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A classic review of the AGIA decision

There are two main types of cross-country skiers: classic (cut through the snow, slow and steady, take what the terrain allows, stick to the basics); and skate (skim over the top of the snow, speed around circular groomed trails, try not to stab your dog companion, and have a physique that looks good in Lycra).

There are two main types of media folks: classic reporters (cut through the snow, slow and steady, take what the facts allow, and stick to the basics of who, what, when, where, and why); and pundit/analyst skaters (the talking heads who skim over the snow instead of through it, stick to trails groomed by others, risk stabbing a few dogs for drama, and, if on TV, have a physique that looks good in Lycra).
     Only partly because I don't look good in Lycra, I've always felt more comfortable in the classic mode and in the past worked as a classic newspaper person at three of the state's four largest newspapers. So, in this newsletter, I'll stick to a more classic who/what/when/where/why report on this special session's big decision on a state license that, hopefully, leads to a natural gas pipeline that gets Alaska's gas to markets.

     WHO--Two pipeline entities have proposed building a natural gas pipeline from the North Slope to the Alberta Hub where the gas can be sent to various North American markets. One, TransCanada, is an independent pipeline company. The other is a newly created pipeline company (Denali) owned by two of the multi-national oil and gas producers operating on the North Slope--ConocoPhillips and BP.
     TransCanada is the successful applicant for a state-licensed (AGIA) natural gas pipeline. They submitted a qualifying application that entitles them to $500 million in assistance and other state inducements in return for commitments that help ensure construction, help ensure Alaskans are employed, and add to the state's "take" if North Slope gas is delivered to market.
     TransCanada is a 50-year-old company that builds and owns hydrocarbon transmission lines in Canada and the U.S.  They have been studying and working on a pipeline from the North Slope for about three decades and already have many of the permits necessary for construction. They have a pipeline plan with analyses thicker than a ream of paper and a cost estimate for construction. TransCanada officials say the 36,000 miles of transmission pipe they manage average 25-30 percent less in operating costs than pipes managed by others in North America. They claim capital costs are 19 percent less in Canada and 30 percent less in the U.S. for pipes the size proposed in their Alaska project. These numbers are unchallenged by others.
     Denali is a pipeline company that is only a few months old but is owned by two multi-national oil and gas companies operating around the world and in Alaska. Denali did not apply for the state AGIA license.
     Denali is an entity of two owners of the Trans Alaska Pipeline System (TAPS) that moves oil from the North Slope. The two Denali owners also are two of the three multi-nationals that negotiated a gas pipeline deal with Gov. Frank Murkowski (that deal foundered in the legislature two years ago because the companies wanted unchanged gas and oil taxes for decades as well as other conditions that limited state sovereignty with no commitment to actually construct a gas pipeline). As an important aside, courts and the Federal Energy Regulatory Commission recently determined the TAPS owners, including ConocoPhillips and BP, overcharged the state and independent oil shippers hundreds of millions of dollars over two years for shipping oil from the North Slope.  
     The Denali plan has no cost estimate and they've provided the legislature only a 16-page PowerPoint presentation including front and back cover and 26 photos and logos. They say they plan on spending $600 million to get to an open season where shippers hopefully will bid to commit gas to their pipeline.
     Another option is a pipeline to Valdez to a liquified natural gas plant for shipping by tanker. The port authority, an entity of three Alaska communities that supports this LNG option, has told the legislature they accept the premise of the AGIA license and will work with TransCanada on a potential LNG option.
     WHAT--A natural gas pipeline that gets Alaska's gas to markets. Lease terms for the right to drill for oil and gas specify that producers have a duty to produce if there are economic markets for the product. It is hard to find any gas expert who suggests Alaska's gas can't find a market--even given the huge costs of constructing a gas pipeline.
     The decision confronting the legislature in this special session is 'yea' or 'nay' on whether to issue the license to TransCanada under terms adopted by the legislature last year with only one dissenting vote.
     WHEN--A pipeline as soon as possible. Given: the field work necessary to design and engineer the line; permitting challenges; the time necessary to arrange financing; the regulatory process; and a construction timeline; a realistic but still optimistic definition of ASAP is about 10 years before first flow.
     WHERE--Down the Alaska Highway to the Alberta Hub where gas can be shipped in different directions to North American markets. The only caveat on the 'where' issue is that TransCanada has committed to building either a gas line or gas line spur to an LNG plant on Alaska's coast if enough gas is committed to LNG by North Slope shipper/producers.
     WHY--About $66 billion in net present value receipts to the state. That's the estimate of state earnings by state consultants and TransCanada and also by Exxon, as confirmed in that company's testimony to the legislature Thursday. A pipeline also will stimulate additional Alaska jobs and exploration on the North Slope in the same way the first Alberta gasline (a pipeline longer than the planned Alaska line and built by TransCanada) stimulated exploration and jobs in that province.

