As the developers of competing Alaska natural-gas pipeline projects vie to move their projects forward, expectations are mounting that the state government will agree to a long-term tax scheme with gas producers to get them to sign on.
TransCanada Corp. and Denali, a joint venture owned by oil majors BP PLC and ConocoPhillips, are planning separate long-haul pipelines that would ship gas from Alaska's North Slope to Alberta, Canada, and the contiguous U.S.
Both pipelines would ship at least 4 billion cubic feet of gas a day, cost about $30 billion and start deliveries as early as 2018. Both developers are planning to start solicitations known as open seasons in the next few months to find North Slope gas producers that will commit to shipping gas through the proposed lines. But both have said producers are unlikely to commit financially to a pipeline unless they have long-term confidence about state tax rates over several years.
"We need the kind of fiscal certainty that would mitigate the economic risks of this kind of a project," said Steve Rinehart, a spokesman for BP, which dominates North Slope oil and gas production, along with ConocoPhillips and Exxon Mobil Corp.
TransCanada has a license and financial backing from the state, obtained during former Gov. Sarah Palin's administration. The license includes a 10-year guarantee locking tax rates for producers. But producers have said the 10-year term is too short, in part because it doesn't match up with a pipeline commitment, which would likely be 20 years or longer. Denali's project doesn't have state backing.
"What we've heard from producers . . . is that they need more than" 10 years, said Tony Palmer, TransCanada's vice president for Alaska development. He added that TransCanada isn't involved in any discussions about production taxes, which are an issue exclusively for the state and gas producers to work out. In an effort to resolve the production-tax impasse, state Rep. Jay Ramras, a Republican, has proposed amending the state's constitution to hold gas-production taxes steady for the life of a large natural-gas pipeline.
"One of the largest obstacles to overcome in developing a pipeline is providing fiscal certainty to lease holders who want to put gas into the line," Mr. Ramras said. "All three producers that hold the majority of leases have said [10 years] would be an inadequate time frame, and I believe them."
Alaska has been pressing for development of a large gas pipeline for years as a way to create a new source of tax revenue to offset declining oil production.
"Bringing Alaska's gas to market represents the largest economic opportunity before us," Gov. Sean Parnell said.
The effort, over several administrations, has been accompanied by a debate over how much the state could reasonably extract from oil companies to produce gas and how much in the way of incentives it would have to provide to make them want to produce gas in Alaska.
Mr. Parnell said he is waiting to see results of the developers' open seasons before sitting down to talk about production taxes. One problem is that different producers have different ideas and different time lines in mind, Mr. Parnell said. If the state simply agreed to the longest suggested tax time frame, "I don't think that's in the state's interest," he said.
The Alaska government and federal regulators have been pressing for BP and ConocoPhillips to combine their efforts with TransCanada in one project. TransCanada has said that it would welcome the oil majors' participation and investment.
"ConocoPhillips and BP have an opportunity to take an equity interest in the pipeline," TransCanada's Mr. Palmer said in an interview. "We've openly made that offer for more than two years. To date there have not been concrete negotiations."
Denali spokesman David McDowell said the company is open to having other partners join its project.
ConocoPhillips and Exxon Mobil didn't immediately return calls seeking comment. BP's Rinehart wouldn't comment on pipeline-development issues.
Copyright (c) 2010 Dow Jones & Company, Inc.