Policy: Environment & Energy

Alaska Senate passes bill to advance gas project

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Associated Press,Alaska,Energy and Environment,Oil,Natural Gas

JUNEAU, Alaska — The Alaska Senate on Tuesday passed legislation aimed at advancing a major liquefied natural gas project, over nagging concerns about the role of TransCanada Corp.

The vote, following hours of debate, was 15-5. Republican Sen. Bert Stedman joined minority Democrats Hollis French, Bill Wielechowski, Johnny Ellis and Berta Gardner in voting against.

Natural Resources Commissioner Joe Balash had hoped for a resounding approval as a message to the other project partners and markets about Alaska's resolve in pursuing a project. Tuesday evening, Gov. Sean Parnell thanked the Senate for passing his bill and said he looked forward to working with the House to pass legislation "on Alaska's terms and in Alaskans' interests."

Minority Democrats unsuccessfully proposed 16 amendments, including having the state be a majority owner in a project and calling for a competitive bid process if the state chose to have an equity partner, rather than simply having TransCanada in that role, as it is currently. Critics said the state could not afford the former and the latter would be costly in terms of momentum and time, with no guarantee the state would get a better deal.

Sen. Anna Fairclough, R-Eagle River, called the bill an "opportunity for Alaskans, for our children and for our grandchildren."

"Your vote matters today," she said. "It is a historic opportunity to be part of moving Alaska forward, both economically and energy wise."

The state signed an agreement with TransCanada, the North Slope's major players — BP, ConocoPhillips and ExxonMobil Corp. — and the Alaska Gasline Development Corp., or AGDC, setting out broad terms for moving forward. That agreement anticipated a state participating share of about 20 to 25 percent. The majority-owner concept did not fit with those terms, Fairclough said.

The state signed a separate agreement with TransCanada to hold its interest in a pipeline and gas treatment plant, with the state having an option to buy back some of the equity. The arrangement has been cast as a way for the state to not have to bear as much in upfront costs as it would without TransCanada. Parnell administration officials also have said it would serve as an amicable transition from terms of the Alaska Gasline Inducement Act, under which TransCanada pursued a project with ExxonMobil for years but which Parnell has said no longer fits with the current situation.

The agreements are contingent upon passage of enabling legislation deemed acceptable by all the parties. That legislation is what the Senate voted on Tuesday.

SB138 from Parnell would advance the proposed mega-project into a phase of preliminary engineering and design and cost refinement. The process envisioned for pursuing the project would roll out in stages, with offramps along the way should the state or another party not want to continue. Current cost estimates for the project are $45 billion to more than $65 billion, with the state facing a potential multibillion-dollar investment on its end in pursuit of the long hoped-for project.

The bill also would allow the state to enter into negotiations for project-enabling contracts that would be brought back to the Legislature, as early as next year, for approval.

Wielechowski, D-Anchorage, said he worried the administration, under pressure to get the companies to sign a deal, would be making "concession after concession after concession." He said the bill lacked limits for what could be on the table.

Gas line, yes, Senate Minority Leader French said, "giveaway, no."

The bill, as rewritten in the Senate Finance Committee, would set a gas-tax rate at 13 percent of the gross value at the point of production beginning in 2022. The tax rate, together with royalty, determines the state's equity share, which would be about 25 percent, Balash has said.

The bill also would have the AGDC hold the state's interest in liquefaction and marine terminal facilities. There would be separate funds for the liquefied natural gas project and smaller, in-state gas pipeline AGDC has been pursuing. There also would be a project manager for the larger project.

The bill also included a provision, particularly important to some rural lawmakers and key to their support, that would allow for a portion of the state's royalty revenue from the project to go toward energy projects in areas without direct access to a North Slope gas line.

During floor debate Tuesday, some lawmakers questioned the role of TransCanada and whether the state was getting a good deal.

As currently proposed, TransCanada would hold 25 percent interest in the pipeline and treatment plant on behalf of the state. The state would have until the end of next year to exercise an option to buy back some of that equity.

French, D-Anchorage, said he likes TransCanada but it appeared the administration "sort of chickened out" of a possible legal fight over ending its relationship with the company under the inducement act by opting into the currently proposed arrangement.

Sen. Pete Kelly, R-Fairbanks, said if the state had to go it alone, it could not afford other functions of government, in addition to the project obligations. He said this was a moment to show some courage and work to get a project going.

Stedman, R-Sitka, said the state is not aligned with the oil and gas companies with TransCanada involved. While there are fears about whether the state could afford to participate in a project without TransCanada involved, Stedman said the state could use earnings from the Alaska Permanent Fund to finance its own way.

Under the agreement with the company, the state faces paying TransCanada's development costs plus 7.1 percent if the project is not sanctioned.

Senate Majority Leader John Coghill, R-North Pole, noted there are risks involved and said he'd be watching carefully to make sure any deal brings value to Alaska.

But he said the state has gas, knows there's a market for it and knows there are energy needs in Alaska.

"We've got to keep plugging forward," he said.

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