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State seeks to pull plug on AGIA pipeline process

Dermot Cole

FAIRBANKS -- Gov. Sean Parnell has proposed eliminating the five-person natural gas pipeline project office, a $2.6 million cut that means the process outlined in the Alaska Gasline Inducement Act will soon be history.

“It is expected that commercialization efforts for Alaska North Slope natural gas will transition out of AS 43.90 by the time fiscal year 2015 begins,” the Department of Natural Resources budget says, citing the number of the AGIA statute. “As such, Alaska Gasline Inducement Act license monitoring and compliance activities will no longer be required. Future gas commercialization efforts will be evaluated and discussed at length over the remainder of FY 2014.”

The proposed budget calls for deleting the AGIA coordinator and four other positions starting next summer as part of the transition to a new gasline process.

The 2007 AGIA law, designed to “encourage expedited construction of a natural gas pipeline,” was one of the signature acts of the Palin administration. Legislators approved it on a 59-1 vote, with former Rep. Ralph Samuels as the lone holdout. It prompted former Anchorage Rep. Mike Doogan to write a parody to a tune from "West Side Story": "AGIA, I've just read a bill named AGIA."

Once the shale gas boom in the Lower 48 took hold a year later, that ended any hope of a pipeline through Canada. An export pipeline across Alaska drew attention again, but it never really fit well under AGIA.

The project office has been responsible for coordinating the state’s dealings with TransCanada, the international pipeline firm that received the AGIA license in August 2008. The following year the company joined with Exxon Mobil Corp. to advance a project.

DNR Commissioner Joe Balash said the affected employees are likely to be transferred to other jobs within the department.

As part of the license, the state agreed to reimburse TransCanada for up to $500 million in expenses for work on advancing a pipeline project, about $300 million of which has been expended. The $200 million would not have to be paid.

The law would remain on the books, but TransCanada has not been authorized to do more reimbursable work on the project, so the administration does not have to go through what has become a difficult political exercise -- getting lawmakers to appropriate more money to reimburse TransCanada.

This doesn’t mean that TransCanada is out of the pipeline picture. Far from it.

It is more likely that the state, the major oil companies and TransCanada are continuing to try to work out an alternate arrangement to move a gas line forward.

In a recent interview, Balash said TransCanada has strengths in working in mountainous regions and in northern Canada.

“An operator with a proven track record on being able to deliver on what’s expected is worth something to the state as we make big decisions,” he said.

Instead of focusing on the $200 million question for AGIA, the parties have opted to consider the $45 billion question, the estimated low-end price of a pipeline from the North Slope to the Kenai Peninsula.

A recent study of the potential for state investment in the project triggered some discussion about how the state might proceed. The study said if the state takes a 20 percent or 30 percent ownership share in the pipeline, its return would be equal to or better than simply collecting taxes and  income from the share of the gas it owns.

In a recent hearing, Balash said there are ways in which that equity investment could take place without requiring a huge infusion of upfront cash.

“If our midstream share of the project turns out to be something that costs us something on the order of $5 or $6 billion, having a partner such as TC (TransCanada) or any other pipeline company come in and take on the role of providing midstream transportation services, and we’re able to strike terms that work for us as a state, then that’s $5 or $6 billion we don’t have to come up with, they come up with it,” he said.

Dermot Cole can be reached at dermot@alaskadispatch.com. Follow him on Twitter at @DermotMCole.