Gov. Sarah Palin last Thursday recommended state lawmakers grant a license and a $500 million subsidy to a Canadian energy company proposing a multibillion-dollar natural gas pipeline.

The matter now goes to the Alaska Legislature, which will convene in a special session beginning June 3 in Juneau.

Lawmakers, several of whom stood in a packed conference room Thursday morning to hear the governor's widely expected announcement, predicted endorsement of the exclusive license for Calgary-based TransCanada Corp. won't be easy.

That's because the oil company tandem of Conoco Phillips and BP have their own gas line plan.

Unlike TransCanada, these two companies hold huge volumes of North Slope gas that would fill the pipeline stretching into Alberta. And the oil companies say they don't need the $500 million subsidy that TransCanada is seeking.

What's more, spokesmen for the oil companies declared Palin's announcement was largely irrelevant to them, as they intend to begin field work this summer on their project, which they've dubbed Denali.

"The decision doesn't affect us," said BP's Steve Rinehart.

"Our project is already moving ahead," said Brian Wenzel, a ConocoPhillips vice president.

Palin, flanked by members of her gas team, said a close review of TransCanada's bid for the license and subsidy showed the company delivered on all the state's priorities and has a clear schedule that could lead to construction in a few years.

"It's a better proposal than we had ever hoped for," she said.

As if to suggest that trenching and welding is right around the corner, one of her aides pointed out numerous labor union representatives in the room.

Palin sketched out a scenario in which the state might someday see not one but three pipelines, including an expandable main line into Canada, a branch line for exporting liquefied natural gas out of Valdez, and a small "bullet" pipeline to bring Slope gas directly to the state's Southcentral population center.

That's quite a grand vision considering the fact that the state's political and business leaders have been unable to achieve even one pipeline since the Slope's 35 trillion cubic feet of natural gas was discovered more than 30 years ago.

LNG STILL ALIVE

At Palin's behest, state lawmakers last year passed the Alaska Gasline Inducement Act, or AGIA, to encourage companies to compete for the license and subsidy.

TransCanada was one of five bidders last November, and was the only one to pass muster with the Palin administration. The company is proposing a 1,715-mile, $26 billion pipeline running from the Slope to Alberta.

On Thursday, Palin and her staff said TransCanada's pipeline proposal would benefit Alaska the most and, in that respect, is superior to the Conoco-BP proposal as well as a standalone pipeline to export liquefied natural gas, or LNG.

Rejection of the LNG idea, sometimes referred to as the "all-Alaska" option because the pipeline would not go into Canada, is politically tricky for Palin, as some of its main backers had been strong Palin supporters during her 2006 campaign for governor.

Palin took pains, however, to suggest the LNG idea is still alive, because TransCanada has said its overland pipe into Canada potentially could accommodate a branch line to feed an LNG port.

TransCanada's lead executive for Alaska, Tony Palmer, stood Thursday with Palin and said his company is pleased her administration will formally recommend the company get the state license.

"For us, this is an interim step," he said, as it's now up to legislators.

NO CUSTOMERS, NO PIPELINE

The license does not guarantee construction of a gas line, long one of the state's fondest but most frustrated economic development dreams. Palin is but the latest governor to try to persuade or force someone to build a hugely expensive and risky gas line.

Under terms of the license, TransCanada would be obligated to hold what's known as an open season to attract producers with gas to ship, and to seek permission from federal pipeline regulators for the project.

Palmer, in an interview after the announcement, acknowledged actual construction without customers won't happen.

The company can get customers in two ways, he said. First, it can court the big oil companies holding nearly all the North Slope gas -- Conoco, BP and Exxon Mobil. Or it could rely on a surrogate customer, the U.S. government, which TransCanada has suggested could serve as a "bridge shipper" pending actual pledges from gas producers.

Palmer said TransCanada is still interested in the bridge shipper concept, which has stirred considerable controversy and a statement from U.S. Sen. Ted Stevens, R-Alaska, that such federal backing is highly unlikely.