     That's the who/what/when/where/why of the gas pipeline story. Now, forgive me, I'll play the pundit/analyst in summary.
     My analysis is informed by my experience as the oil and gas reporter at the Fairbanks paper in the mid-1970s as TAPS was built, my work on accessing Alaska's natural gas as policy director in Lt. Gov. Terry Miller's office in the late 70s and early 80s, and the opinions I've formed living through our state's epic battles with multi-nationals over oil royalty receipts, the Exxon Valdez spill, and TAPS tariffs.
     There may not be a perfect answer on how to best get Alaska's gas to markets but TransCanada is an independent pipeline company with the experience to build and run the pipeline. They have a detailed and heavily vetted proposal and have committed contractthrough the AGIA process to conditions that add value to the state and help ensure Alaskans will get work. Denali has no detailed proposal and has not committed to conditions that add value to the state. Denali has said, though, they will continue to flesh out their proposal regardless of whether or not TransCanada gets a state license.
     Given the complexity and uncertainties with any huge pipeline project, it makes sense to give a license to TransCanada that gets us up to the construction phase. TransCanada gives real, additional value if their plan is adopted and their line is built.
     Another benefit is that competition with a state-licensed builder may make the Denali project better for the state. My suspicious nature leads me to believe the gas producers don't want to take the $500 million inducement because they believe complying with the 'must haves' in the AGIA approach cuts into their pipeline profits take and they'll make more by not complying with AGIA license terms. I also believe Denali sees an opportunity to leverage Alaska back into some of the onerous concessions ceded to the companies by the prior administration if TransCanada does not get the state license and they become by default the only pipeline possibility.
     Finally, nothing in AGIA prohibits the multi-national gas producers, including the Denali owners, from negotiating an equity stake in the TransCanada pipeline. In fact, that may be optimal for the state, the producers and TransCanada but that convergence of interest evaporates if an AGIA license is not given to TransCanada.
     So, the summary is more punditry than classic. Even so, my physique is fundamentally unfit for Lycra.

Contact Us
Phone: (907) 465-4947
Fax: (907) 465-2108
Mail: Sen. Kim Elton, State Capitol
Juneau, AK 99801

got a scoop?Got a scoop? Call or email your tips and suggestions to any of the email addresses below:

Email:
Senator.Kim.Elton
Kristen.Bressette
Paula.Cadiente
Jesse.Kiehl
Web: http://aksenate.org

Capitol Undercurrents

Juneau celeb--Okay, we all have our Harrison Ford/Juneau story from last week but my favorite is the Sharon Gaiptman caper on the wharf. Sharon and some Alaska Discovery alums were sitting in the sun (last time it was out in Juneau, remember, July 2) trying to sneak peeks of Harrison Ford, actress Calista Flockhart and their luncheon companion Ken Leghorn--founder of Alaska Discovery, Alaska wilderness guide non pareil and Juneau fav. Those three were in that little room at Doc Waters. Ford and Leghorn walked out and Ford, a pilot, checked out the sightseeing float planes. Sharon and friends didn't want to invade Ford's privacy with any of that declasse star-tripping stuff so, when Ford and Leghorn walked past them and back to lunch, Sharon simply stood up and loudly gushed: "Oh my gosh! Are you Ken Leghorn?"

