owners and the State in alignment as each party owns North Slope gas.

The second part is the MOU between the State and Trans Canada. Unlike the 2007 AGIA agreement, the new MOU would pay for TransCanada’s services with what otherwise would be the State’s equity interest in the gas line. The tariff to the State is fixed at 12%, which is inflation proofed. This tariff is more than twice what the State could borrow by issuing revenue bonds or tax-exempt bonds.

Reports have noted that the MOU is a very complex document. Some of the lawyers who have appeared at the committee hearings of jurisdiction acknowledge parts are difficult to comprehend, let alone explain. Any legislator who takes the time to try to digest the document would agree.

Some take comfort in their belief that the MOU is non-binding and the state can “take the off ramp at any time”. This can be unrealistic. Take a quick look back at 2007 when TC entered in to the first AGIA agreement with the state. So far the state has expended more than $300 million with more to come, and we have yet to get a full explanation of what the State received for its money. Commissioner of Revenue Rodell stated that with TC’s participation the cost to the state would be $300 million annually in lost revenue once the gas begins to flow. The argument favoring this approach is that the capital costs of the project would be in the billions and would come at a time (2015-2021) of declining State revenues. TC would get the State’s share of the gasline by fronting these costs.

Commissioner Rodell said that the cost of lost revenue was worth the financing that TC would provide.

Really? Why have we not seen a side by side comparison of the costs and rewards to the State of TC holding the State’s share of the pipeline with the costs and rewards to the State of the State holding the State’s share of the pipeline.

This is a major policy call that has taken place without Legislative scrutiny.

There are major costs to the State of doing this. The “loan” is risk free to TC because the State pays all of its costs, including depreciation for TC’s up front capital costs (Exhibit C Item 6) and an inflation proofed cost of money at a base rate of 5%. Moreover, TransCanada will simply use the State’s Take or Pay agreement to transport our gas as security for the obligation it undertakes to pay for the State’s share.

What is the State’s alternative? There has been no discussion in the Legislature about going to the investment market to determine whether revenue bonds or other financing is available that would not require the state to pay down its savings during the 8 to 10 years before revenue starts to flow and would not require the state to give up its equity interest in the gas line.

Other questions remain yet to be answered:

Why share pipeline ownership with a non-gas owning company when the producers have the capacity to, and very well may, construct the LNG line themselves?

Having repaid 90% of TC’s expense for its work in the pipeline, what is the justification for TC to obtain any portion of the state’s equity share?

Why the special treatment for this particular company? Why not simply pay TransCanada for its services like any other company that provides services to the state?

When I was in the banking business, one of the rules of the road for a lending officer, was if you were lending your own personal funds, would you risk making the loan? Knowing what you know, but more importantly, being concerned about what you don’t know, are key factors in making this call?

A prudent approach would be for the Legislature to advance passage of the HOA this session. Then between sessions develop alternate means of financing Alaska’s equity portion of the gas line, so that Alaska does not “expend-down” its savings in the 8 to 10 years before first gas flows and the state can retain its equity.

Best wishes for a successful session.

Sincerely,

Frank H. Murkowski

Contact Amanda Coyne at amandamcoyne@yahoo.com

Mayors feel left out of natural gas pipeline negotiations

Four mayors from across Alaska sent a letter to Gov. Sean Parnell dated Feb. 11, expressing concern about their lack of involvement in the ongoing natural gas pipeline negotiations, and what those negotiations mean to their respective communities, particularly regarding taxation. (Read the letter here: Gasline Letter)

Although the mayors write that they are encouraged by the project, “we have become concerned about the lack of information provided to municipalities regarding the impacts of the ongoing negotiations, particularly local government concessions that may be considered during pending gas pipeline negotiations with the North Slope producers,” the letter says.

It is signed by Kenai Peninsula Borough Mayor Mike Navarre, Valdez Mayor Dave Cobb, North Slope Borough Mayor Charlotte Brower, and Mayor Luke Hopkins from the Fairbanks North Star Borough.

The state has been negotiating terms with the major producers and TransCanada under which a large diameter pipeline would be built. The pipeline, one of the largest projects in the world, would snake from the North Slope to tidewater in Southcentral Alaska and is estimated to cost up to $65 billion. Legislation is currently being considered which would give the state power to further negotiate fiscal terms. Among them are terms that could involve local property and infrastructure taxes, which are the charge of local governments.