Palmer also said that, eventually, state officials will need to reach an understanding with the big oil producers on how their gas will be taxed if and when they pull it out of the ground and send it down a pipeline.

But Palin's revenue commissioner, Patrick Galvin, declared Thursday: "We don't feel any changes in the state's fiscal structure are needed for this project."

He and Palin said the state's analysis shows TransCanada's pipeline would be fabulously profitable for the oil companies, though Galvin said it would be some days yet before the state provides specific figures.

CLOSE VOTE EXPECTED

State lawmakers said they see a tough debate coming in Juneau.

Asked what he thought were chances of passing a license for TransCanada, state Rep. Ralph Samuels replied: "I'd say 50-50."

Samuels, an Anchorage Republican and the House majority leader, is one of the Legislature's leading pipeline authorities. He's also unique in that he was the only lawmaker to vote against the hugely popular governor's AGIA last year.

He said legislators are split, with some wedded to an all-Alaska line, others who want a pipeline by anybody but the oil companies, and still others who say, "Just make a deal, what's the problem?"

Samuels, who spent his lunch hour at the East Anchorage Denny's speaking to the Bartlett Democratic Club, said he worries AGIA could bind the state to one company, TransCanada, for eight years and still not result in a pipeline.

"To me, the only question is do you vote for them to keep pressure on the producers," Samuels said.

Rep. Harry Crawford, D-Anchorage, said he's in the camp that wants an independent pipeline company such as TransCanada, and not the oil companies, to build and operate the gas line. That's the best hope for Alaskans to get pipeline jobs, rather than people from Texas or Oklahoma.

Rep. Les Gara, another Anchorage Democrat, said he too expects a tough fight in the Legislature. He suspects the Republican leadership is enamored of the BP-Conoco proposal and plans to use a series of hearings around the state to build a case for killing the TransCanada license.



A North Slope gas line

WHAT HAPPENED THURSDAY

GOV. SARAH PALIN ENDORSED GIVING A STATE LICENSE AND UP TO $500 MILLION TO TRANSCANADA, WHICH WANTS TO BUILD A 1,715-MILE PIPELINE INTO CANADA. PALIN SAID TRANSCANADA'S PLAN IS BETTER FOR ALASKANS THAN TWO COMPETING PIPELINE IDEAS.

ADVANTAGES OF THE TRANSCANADA IDEA

PALIN SAID IT WOULD:

--Encourage North Slope gas exploration.

--Make more affordable gas available to Alaskans than competing ideas.

--Meet state-set benchmarks leading to construction.

--Allow later construction of a spur line to Valdez, envisioning exports to Asia.

WHY NOT A PIPELINE TO VALDEZ

PALIN SAID THAT BY ITSELF, SUCH A PROJECT WOULD:

--Bring Alaskans less revenue.

--Possibly limit North Slope gas exploration.

--Be more difficult to finance.

--Likely face federal opposition to allowing exports.

WHAT ABOUT THE CONOCO-BP "DENALI" PIPELINE

THIS PROJECT WOULD LIKELY FOLLOW A SIMILAR ROUTE TO TRANSCANADA'S. THE COMPANIES SAY THEY WILL DO INITIAL WORK STARTING THIS SUMMER. PALIN SAID THE DENALI LINE WOULD:

--Possibly require state tax changes worth billions to the companies.

--Offer some natural gas producers less-favorable shipping rates than AGIA's.

--Could face antitrust issues.

WHAT'S NEXT

PUBLIC FORUM:

--Palin's gas team will give legislators an analysis of the proposed TransCanada gas pipeline. From 8:30 a.m. to 5 p.m. daily Wednesday through Friday at the Sheraton Anchorage Hotel.

Special legislative session:

--State legislators open potential 60-day special session June 3 in Juneau. After a week, they plan hearings around the state.

Copyright (c) 2008, Anchorage Daily News, Alaska. Distributed by McClatchy-Tribune Information Services.

Related Project
Alaska Pipeline Project
Facility Type: Pipeline Owner: TransCanada
Scope: New Construction Location: Prudhoe Bay in northern Alaska to Alberta, Canada United States