By RICHARD MAUER, Alaska Daily News, July 30, 2010
TRANSCANADA: Company says multiple shippers met deadline.
The proposed multibillion-dollar TransCanada gas pipeline from the North Slope took a step forward Friday with the announcement that potential shippers appear willing to pay to move gas to markets.
"The Alaska Pipeline Project can report that we've received multiple bids from major industry players and others for significant volumes," said Tony Palmer, a TransCanada Corp. vice president.
Reading from a short prepared statement, Palmer said, "We're encouraged about the future advancement of the project if key conditions can be resolved. Although we need to further assess the results, we're encouraged by the bids received, the interest expressed in our initial open season and shippers' willingness to take the ongoing steps needed to continue to advance the project.
"Our next goal will be to move forward with those shippers to try to resolve any conditions that are outstanding," Palmer said.
Palmer's announcement came after the conclusion Friday of TransCanada's 90-day open season. The bids will likely remain secret for months while the company and its partner, Exxon Mobil, evaluate them and negotiate the conditions.
Palmer, who flew to Anchorage from his main office in Calgary, Alberta, for the bid announcements, declined to deviate from his text or answer questions.
While Palmer's announcement appeared to be a sign of progress toward the decades-long efforts by Alaska to get the North Slope's huge storehouse of gas to market, it was far short of specifics. Key among them:
• How close are the bidders to the 4.5 billion cubic feet a day capacity of a pipeline to Alberta or 3 billion cubic feet a day capacity line to Valdez, and which of the two routes do they prefer?
• Were bidders willing to plunk down enough money in shipping fees to cover the cost of construction?
• Were any bidders willing to put up cash for a ownership stake in the line?
• Did the bidders require major tax, royalty, regulatory or other concessions from the state or federal governments that would be difficult to achieve politically?
Palmer said Alaskans were unlikely to learn much more until private negotiations with shippers conclude around the end of the year and formal agreements are published in January.
STRINGS LIKELY ATTACHED
The 90-day bidding period, known as "open season," is designed to get enough firm commitments from shippers that the pipeline would appear commercially viable to bankers, bondholders, shareholders and boards of directors -- the ones who would commit cash and credit to the venture in expectation of future profits. Alaska politicians and many of its residents have needed much less convincing.
Once the line is built -- current estimates peg the cost as high as $41 billion -- it would be paid off through transportation fees charged to shippers.
Most of the bids were expected to be conditional, leading to protracted negotiations between TransCanada and the shippers. The bids will be made public only if those negotiations are successful and lead to firm commitments -- "precedent agreements."
TransCanada is licensed to build the line under the Alaska Gasline Inducement Act of 2007, a major political accomplishment of then Gov. Sarah Palin and her lieutenant governor, Sean Parnell. Parnell succeeded her last year and is now seeking election, arguing that AGIA has been a success.
"There are many milestones to mark the progress of this project, and today's is a major one," Parnell said in a prepared statement. "The market has determined Alaska natural gas is worth pursuing. We have many more milestones to go, and plenty of commercial and regulatory hurdles to clear, but it is a positive sign that major players have placed bids for significant volumes of capacity on a pipeline to market."
But AGIA remains controversial and is opposed by Parnell's two challengers in the Aug. 24 Republican primary, Bill Walker and Ralph Samuels. They have demanded that Parnell obtain the bids from TransCanada and make them public so voters could evaluate AGIA for themselves long before there are precedent agreements.
"Unfortunately it's pretty much exactly as we had anticipated -- come out with an optimistic flair with absolutely no details," Walker said in an interview Friday. "No indications of what the conditions are, no indication of volumes, no indication of what route. We don't know anything more than we did before."
Samuels had a similar response in a statement sent to reporters.
"Today's announcement does nothing to provide Alaskans any sense of confidence on where we stand on this project moving forward. In fact, it has become clear that the Parnell Administration is unwilling to be 'open and transparent' about what AGIA has gotten Alaska until well after the August primary election," Samuels said.
TransCanada and the shippers consider the bids to be trade secrets. AGIA itself exempts bid documents and other "proprietary information" from being released under the state's public records disclosure laws.
EXXON'S A PARTNER
Exxon Mobil, the owner of huge reserves of North Slope gas, teamed up with TransCanada on the proposed pipeline, officially known as the Alaska Pipeline Project.
The two other leading North Slope producers, BP and Conoco Phillips, have a competing pipeline project, Denali. Denali is holding its own open season, scheduled to end in October.
TransCanada said it would listen to shippers and build a line to where they wanted gas delivered: either Alberta, where the Alaska line would connect to a network of pipes going to the Lower 48, or Valdez, where gas would be liquefied and shipped in tankers to Asia. The Denali project would only go to Alberta.
TransCanada's open-season deadline was the close of business Friday at the company's Houston office, which translated to 2 p.m. Alaska time.
But under special Federal Energy Regulatory Commission rules, deadlines aren't necessarily drop-dead times. TransCanada is required to accept late bids as well.
One bidder, the Alaska Natural Gas Development Authority, a state agency, said Friday it is seeking pipeline space, but wouldn't say how much. The authority bid on behalf of five electric utilities in the Railbelt -- consumers of about 100 million cubic feet of gas a day, according to a January TransCanada study.
Harold Heinze, the authority's chief executive, said he submitted the bid in person Thursday when he was in Houston on other matters. No other bidder was in TransCanada's office while he was there, he said. He took a ceremonial picture as he handed over the sealed bid package, he said.
Heinze said he was directed to submit a bid by his board of directors and was taking advantage of a 30 percent discount on transportation charges through a future line.
Heinze said he expected to submit a bid to the competing Denali project before its open season concludes Oct. 4. Because of the competitive nature of the two projects, Heinze said he wouldn't disclose any details of his bid. But he said that his board required him to receive a commitment of gas supply from at least one North Slope producer before he could proceed. He obtained such assurance, he said.
GAS FOR ALASKANS
Alaska voters created the authority in 2002 in an effort to push construction of a pipeline from the North Slope to Alaska communities. The Alaska Gasline Inducement Act requires TransCanada to provide at least five take-off points in its line for delivery of gas to Alaska locales.
State and federal governments are encouraging construction of a gas line through tax breaks, loan guarantees and direct subsidies. Congress has authorized $18 billion in loan guarantees already, and a measure is pending in the Senate Energy Committee that would increase the guarantee to $30 billion. TransCanada's Palmer said recently the pending bill would provide a major boost to construction if the terms are reasonable.
The state, meanwhile, will reimburse TransCanada's pre-construction expenses up to $500 million. The state and federal governments have also set up offices to streamline permit and right-of-way acquisitions.
Find Richard Mauer online at adn.com/contact/rmauer, email@example.com, or call 257-4345.