June 03, 2005
Friday

Juneau, Alaska - The backers of an all-Alaska natural gas pipeline have lost the financial backing that allowed them to launch a statewide advertising blitz starring former governors.

The proposal by the Alaska Gasline Port Authority is one of three to move natural gas from the North Slope to market. The loss of backing by San Diego-based Sempra Energy puts the proposal in question.

Sempra blamed political obstacles.

"The protracted political wrestling taking place in Alaska is costly and very time consuming," Sempra president Darcel Hulse wrote in a letter to port authority officials. "While all this is taking place, the West Coast market is being actively pursued by others."

The company claimed a lack of progress with "the most important players," mentioning Gov. Frank Murkowski and U.S. Sen. Ted Stevens. It also said it didn't believe the major oil companies on the North Slope would cooperate in the project.

Sempra gave $6.25 million to the port authority, a municipal agency led by the Fairbanks North Star Borough and the city of Valdez. The port authority has no other source of revenue.

It is pushing for a pipe from the North Slope to Valdez. The gas was to be supercooled there into a liquid and shipped by special tanker to the West Coast, where Sempra is developing a receiving terminal to serve the California market.

Meanwhile, a coalition of the major oil and gas companies on the North Slope - BP, Exxon Mobil and Conoco Phillips - is considering building a pipeline from the North Slope through the Alaska Interior, then south into Canada to connect with the North American distribution grid into the Midwest.

Calgary-based pipeline company TransCanada has the third proposal, which would also run from the North Slope to the grid in Alberta.

The oil companies and other critics of the port authority's proposal with Sempra say the West Coast is not a big enough market to absorb the huge volumes of Alaska natural gas, which could be more easily handled by a pipeline into the larger midcontinent market.

The Sempra money allowed the port authority to launch a statewide television, print and radio ad campaign touting its all-Alaska pipeline as the best. The ads featured endorsements from political all-stars: former governors Jay Hammond and Wally Hickel, ex-Wasilla Mayor Sarah Palin, and retired state Senate President Rick Halford.

With Sempra dollars, the authority hired Halford as its state and federal lobbyist this spring, at $25,000 a month.

Fairbanks North Star Borough Mayor Jim Whitaker, the chairman of the port authority, said Sempra's decision leaves his group at a crossroads.

"Obviously we're going to have to step back, rethink and move forward again," Whitaker said.

Whitaker said the port authority has more than a million dollars left and is not going to give up. The authority is now focusing on the Midwest market, he said, which could be served by shipping gas in tankers to port facilities on the Gulf of Mexico, where several receiving terminals are proposed.

"We are having discussions with a number of potential participants . . . they are active participants in the marketplace. They requested there be confidentiality, and we have to honor that," Whitaker said.

Whitaker said Sempra gave Alaska every opportunity to take advantage of the West Coast market, but there was a limited time to fill it and tough competition from international gas sources. He said the same could happen with the Midwest market.

"We had damned well better move quickly or that market will no longer be an opportunity," Whitaker said.

Sempra spokesman Art Larson said the company had hoped to see tangible political support by May.

"Not only is there no progress of note, but it appears that the project continues to lose ground," according to a letter from Sempra, which port authority officials said they received on Tuesday.

The company cited a May 5 letter in which the state Revenue Department told the port authority it wasn't qualified under the Stranded Gas Act to negotiate with the state over taxes and royalties.

The state said the port authority didn't meet the requirements of either holding the rights to gas or having enough financial assets. Port authority officials have said they believed they could meet the state's requirements.

"We have been working with the port authority, trying to help them," said the state Revenue Commissioner Bill Corbus.

Whitaker did not blame the governor, but the Sempra letter said there was not enough progress being made with the governor.

Gov. Frank Murkowski issued a written statement on Wednesday, saying he was "both disappointed and surprised that Sempra felt the challenges too great to proceed." He said he would continue to work with the port authority.

Murkowski has, in the past, publicly pointed out what he considers obstacles to the authority's proposal. For example, the project would need a special federal ruling to use foreign-built tankers. