Alaska governor supports state equity position in gas pipeline

The Alaska legislature should consider the state's assuming a shipper's risk and possibly taking an equity position in construction of a natural gas pipeline, Alaska Gov. Frank H. Murkowski said.

"Whether we are talking about an independently operated gas line or a producer-built and operated gas line, it has become clear to me that the most likely path for starting construction soon will require the state to take an ownership position in the project and bear a certain amount of shipper's risk," Murkowski told the legislative budget committee on Oct. 13.

Murkowski said his administration supports the state's taking a more active stake in a major gas pipeline project. A similar state response during construction of the Trans-Alaska Pipeline system for transporting crude oil could have resulted in billions of dollars more for state coffers, Murkowski said.

"We may have missed the boat when the Trans-Alaska Pipeline was built, and we have stood on the sidelines for nearly 30 years watching a lot of revenue flow to those who were willing to take the risk," he said.

Stranded gas

In order to do this, Murkowski said, it is appropriate for the Alaska legislature to complete the Stranded Gas Act process.

Pedro van Muers, the state's natural gas project consultant, told the committee that every other nation that has sought to ship its stranded gas to market has adopted some form of equity share or shipper's risk.

Administration officials are negotiating with the three major oil producers and TransCanada Corp., Calgary, regarding separate proposals to construct a pipeline from the North Slope to the Lower 48.

Alaska state officials are also beginning negotiations with Enbridge Inc., which has filed an SGA application.

Both TransCanada and Enbridge, Canada's largest pipeline companies, have indicated interest in construction of segments of the proposed Alaska Highway gas pipeline from Prudhoe Bay.

TransCanada controls much of the right-of-way for the line. Enbridge earlier this year filed an application with the state to negotiate commercial agreements for the construction and operation of the segment of the Alaska Highway line.

Meanwhile, the state is assisting the Alaska Natural Gas Development Authority and the Alaska Gasline Port Authority in their efforts to develop a viable pipeline project.

Murkowski said negotiations with interested parties have progressed to a point that the state must address the issue of how much risk it is willing to consider in a pipeline project estimated to cost $14-20 billion.

With the passage of key federal legislation—such as loan guarantees of up to $18 billion and expedited permitting and judicial review—significant roadblocks to moving the Alaska pipeline project forward have been removed, he said.

"Both the governor and the legislature have a job to do. It is my responsibility to bring you a draft stranded gas contract. It is your job to review and approve it," Murkowski said. "My administration is taking this responsibility seriously."

He appealed to state lawmakers to communicate their views on the state policy with his administration.

"I do not want our administration's team to spend months negotiating a contract with equity and shipper's risks incorporated into a document only to have you suggest to me that this concept is a complete nonstarter," Murkowski said.

US gas markets are expected to remain strong for decades because of escalating demand and declining production.

But the state has a limited amount of time with which to get Alaskan gas to market because numerous LNG receiving terminal projects have been proposed in the Lower 48, Murkowski noted.