There may be more interest in a major Alaska liquefied natural gas project than has been thought.
TransCanada Corp. told Alaska legislators June 23 it is getting serious interest in an LNG alternative to its all-land Alaska gas pipeline project as the company prepares for a 2010 initial open season.
TransCanada Vice President Tony Palmer said potential shippers have expressed interest in up to 3 billion cubic feet per day of gas for an LNG project at Valdez, which is up from 2 billion cubic feet TransCanada initially planned to offer as an LNG alternative to an all-land pipeline from northern Alaska.
Palmer would not disclose names of the companies expressing interest, but in recent years, four major firms engaged in worldwide LNG shipping -- BG Energy, Mitsubishi, Sempra International and the Chinese-owned energy company Sinopec -- all have expressed interest in Alaska LNG.
Palmer said there is not enough gas available for both an LNG and land pipeline, at least initially, if 3 billion cubic feet a day is shipped to an LNG project in addition to the 4 billion cubic feet per day TransCanada hopes to ship through a land pipeline.
"It would be an either/or situation for us, not both," he told the House Resources Committee in the committee's meeting.
Under terms of a license agreement with the state of Alaska, TransCanada is obligated to offer both the land pipeline and the LNG alternative in an initial open season in 2010. The license entitles the pipeline company and new partner ExxonMobil Corp. to up to $500 million in reimbursement for expenses relating to pipeline planning and engineering.
In other developments, Palmer said TransCanada is preparing to file a "pre-open season package" with the U.S. Federal Energy Regulatory Commission for its approval at the end of January 2010, and to present information on estimated costs and tariffs to potential shippers within two to three months after that. The open season would be concluded at the end of July. An open season is a period in which a pipeline company solicits customers who would sign contacts buying capacity in the pipeline.
Palmer said TransCanada will also have updated cost estimates on the project by the end of March. The company had estimated costs at $26 billion in initial estimates in 2006. Expectations are now that the pipeline will cost more than $30 billion, consultants to the state of Alaska have said.
ExxonMobil appeared alongside TransCanada at the legislative hearing to brief lawmakers on its new partnership with the pipeline company. At this point, the Houston-based company has entered into a partnership to do engineering and project planning with TransCanada, reserving an option to eventually become a full partner in the pipeline if unresolved issues with the state are resolved, ExxonMobil's Joint U.S. Interest Manager Marty Massey told legislators June 23.
At the top of the list is an agreement on fiscal terms that would cover gas production taxes and royalties, Massey said, but resolution of the long-standing Point Thomson lease dispute is also included.
Palmer said TransCanada believes agreement on fiscal terms with producers is the key to a successful initial open season in 2010, but stressed that this is a matter between the state and the gas producers and does not involve the pipeline company.
ExxonMobil's entry into the project has raised some hackles among legislators.
State Rep. Bryce Edgmon, R-Dillingham, said having a producer involved cuts against what he understands as the state's goal in having an independent pipeline company develop the project rather than producers.
Edgmon suggested that if ExxonMobil comes to the state with a request to change gas production fiscal terms, the state should take back the $500 million incentive grant.
State Revenue Commissioner Pat Galvin told the committee that with ExxonMobil in the picture, there is an increase in the open season planning budget by TransCanada from $83 million to $150 million.
This would require the administration to request a $40 million appropriation from the Legislature next spring to pay the state's 50 percent share of the higher open season budget, Galvin said. The state has already appropriated $46 million as an initial contribution, but with the higher budget, this is enough to fund the state's share of the TransCanada/ExxonMobil pre-open season's costs only to mid-spring in 2010.
The appropriation, along with any request for changes in fiscal terms, is likely to come under some criticism when the Legislature convenes its regular session in January. State Rep. Bill Thomas, R-Haines, a member of the House Finance Committee, has already criticized TransCanada's alliance with ExxonMobil because of the latter company's action in prolonging through litigation and ultimately reducing a $5 billion punitive damages award over the 1989 Exxon Valdez oil spill.
Thomas represents commercial fishermen constituents in his hometown.
"Any state money (to ExxonMobil) is too much for many Alaskans who were victims of the Valdez oil spill disaster," Thomas said in a statement. "After ExxonMobil fought so hard not to pay Prince William Sound fishermen for their losses, including the punitive damages, it is frustrating to see them potentially be able to get a slice of the money we're putting toward the gas pipeline."
In the June 23 hearing, Rep. Clarisse Millet, R-Anchorage, questioned state Revenue Commissioner Galvin on why the state is not talking with producers now about a tax and royalty agreement.
"Does the state want to wait until after the open season fails? Why create additional delays?" Millet asked.
Galvin said the time is not right for the fiscal term discussion, and that the producers have not yet initiated a request.
"Nothing is prohibiting them from telling us what they need now. But we don't want to be in the position of taking the initiative and appearing desperate," Galvin said.
Under terms of its license agreement TransCanada is obligated to continue work on the project and to hold additional open seasons if the initial open season does not secure sufficient gas shipping agreements, Galvin said.
Tim Bradner can be reached at
tim.bradner@alaskajournal.com