black bearBearly worried--As legislators broke for lunch after a morning of AGIA hearings in the Terry Miller legislative office building Thursday, they were warned to watch out as they walked back to the Capitol because a bear had been spotted in the neighborhood. Make up your own punch line.

mirrorOther AGIA agates--1) My colleague Rep. Bryce Edgmon from Dillingham amended his Friday schedule. The schedule read: "9:00-5:00 Round Table Discussion". His amended schedule read "round and Round Table Discussion". Saturday will be the second day of the round table presentations. 2) When the AGIA road show was in Barrow, Rep. Reggie Joule's exploits during the blanket toss cowed the TransCanada official who began his presentation later by noting "it was very difficult to follow" the jumping Joule. 3) One legislator asked a question of pipeline experts Friday by beginning with "one of many truths first enunciated in the TV sitcom 'Seinfeld'".

Road resolution--No, not as in finally resolved but in the sense of a legislative resolution.  A top staff person in the office of my colleague Sen. Lyman Hoffman gave me a copy of 1962 Senate Resolution No. 45 that his dad co-sponsored. The resolution resolved "that the governor is respectfully urged to consult with the appropriate officials of the federal Canadian Government, the premier of the Province of British Columbia, the high commissioner of the Yukon Territory, and enlist their support and that of the state and federal agencies for the programming and construction" of the Juneau-Taku-Atlin Highway. The resolution passed and was filed by Governor Bill Egan.

Education by the numbers--The 2008 edition of the 50 State Comparisons shows Alaska ranks 17th in public school expenditure per pupil ($10,392), 13th in average salary for public school teachers ($54,658), 42nd in student teacher ratio, and 34th in average ACT scores.

Contact Us
Phone: (907) 465-4947
Fax: (907) 465-2108
Mail: Sen. Kim Elton, State Capitol
Juneau, AK 99801

got a scoop?Got a scoop? Call or email your tips and suggestions to any of the email addresses below:

Email:
Senator.Kim.Elton
Kristen.Bressette
Paula.Cadiente
Jesse.Kiehl
Web: http://aksenate.org

Capitol Undercurrents

Bright reader, bright idea--A regular reader noted the light bulb in the newsletter's "got a scoop?" box is an incandescent bulb. Given Juneau's power crunch, the reader suggested we swap it out for a compact fluorescent bulb. We did it.

New energy--And it's not just that Snettisham is back on. The flavor of the town is a rich mix of culture, commerce and politics with Sealaska's three-day biennial Celebration, Celebration 2008cruise ships and the special legislative session. The kick-off parade for Celebration was Thursday morning and if you missed that Grand Entrance Procession, there will be a downtown parade Saturday at 8:30 a.m. and the Grand Exit at 9:30 p.m. Saturday. Lots of other events are taking place at the old armory, Alaskan Native Brotherhood Hall, Centennial Hall and other venues around town in between parades and processions.

Word crafting 101--When the administration presented its data supporting the TransCanada gas line application, the applicant all of a sudden became TC-Alaska. That sounds much less foreign, much You're Invitedmore Alaska-centric, doesn't it?

Word crafting 201--When we convened, legislators and staff received a formal invitation to a reception hosted by the governor. The cover of the invitation noted the reception was at the "Governor's House" and inside the invitation it noted the location was at "the Residence". In Juneau, of course, we call it the governor's mansion but not the house or residence--especially now that the residence is further north in the other valley.

Kudos--While we are sensitive to where the governor lives, it is worth noting Juneau needs to thank her for nipping in the bud a study that could have led to relocating the Permanent Fund Corporation headquarters to Anchorage. The board of the fund considered a motion to look at relocation of about 30 employees from the shores of Gastineau Channel to the upper reaches of Cook Inlet. She let the board know that was not a good idea.

 
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