The gasline deal that was brokered earlier this month had signatures from more than half a dozen parties. Executives from Exxon, ConocoPhillips, and BP all were part of the commitment to build a pipeline to transport North Slope natural gas for shipment, as were commissioners from Gov. Sean Parnell’s cabinet. But one party to the agreement confused some lawmakers, like Sen. Hollis French:
“In the building, people are asking, ‘Why TransCanada?’”
TransCanada was a key player in Sarah Palin’s effort to build a gasline, and legislators from both parties have expressed concern that the company is just a holdover from that attempt. Parnell administration officials are responding by making a case for the pipeline builders.
Since the Palin administration, the State has paid out hundreds of millions of dollars to TransCanada as reimbursement for planning work on a gasline. And during that time, things went bad: Instead of signing on to the project, ConocoPhillips and BP made their own failed effort to build a pipeline. When the state-sponsored project went through an open season, it couldn’t find any customers. The Lower 48 shale boom meant it was no longer economic to route the line through Canada.
Because of all that history, TransCanada’s continued involvement in the new proposal has caused some lawmakers to feel a bit of déjà vu. At a Senate Resources Committee hearing this week, Anchorage Democrat Hollis French wanted the administration to lay out how this new arrangement differed from the terms of the Alaska Gasline Inducement Act.
“Is this like AGIA 2.0? What is this?” asked French, who was once an advocate for AGIA.
Under AGIA, TransCanada was licensed to basically advance a project on Alaska’s behalf. The Parnell administration is now pursuing what they’re describing as a more traditional commercial agreement, where the state and the North Slope producers are partners in a project with roughly similar ownership shares.
But because the project is expected to cost at least $45 billion, it would be a squeeze for Alaska to cover a quarter of that. That’s where TransCanada comes in again …
“We think that this particular partnership is in the state’s interests and will provide value to Alaskans independent of AGIA considerations,” said Balash.
In addition to doing the physical work of constructing the gasline, TransCanada has made a deal with the administration to shoulder a good chunk of the project costs in exchange for a cut of the state’s equity. State consultants Black & Veatch estimate that the State would have to pay $11.4 billion to take on an ownership role if TransCanada isn’t involved. If they are involved, that amount is brought down by half to $5.8 billion.
“What we’re trying to show here is that competition for dollars in this next decade, if we go alone without a partner, we’re going to have some water to carry,” said Balash.
On the money-making side of the balance sheet, the dollar amount the state would take in would be about the same whether TransCanada’s sharing the profits or not, according to the administration’s projections. That’s because in this scenario, the state’s earning income by investing the billions of dollars it didn’t have to spend on the project, which should cancel out the payments to TransCanada.
Balash says another reason for keeping TransCanada involved is that they know how to build pipelines in rough terrain.
“If you take a look at where they got their start in the Canadian Rockies, they’re familiar with constructing in discontinuous permafrost and mountainous areas,” said Balash. “They’ve overcome those challenges, and that’s experience I think we want to have on this particular project.”
Still, senators on the committee had reservations.
Peter Micciche, a Republican from Soldotna, wanted to know why the state isn’t putting the partnership arrangement out to bid, in case other companies might be interested. Eagle River Republican Fred Dyson asked if TransCanada’s involvement with competing pipeline projects in North America might create problems.
“Somebody’s going to win the horse race, and I hear you almost saying ‘We don’t care. Whichever one does it, we’re here to perform for that,’” said Dyson.
TransCanada executive Tony Palmer stressed that the Alaska project is important to them, and their involvement with other gasline plans is the nature of their business.
“That’s what we do. We build pipeline projects — build them an operate them across North America,” said Palmer. “We own 10,000 miles of pipeline in the United States, and we own 30,000 miles of gas pipeline in Canada.”
There’s also one more big reason TransCanada is still part of the new gasline arrangement: They were part of the old one. If TransCanada had been cut out, the state would have been at risk of violating their contract. This way, the two parties avoid going to court.
So while the new plan might not exactly be AGIA 2.0, it’s definitely shaped by it.
Watch the full hearing courtesy Gavel Alaska: