Is AGIA being put to bed? When the Alaska Gasline Inducement Act was first introduced in 2007, it was sold as the state’s best hope of getting work started on a natural gas pipeline. It gave TransCanada a license to develop a project for Alaska, and it granted the energy company up to half a billion dollars in state subsidies for design and engineering costs. But six years after the bill’s passage, the Parnell administration thinks it’s ready to go beyond that framework in an effort to get a LNG pipeline built.
Last week, the Department of Natural Resources issued their budget book. It’s a long, dry document that lays out how the agency wants to spend its money over the next year. Most of the language is pretty routine, and addresses work that’s planned or has already been done.
But this year, there was something of a bombshell in the first few pages. In a few lines, the Parnell administration suggests that they expect to be done with the AGIA framework by next year.
“Our expectation is that that statute will no longer be operative,” says Natural Resources Commissioner Joe Balash.
Balash says not to worry — the state isn’t walking away from a gasline project. They’re not planning on calling the project uneconomic, or going into arbitration with TransCanada to get out of their deal. Instead, this is “good news.” Balash says that DNR is operating on the expectation that some sort of commercial agreement will be achieved in the next year.
If there’s a new contract in place between the state and energy companies, that would make AGIA moot. There would be no reason to keep the Gas Pipeline Project Office open, or continue with AGIA’s financial requirements.
“With that expectation, there’s no longer a need for the AGIA reimbursements, or the AGIA license monitoring — the functions really that the Gas Pipeline Project Office has been carrying out under the AGIA statute,” says Balash.
The FY2015 budget that Gov. Sean Parnell proposed last week doesn’t have any money pegged to AGIA. Parnell has said that there’s money from previous appropriations that should cover any reimbursement billings from TransCanada.
Parnell’s budget also zeros out the $4 million that funds the Gas Pipeline Project Office, shutting it down altogether. Balash says that its five employees could be transferred into other government work, and that they will keep on fulfilling AGIA’s requirements until there’s a full wind-down.
“In truth, AGIA has served a very useful purpose, and it even today continues to do so. But at the end of the day, it was really just a means to an end — you know, getting a project that was structured in such a way that the state’s best interests could be realized.”
Larry Persily is the federal pipeline coordinator, and he sees why the state might want to move away from AGIA at this point.
“Politically, AGIA is not really popular with Alaskans, because they see the state paying for reimbursement for something that hasn’t happened,” says Persily. “People are getting cranky because it’s been six years since Sarah Palin said this was the path forward, and we may be closer to a pipeline but people don’t see steel.”
Persily says that people forget that AGIA was more about a getting a building permit than developing a complete framework for constructing a pipeline. He says for that to happen, the state needs solid gas tax framework, so that producers know they’re committing to a project that makes economic sense. Parnell has listed that as priority of his administration.
As far as where TransCanada fits into this, Persily thinks they would be comfortable moving ahead with a contract to replace AGIA, even if they don’t max out their state subsidies. He adds that TransCanada has also put plenty of their own money on the line as well — their goal shouldn’t be to derive the most benefit possible from AGIA, but to get a multi-billion-dollar pipeline built.
“If there’s a path forward now that gets to there, that’s the prize — not the last bit of reimbursement for engineering and design work,” says Persily.
According to the annual AGIA fund disbursement report, the state has paid out $223 million to TransCanada through FY2012. That report forecasted that the state would supply $89 million in reimbursements over the next two fiscal years. If that forecast is right and if the state does move away from AGIA by FY2015, that would leave close to $200 million in state subsidies left in the pot.
At this time, TransCanada doesn’t have a public position on the Parnell administration’s desire to shift away from AGIA. In an e-mail, spokesperson Shawn Howard wrote that the company is “continuing to work diligently with Alaska North Slope producers and the State to advance the Alaska LNG project.”