Friday, March 02, 2007

Alaska Governor Sarah Palin Unveils The Alaska Gas Line Inducement Act

The long-awaited replacement to the Stranded Gas Development Act finally appeared today (March 2nd, 2007), as Alaska Governor Sarah Palin (pictured at left with Lt. Gov Sean Parnell immediately to her right, courtesy of KIMO) unveiled her highly-touted Alaska Gas Line Inducement Act (AGIA), accomplishing a major milestone towards the eventual construction of a natural gas pipeline. This is a composite post drawing from stories in the Anchorage Daily News, KTVA Channel 11, KIMO Channel 13, and the Alaska Journal of Commerce.

Click HERE to view the 21-page AGIA bill in PDF format.

Click HERE to view Governor Palin's 5-page transmittal letter in PDF format.

According to the transmittal letter, AGIA is intended to accomplish six primary goals:

1). Initiate an application process open to any project sponsor.

2). Take clear steps to promote the construction of a gas pipeline as quickly as possible.

3). Ensure the North Slope basin is open to long-term gas exploration and development.

4). Ensure reasonable tariff rates are available to transport Alaska's natural gas to market.

5). Ensure North Slope natural gas is available to Alaskans.

6). Ensure Alaskan are trained and ready for the natural gas pipeline jobs and those jobs are made available to Alaskans.

AGIA sets the framework for incentives to be offered to potential pipeline builders in exchange for their commitment to get Alaska’s huge store of natural gas to market. It offers to give a developer as much as $500 million, which the developer would need to match, as seed money for the multibillion-dollar project.

If the Legislature passes it, AGIA would also provide incentives to North Slope gas producers to put their gas into the pipe. It would offer a tax exemption for those who promise to use the gas line to ship their product to market. The tax exemption would be valid for 10 years and would include any reimbursements to the producers if lawmakers raise taxes, which is a major improvement over the proposed 30-year and 45-year tax freezes put forth by the Murkowski Administration, respectively.

We are trying to remove as many risks to the builders as possible, and create stability and predictability,” said Marty Rutherford, the deputy commissioner of the Department of Natural Resources and a key member of Palin’s gas line advisory team.

Palin’s proposal replaces legislation introduced by former Gov. Frank Murkowski. The former administration reached a preliminary deal with the three biggest North Slope producers last year on state tax and other terms if they built a pipeline to the Lower 48, a project now estimated to cost roughly $30 billion. Murkowski’s contract was widely criticized for being too generous to the producers -- British Petroleum, ConocoPhillips and ExxonMobil - and it died when Murkowski lost a re-election bid last August.

According to Palin’s advisers, the state will have a strict timeline in which it hopes to move the process from legislative approval of the bill to pipeline fieldwork by the summer of 2008. During that timeline, the public will have a chance to participate in the state’s process for selecting the best applicant, since all applications from potential builders will be available to the public.

Palin’s proposal also includes creation of a state pipeline coordinator to streamline permitting of the facilities and pipeline. That office will work directly with the federal office created last year by President Bush to oversee approval of the project.

As part of the licensing of the pipeline builder, the successful applicant must agree to several terms intended to benefit Alaskans, the Palin administration said.

1). The successful applicant must give the state at least five places within the state where gas can be taken out for in-state use.

2). The successful applicant must actively recruit within the state to hire Alaskans, in addition to having its headquarters in-state. In return, the state will provide training programs to ensure there are qualified technicians ready to work on the project once it starts.

3). The successful applicant would have to offer the lowest tax rate to produce the gas that's worth the most amount of money.

4). As additional gas reserves are discovered, the successful applicant must agree to expand the pipeline project to accomodate the increase. Re-evaluation of reserves would take place at least once every two years.

During her press conference, Governor Palin directed several pointed but polite remarks at the state legislature. "I listened to the President talk about his concerns about America's dependence of foreign oil. I don't know if you see it, but I see it and am fearful of going on the same path with gas. And that's unacceptable. Alaska must be willing to help," said Governor Palin.

"I respectfully ask that we all work together on this bill. That we all work together to get it passed by the end of the session. Because truly, there are consequences to no action. One point that I've been transparent about since my campaign, it's been my commitment to make sure this gasline is in Alaska's best interest. And for the first time since in the whole process, it's the AGIA that mandates benchmarks, including timelines to get the project underway. If the timelines are met, we'll see the final applicants take design and financing by next summer," Palin concluded. The governor wants lawmakers to pass the bill by the end of this session so construction can begin by May 2008. Fortunately, the ridiculous 90-day session limit voted in by misguided voters last fall doesn't go into effect until 2008, and lawmakers still have a 121-day session this year.

Initial reaction to AGIA has been positive. House Majority Leader Ralph Samuels says he's confident there is a high level of support in the legislature and that it will work quickly on the bill. He added that lawmakers will look at it carefully to make sure it really is a good deal for Alaskans. Rep. Samuels (R-Anchorage) is considered the premier legislative expert on oil and gas issues. If your time permits, review the 76-page PDF document entitled "The Alaska Natural Gas Pipeline Project", a presentation by Rep. Samuels and Senator Charlie Huggins (R-Palmer).

Jim Whitaker of the Alaska Gasline Port Authority says AGIA allows for fair competition. Whitaker said, "This stands in mark contrast to the effort that preceded this, in that this is open. It’s understandable. The rules are straightforward. There are incentives." Whitaker then concluded, "A number of rationales that will lead to a pipeline being built and all participants all would be competitors, have an opportunity to compete. That's the way it should be."

Reaction was also forthcoming from British Petroleum, one of the companies interested in building the pipeline. BP says it's too soon to talk about specifics because it just got its first look at AGIA today. In general though, BP says it's committed to getting this gas line built and agrees the bill needs to be win-win for everyone. Darren Beaudo, BP spokesperson, said, "I think a lot of things can be accomplished as long as we get some of the complex issues resolved. We've all got common interests, we're aligned in many ways, and we're ready to start on a gas pipeline project." Beaudo continued, "The inducements provided need to work for all the participants. There's still a lot of stuff in there to kind of pore over and find out, a lot of intriguing elements."

ConocoPhillips and Anadarko also weighed in. Jim Bowles, president of ConocoPhillips Alaska Inc., said his company is ready to work with the state and the Legislature to get Palin's plan enacted into law in the best possible form. Mark Hanley, Alaska public affairs manager for Anadarko Petroleum Co., also voiced support. "We're very pleased with provisions in the proposed legislation on additional expansions and requiring the lowest possible tariff. This will be of great help to companies exploring for gas, like Anadarko," he said.

Commentary: The producers so far appear cautiously optimistic. One of the reasons why Anchorage's conservative shock jock Dan Fagan is so hot to trot for the Big Three producers and the Highway Route is because the Big Three hold the bulk of the leases and he fears a lawsuit if any other producers are allowed to compete. However, I think such fears may be unfounded.

Some producer flaks are putting out the word that the world is "awash" in natural gas. If this was so, Enstar would not have recently raised their rates by 30%. A rate hike of that magnitude implies a constriction of supply with no change in demand. Under those circumstances, the constricted supply becomes more valuable and commands a higher price. And demand will continue to escalate as pressure is applied to various nations to embrace less-polluting fuel supplies.

Undoubtedly there will be further modifications as lawmakers and the public weigh in with their points of view. However, the final product will bear a much closer resemblance to AGIA than to Murkowski's proposed contract.

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