With an open season looming, the state took a step on Nov. 13 that could pave the way for some negotiations between Alaska and oil companies expected to commit to gas pipeline space.

The state is asking the Federal Energy Regulatory Commission, which sets the rules for open seasons and has the final say in whether a pipeline is built, for a waiver on a federal rule governing pipeline transit. Alaska is also asking that FERC expedite the waiver, as just over 70 days remain until TransCanada Corp. submits its plans to FERC for an open season on a state-backed pipeline.

A separate open season is scheduled for sometime in 2010 on a comparable line proposed by Denali, a partnership between BP and ConocoPhillips. The FERC waiver, if approved, would apply whether producers make bids on space in the TransCanada line or Denali's line, Alaska Gasline Inducement Act outreach coordinator Mark Morones said.

If the state is granted a waiver, it will be able to negotiate a way to maintain its unique right to switch how it takes royalty gas while addressing financial risk to producers who buy space in the line.

But the waiver also paves the way for Alaska to settle an issue the state hasn't yet addressed -- how it will find space in the line to ship gas to in-state points when it opts to take its gas as royalty in kind (gas) instead of as royalty in value (money), without buying space itself in an open season.

"(The waiver) would give us an opportunity to negotiate something down the line here to attract more interest from shippers who are expressing concern about having to pay those costs," Morones said.

Alaska gets a roughly 12.5 percent royalty on gas produced on the North Slope. The state can choose whether to take that share as money -- royalty in value -- or as gas for in-state use -- royalty in kind. The state can also switch from one payment method to the other.

BP is one of the three key North Slope producers with gas to commit to a pipeline. Producers who buy space in the line as shippers will shoulder much of the financial risk on the $26 billion to $40 billion project.

"The royalty gas issue is very important," BP spokesman Steve Rinehart said. "We will carefully review the petition the state has filed to FERC."

The matter of the state's royalty gas was also a key issue in previous gas pipeline negotiations between producers and Gov. Frank Murkowski. Shippers who make room in their contracts to send the state's royalty share down the line to market face risk if the state switches to in-kind delivery -- suddenly, there is a chunk of pipeline space between Alaska offtakes and the end of the line that is "stranded," without any gas flowing. Yet the shippers are still paying to reserve that part of the line, in case the state switches back to taking its royalty in value.

That's when the state wants the companies to temporarily release their hold on space to the state for shipping its own gas using a prearranged agreement -- thus, according to the state, presenting producers a chance to save billions.

The state estimates the potential cost of that stranded capacity to be significant. Considering a 12.5 percent royalty share, the value of the pipeline capacity needed for the state's share is more than $6 billion.

The FERC waiver would allow the state to make decisions -- if it so chooses -- to minimize that increased risk to producers. FERC rules allow an entity to do what the state wants producers to do -- release firm capacity -- but only through competitive bidding.

In the petition, the state is clear to point out that even with a waiver, it's not committing to anything, yet.

"Of course, neither the waiver itself nor the State's leases compel any ‘deal' between the State and a Producer/Shipper concerning a pre-arranged capacity release," the petition states. "However, a waiver is a necessary condition for the State and its lessees to arrive at an equitable agreement for cost responsibility associated with capacity for moving State royalty gas."

Contact Rena Delbridge at rena_alaskadispatch.com.