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Fate of Alaska pipeline with state Senate

July 23, 2008 5:37:48 PM PDT
The fate of a multibillion dollar pipeline that could unlock 4.5 billion cubic feet of North Slope gas reserves daily and power North American homes and businesses for decades now rests in the hands of 20 Alaska state senators.On Wednesday, the Alaska House of Representatives reaffirmed its Tuesday night vote to award an exclusive license to TransCanada Corp., which must move forward on federal permitting applications for the 1,715-mile pipeline estimated to cost between $26 billion and $30 billion.

This leaves the Senate to approve or reject the license by Aug.

2. Republican Senate President Lyda Green said her energy committee still has a few questions to pose, but she expects for the Senate to vote on Gov. Sarah Palin's license recommendation by late next week.

While the license in no way guarantees construction, it calls for TransCanada to move forward on a costly process of pursuing a federal certificate, but also with up to $500 million in state seed money.

"We are not pursuing this project to spend a lot of our money and the state's money and just end up with a certificate," said TransCanada vice president Tony Palmer. "Our goal is to successfully get a certificate, successfully attract customers and successfully complete a project."

As the debate on Capitol Hill over domestic natural gas and oil production grows increasingly divisive and partisan, Alaska's pipeline discussion is being closely watched.

And should Alaska's Senate concur, it will still be at least another 10 years before any market sees Alaska's gas. Plus, there is still a competing pipeline moving forward without the state's startup money.

That project is a joint venture between North Slope oil producers and gas leaseholders ConocoPhillips and BP PLC, which believed Palin's Alaska Gasline Inducement Act, or AGIA, was too restrictive.

On Wednesday, ConocoPhillips Chief Executive Jim Mulva told analysts that the joint venture project named Denali will progress even if the TransCanada proposal gets full legislative support.

The two companies already have filed paperwork for preliminary federal permitting and $40 million worth of field work is under way. They also plan to eventually solicit bids to ship gas in the pipeline, a process known as open season.

In ConocoPhillips' quarterly earnings conference call, one analyst asked Mulva about pipeline developments in Alaska. Mulva said that "irrespective of what takes place with approval or not by the state Legislature, we continue to go forward with BP on the Denali project, doing our field work this summer and moving right through a process of open season that we expect here in the next few years. So it doesn't change at all the aggressiveness in the plan that we've announced with respect to Denali and our work between ConocoPhillips and BP."

Alaska House Rep. Mike Kelly, a Fairbanks Republican and former utility chief executive, said he has no problems with competing pipelines moving forward. Kelly added that TransCanada's credentials as one of North America's largest pipeline companies also helped him vote yes.

"I like their integrity," Kelly said. "They are the best at what they do and they are dead serious about building a pipeline.

They don't own any gas and they are very used to talking to producers into putting their gas into a pipeline. It's what they do best."

ConocoPhillips was one of six companies to submit a bid to the state by Nov. 30 last year, but the Houston-based company did so outside of the state's guidelines and it was quickly rejected by Palin.

Pipeline talks come at a time when natural gas has become an increasingly valuable source of energy with U.S. natural gas demand growing about 1.5 percent a year for two decades since 1986.

And with so many regions in the continental U.S. off-limits to oil and gas development, Alaska's gas line could help ease American demand by shipping trillions of cubic feet of gas to market.

A gas line, discussed since Alaska began shipping oil in an 800-mile, trans-Alaskan pipeline 31 years ago, has major long-term implications toward powering North American homes and business.

Large amounts of natural gas come to the surface when oil is being pumped from Alaska's large-but-dwindling oil fields. The industry now reinjects this natural gas into the ground without shipping to markets.

As of 2006, about 19 percent of electricity generated domestically comes from burning natural gas, a 10 percent increase from 1986, according to a recent Rice University report.

Additionally, more than 50 percent of Americans heat homes with natural gas.

The prospect of an Alaska gas line gained momentum in recent years with natural gas futures trading in the mid-$10 range and the likelihood of prices falling sharply becoming increasingly remote.


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