“We are willing to be a party to such agreements provided that we have the opportunity to participate in the discussions, and to negotiate and agree to terms that will directly impact municipal tax structure and revenues,” the mayors write.

Contact Amanda Coyne at amandamcoyne@yahoo.com

Parnell’s plan to delay gas taxes also delays pipeline. Walker calls it all ‘maddening.’

To the surprise of some, and maybe the amusement of others, Gov. Sean Parnell announced on Tuesday that he’s not planning to introduce natural gas tax legislation to be considered in the upcoming legislative session. Currently, natural gas is taxed at roughly the same rate as is oil, but it’s only worth a fraction of what oil is.

Parnell says he’s not doing so because the companies that have the lease rights to the natural gas, and who would build the line that would carry the gas from the North Slope to tidewater, haven’t met all of the benchmarks he set out for them in his 2013 state of the state address.

Apparently, Parnell’s refusal to introduce gas taxes signals some sort of punishment. What kind of punishment, however, is unclear. What is clear is that the world is awash in natural gas, and other projects — potentially more profitable projects — await the companies.

Another thing that’s clear: Parnell’s announcement signals another delay in the decades-long dream of getting a large diameter natural gas pipeline.

Bill Walker, who is running as an independent candidate for governor, had a visceral reaction to Parnell’s statement. He said that Parnell is just playing into the hands of the producers. “It’s perfect for them,” Walker said. He has been an advocate for an LNG project for more than a quarter of a century, and has long advocated that the state get tough on the companies by either building the line itself or negotiating with the companies that are willing to do it.

“Parnell is trying to get tough. He’s trying to be a negotiator. But they’re just laughing at us,” Walker said. “They’re just on the floor rolling.” He said that the producers want the delay so that they can work on other projects and wait out Alaska as oil production declines, as the state’s coffers shrink, and as the state becomes increasingly desperate and increasingly willing to negotiate.

Walker ran for governor in 2010. He came in second place in the Republican primary, winning more than 33 percent of the vote on a campaign primarily advocating the construction of a gas pipeline project.

Since the 1970s, Alaska has tried to entice, and at various times demand, that the lease holders of the vast reserves of natural gas on the North Slope build a pipeline to get the gas to market.

The market for natural gas is a fickle one, however, say nothing of Alaska’s political climate. And throughout the years, every time it looked like it might actually begin to materialize, the market either crashes, or the political winds change, or a governor tries to flex his or her muscles and punish the companies, which happen to be the among the largest, most powerful, private companies in the world.

“It’s maddening,” Walker said, expressing a sentiment shared by many who have followed the long, illusive gas line story.

Contact Amanda Coyne at amandamcoyne@yahoo.com

Alaska House passes gas

Late into the evening with a virtually empty gallery, the Alaska House passed HB 4, which would facilitate and partially fund a small gasline that would run through the center of the state bringing North Slope gas to Fairbanks and Southcentral Alaska. It’s one of the most significant bills that the legislature will deal with this session. Nonetheless, the public was absent, the lobbyists were absent, and only a few sleepy eyed reporters sat looking bored, while the bill was being debated awaiting a final vote.

It was a long day for the sponsors of HB 4. House Speaker MIke Chenault and Rep. Mike Hawker, along with their key staffers, were in the Capitol early in preparation for what they were hoping would be the final House Finance committee meeting on their bill scheduled to begin at 8:30 a.m. But, as these things go, it got delayed until 1:30 p.m.

Chenault, anxious to get the bill to the Senate, didn’t close out his legislative day as is the normal procedure and instead announced that the body would reconvene at 6:00 p.m.- – a luxury the presiding officer has to accommodate a bill he wants to expedite

At 7 p.m., the bells finally rung, legislators gathered, ~~seven~~ eight Democratic amendments were offered and killed, Hawker urged the body “to pass gas” and at about 11:15, the bill sailed through 30 to 9. As expected, votes went mostly along party lines. Rep. Feige, who represents Valdez and who has been a behind the scenes supporter of the bill, voted against it. So did Rep. Neil Foster. A handful of Dems voted for the bill.

Through the years, hundreds of thousands of hours, and millions of dollars have been spent both trying to pass and kill the bill. And it’s not over yet. Four other big bills– oil tax, trucking natural gas from the North Slope to Fairbanks and two budget bills—are still getting hammered out in committees.

