Alaska Governor Recommends Natural Gas Pipeline LIcense

Alaska's governor is recommending state lawmakers approve a proposal from TransCanada Corp. to build a natural gas pipeline from Alaska's North Slope to a hub in Alberta, Canada.

At an Anchorage press conference Thursday, Gov. Sarah Palin, flanked by the state's natural resources and revenue commissioners, said the plan by the Calgary-based company merits a state license under the Alaska Gasline Inducement Act and a $500 million cash inducement.

Palin said the multibillion dollar project was far better than a competing proposal from oil giants BP PLC and ConocoPhillips because TransCanada's plan was binding and enforceable.

"This plan puts Alaskans first," Palin said. "It's a better proposal then we'd even hoped for."

Alaska lawmakers will have 60 days to decide if the state should grant the license and seed money. They will meet in special session starting June 3 in Juneau.

The application from TransCanada Alaska Co., LLC, and Foothills Pipelines Ltd. proposes a 4.5 billion cubic-feet-per-day, 48-inch-diameter pipeline running 1,715 miles from a gas treatment plant at Prudhoe Bay on the North Slope to the Alberta hub.

The state license would require TC Alaska to hold an open season to solicit firm shipping commitments from producers for natural gas. That would establish the economics of the project and assist the company in financing construction.

After the open season, TC Alaska would apply for a federal certificate. If approved by the Federal Energy Regulatory Commission, pipeline construction could begin. Construction is projected to take about three years.

Palin said producers who commit to ship gas would get reserved capacity on the pipeline and fixed tariff rates.

The proposal also allows for expansion of the line to accommodate gas from smaller and newer producers, she said, thus encouraging new exploration and discovery in the North Slope Basin.

Britain's BP and Houston-based ConocoPhillips appeared undaunted by the governor's announcement. BP spokesman Steve Rinehart said their competing joint venture, called the Denali Project, is already in motion. He said about 50 people are setting up an Anchorage office and preparing for summer field work.

"So this decision does not affect us. We think our project offers the best opportunity for a successful project, and that's why we have committed to about $600 million to get to open season," Rinehart said.

But Palin said the oil giants' plan has no enforceable commitments to move the project forward and does not address the commercial and fiscal terms that producers have said are essential. She said that makes the costs and benefits to the state uncertain.

Palin's gas team also dismissed the option of an exclusively LNG project that would supply markets in Asia and Alaska. They said it was less economic and less likely to succeed because it did not address energy needs in the rest of North America.

Palin said the TC Alaska proposal does leave open the option of an LNG spur line as well as a small diameter "bullet line" to funnel gas to communities in Southcentral Alaska.

Revenue Commissioner Pat Galvin said all indications show the TC Alaska proposal to be economically robust.

"The dollars that are generated by the TransCanada project take your breath away," Galvin said.

Though ConocoPhillips and BP PLC with Exxon Mobil Corp. hold the leases to the North Slope gas, Palin said, she is confident they would commit their gas to the project once they see the projected returns under TC Alaska's plan.

Both TC Alaska and the joint venture have said they could start moving gas by 2018. Neither has ruled out an eventual partnership though the producers contend the governor's licensing process under the Alaska Gasline Inducement Act is flawed and will not deliver a pipeline.

Lawmakers plan to convene their special session in Juneau and meet for about a week. They will then break to hold presentations in about half a dozen communities before returning to Juneau for formal deliberations.

House Speaker John Harris, R-Valdez, said he expects lawmakers will bring many players to the table to give a thorough vetting to all options for moving Alaska gas to market.

"Everybody's going to get an invitation, the producers, the port authority, everybody. We need to know what we are up against," said Harris.

Tony Palmer, president of TC Alaska, said he was pleased with the governor's recommendation but cautious.

"This is a positive movement forward but we will await the outcome of the Legislature," Palmer said.

TransCanada Corp. owns one of the world's largest natural gas pipeline networks, including 36,500 miles of pipe that move nearly 30 billion cubic feet of gas each day.

At an estimated cost of $26 billion to $30 billion, a pipeline between Alaska and Canada could become the largest private sector project ever undertaken in North America.