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Lawmakers scrutinize TransCanada deal

By Rhonda McBride 8:25 AM January 30, 2014

Democrats say it may be a while before they see the whole picture, given the complexities of what’s proposed.

JUNEAU – The commissioner for the Department of Natural Resources told lawmakers the new deal cut with a Canadian pipeline company was a way to avoid a messy divorce, and if Gov. Sean Parnell gets them to craft legislation to bring the agreement to fruition, the state and TransCanada could be headed for a second honeymoon.

DNR Commissioner Joe Balash and Department of Revenue Commissioner Angela Rodell have been making the rounds at various committee hearings this week, promoting what has now been dubbed the Alaska LNG project, or AKLNG.

If built, AKLNG would move gas through an 800-mile pipeline from the North Slope to Nikiski, where it would be cooled and turned into liquified natural gas, which would allow it to be shipped in tankers to markets in Asia.

The project also includes a gas treatment plant on the North Slope to strip out impurities, as well as a liquefaction plant and LNG storage facilities at port.

Originally, TransCanada was supposed to build a pipeline across Canada to the Lower 48.

The relationship between TransCanada and the state was born out of AGIA, the Alaska Gasline Inducement Act, one of former Gov. Sarah Palin’s legacy pieces of legislation. At the time, consultants thought the project penciled out, but the shale gas boom in the Lower 48 changed all that.

Tony Palmer, vice president of TransCanada, said the amount of gas produced in the Lower 48 today is equivalent to five Alaska gas line projects. The abundance of gas has also cut the price by almost half.

“So the shale gas revolution has truly changed the marketplace in North America,” said Palmer, who appeared at Wednesday’s committee hearings on the new TransCanada agreement.

When the state awarded TransCanada the license to build the line across Canada, it agreed to subsidize some of the company’s work to build the project, as well as  attract producers to ship their gas in the line. But Alaska’s major oil and gas companies didn’t want to send their gas through a pipeline they didn’t own, because that’s where a lot of the profit is made.

Although the pipeline to the Lower 48 was no longer considered economically viable, the state was still potentially on the hook financially to TransCanada.

After Parnell reached a deal with Exxon, BP and ConocoPhillips to build an LNG project, the state approached TransCanada to become a partner in the project. The agreement they reached appears to solve some problems.

Balash told lawmakers that if the deal is finalized, the state will no longer have to pay TransCanada $130 million to buy back its license. What’s more, TransCanada would put up a lot of the pipeline construction money and would allow the state to buy  a share of the work once the pipeline is finished. This would leave money for the state to partner with producers for a 20 to 25 percent ownership stake in a project estimated to cost between $45 to $60 billlion.

Lawmakers in the House Natural Resources Committee hearing were skeptical.

“What’s to say we couldn’t have a divorce and go get another company, or put it out for bid,” said Rep. Eric Feige, a Chickaloon Republican who co-chairs of the House Natural Resources Committee.

Rep. Craig Johnson, an Anchorage Republican, asked, “Are we better off with this partner?  Are we better off with another partner?”

Balash said probably not another partner.

“If we were going out cold and looking for a partner to participate in the pipeline with us, I’m convinced TransCanada would be at the top of our list,” Balash said.

“But the fact that they’ve been a partner for the last six years, that they are familiar with the conditions here, not only environmentally but commercially, and they are well acquainted with the interests of the state, suggests that they aren’t going to have the same learning curve that some other pipeline company might have.”

Balash told lawmakers valuable time would be lost, perhaps as much as two years, if the state switched to a new pipeline company.

TransCanada’s Palmer believes the new partnership will be a win-win for both the state and his company.

“We’ve invested a lot of money in this project over the last five or six years, in addition to what we’ve invested over 40 years,” Palmer said. “We think we should be treated fairly and equitably; This is a mechanism to do that exactly.”

Palmer said the fact the gas producers, the state and TransCanada are working on an LNG project gives the pipeline the best chance of success it’s ever had.

“You’ve seen the numbers today put forward by the state that would have potential revenues to the state in the $2 – $3 billion dollars per year, in the event the project is in place,” Palmer said. “That’s a massive payoff for the State of Alaska.”

Democrats are skeptical about a document the governor and TransCanada have signed called a “Memorandum of Understanding.”

The Senate minority leader, Hollis French, is a lawyer.

“The first thing out of my mouth: This is dense,” French said. “You’ve got to be not only a lawyer, but you’ve got to be a lawyer who specializes in highly complex commercial transactions.”

Democrats and Republicans agree on something: The proposed deal between TransCanada and the state needs a very close look.

Democrats also worry about other aspects of the partnership between the state and three major oil companies.

“This is the Stranded Gas Act all over again,” said Sen. Bill Wielechowski. “That is a piece of legislation that has a long history in this building. It’s a piece of legislation that ended — quite frankly — with a disasterous contract.”

Wielechowski is talking about the contract former Gov. Frank Murkowski negotiated with gas producers that also gave the state ownership in the pipeline.

One similarity between Murkowski and Parnell’s plan, said Wielechowski, is that they both take away taxing authority from municipalities.

“It would have cost an estimated $1.9 billion dollars for our local communities,” had the legislature not rejected the contract, Wielechowki said.

Democrats say it may be a while before they see the whole picture, given the complexities of what’s proposed.

At a news conference Wednesday, they complained they weren’t getting access to reports produced by consultants for the state. They worry that the path the Parnell administration is taking on the AKLNG project may violate the constitution and jeopardize the state’s sovereignty.

But the Parnell administration seems bent on taking the information to lawmakers to avoid the appearance of secrecy which doomed the Murkowski contract. At least seven hearings have been scheduled this week and all of the documents being discussed are available to the public.

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