Alaska Gov. Sean Parnell says he's willing to discuss changes in the Alaska Gasline Inducement Act, or AGIA, a controversial state law setting out Alaska requirements for a gas pipeline, if changes are justified and needed to advance the pipeline.
Parnell's comments came Oct. 29 during a press briefing.
"I'm open to any terms that will get us a gas pipeline," he said. "I'm still working within the AGIA framework, but if in the end something different is required to get a gas pipeline, I'm willing to listen. My door is always open."
North Slope producers and TransCanada Corp. are working on a 48-inch or larger high-pressure pipeline that would move gas from northern Alaska to Alberta, and then on to U.S. markets through existing pipelines or a possible new pipeline. The project is estimated to cost more than $30 blllion.
A pipeline to Valdez, to a natural gas liquefaction plant, is also possible if gas purchasers sign up for capacity in that pipeline.
The governor's remarks are the first indications that Alaska may be willing to bend on stringent regulatory terms in AGIA that brought strong objections from major North Slope producers BP, ConocoPhillips and ExxonMobil when the Alaska law was enacted in 2007.
The producing companies have asked for special fiscal terms, which are actually provided for in AGIA, but ExxonMobil Corp., a possible partner with TransCanada, is also seeking changes in the regulatory terms of AGIA.
The law was pushed through the Legislature by former Gov. Sarah Palin to offer inducements, in the form of a $500 million state grant, to a pipeline willing to meet certain state requirements, including terms relating to pipeline expansions and tariffs.
The producing companies have criticized AGIA, including requirements for a pipeline to offer rolled-in tariffs on pipeline expansions that would result in original shippers subsidizing new shippers of gas, they have said. This would go beyond what the Federal Energy Regulatory Commission would require for the Alaska gas pipeline, the producers said.
Parnell said he believes the AGIA law has served a useful purpose in advancing the Alaska pipeline so far because TransCanada has accepted AGIA's terms and is working on a pipeline plan with an open season set for second quarter 2010.
The state AGIA law also stimulated BP and ConocoPhillips to form a separate initiative, the Denali project, that would operate outside the AGIA framework, and would also have an open season in 2010.
The governor also cited ExxonMobil's decision last summer to join TransCanada in its pipeline planning as another success. However, ExxonMobil has said that while it is participating in studies, it wants changes in the AGIA regulatory terms before formally joining TransCanada.
Parnell said he has had meetings with ExxonMobil on the matter.
Aside from the AGIA regulatory changes, all North Slope producers say they need an agreement on fiscal issues with the state that would cover state production taxes and royalty administration terms on gas production.
Alaska's Constitution prohibits any agreement limiting state tax powers, but state attorneys have said there may be ways a contract on tax terms could be constructed to cover a number of years, and that might pass a review by the courts.
Parnell said Oct. 29 that an agreement covering a shorter term like 10 years is likely to be easier to defend in court than a longer-term agreement like 45 years, which was requested by the North Slope producers in earlier talks with the state.
The governor has said previously that he is open to discussions on fiscal terms, but that this should come after both the Denali and TransCanada projects develop cost estimates and the 2010 open seasons are held.
The governor said he isn't worried that large shale gas discoveries in the continental U.S. will erode the market share for North Slope gas.
State geologists have studied the shale gas plays and concluded that reservoir problems developing over time will put limits on gas production from shale and that public objections on land and water-use issues will also become a limiting factor. Parnell said Alaska gas, as well as shale gas, will still be needed in U.S. markets.
"I'm basically upbeat about the pipeline. We've been working on this for 35 years and we're now closer than we've ever been to a project," Parnell said. "We have all three major North Slope gas owners as well as a major pipeline company now seriously engaged. We'll have cost estimates and open-seasons next year. That's progress."
Copyright (C) 2009, Alaska Journal of Commerce, Anchorage