No doubt during these last two weeks of session, egos will erupt, and at least one of the big bills will be held hostage for another. But with a Republican dominated legislature, it looks as if the gasline bill will pass this session.

The Democrats dub the bill a “Pipeline to Poverty,” due to what many in that party consider poor regulatory oversight and consumer protection. (Chair of House Finance Rep. Bill Stoltze added substantial oversight and accountability to the bill, but it wasn’t enough for the Dems.)

Republicans by and large say that more regulatory and consumer protection will only mire the project in politics and will delay the market from working its magic. (An irony that isn’t pointed out nearly enough is that while the Republicans continually invoke the magic of the markets, it’s asking the legislature to fund a state agency to a tune of $400 million to facilitate building the line. And few doubt that the agency won’t come back for more state money.)

Democrats say politics are part of the public process. Republicans say politics kills projects.

The arguments go on, but one thing is for sure: Alaskans, who are sitting on the largest energy fields in North America, are natural-gas starved. Some residents in Fairbanks have resorted to chopping down trees to heat their homes. Some in Rural Alaska are going hungry in order to pay their heating bills. Anchorage is facing blackouts.

For decades the state has been chasing the dream of a big gasline, one that was almost always on the cusp of being built. Then, right before it looked like it was going to happen, really happen this time, the markets changed, plans changed, and more than 40 years after it was first dreamt, the big line is no closer than it has ever been to becoming a reality.

The small line seems the only one the state has left—at least in our lifetimes.

The bill will now be read across the Senate floor tomorrow, where it is likely to receive only one committee of referral. That committee, Senate Finance, has already noticed the bill and has a hearing scheduled for Friday of this week.

Update: Oops. I did it again. The bill is getting two referrals. One to Finance and one to Resources.

Contact Amanda Coyne at amandamcoyne@yahoo.com

Hello small gas pipeline. Bye bye big gas pipeline.

House Bill 4, the one that would facilitate the building of a small diameter natural gas pipeline running through the center of the state from the North Slope to Southcentral Alaska, is increasingly looking likely to pass.

And that passage will likely take with it the decade’s long dream of a big export line, a line that’s been the center of so much talk, the line that was going to bring the next boom to Alaska, the mythical line that made and broke careers, the line that was going to save the state when the oil ran out.

Although most know that the small line puts the final nail on the big line’s coffin, Bill Walker, spokesperson for the Port Authority, the group that’s been pushing the big line, has been the only one in Juneau to put it so starkly. Testifying against the bill in House Finance on Thursday, Walker said that the small line would kill the big line for the foreseeable future. “There will not be two mega gas projects in Alaska,” he said

(The big line was probably dead for the foreseeable future anyway.)

Roughly 700 miles long and costing about $8 billion, the small, or bullet line, is indeed a mega project.

But because it’s not as mega as the big line—the price of which is as much as $65 billion–and because the legislature, instead of ConocoPhillips, BP and Exxon, have the power over the line, and because Alaska needs the gas, it’s the only one that’s likely to be built.

The agency in charge of facilitating the project, the Alaska Gasline Development Corporation, is asking the state for more than $320 million to complete planning and to take the project to “open season.” That’s in addition to the $70 million it’s already received.

But because the state which has the largest energy fields in North America has for so long hinged all its hopes on the big line, which would not only provide exports but provide Alaska gas too, it’s at the point that there’s little choice. Fairbanks residents are cutting wood to stay warm. Residents in Southcentral are facing blackouts. The rest of the state is going broke paying to heat their homes.

A committee substitute of the bill is now in House Finance, and although there was a brief dustup over it on Friday, it will probably head to Rules on Monday. From there, it’ll go to the Senate and from there, and if egos can remain in check and the House plays nice with the Fairbanks natural gas trucking bill, it’ll land on Gov. Sean Parnell’s desk.

With some changes being proposed, Parnell has signaled that he’ll probably sign the bill. But he hasn’t been touting it, standing by instead while others fight the battle. Nor has he had the political courage to honestly tell Alaskans what others already know: that a large diameter pipeline isn’t going to happen anytime in his lifetime, and that the bullet line is the only dream we have left.

Contact Amanda Coyne at amandamcoyne@yahoo.com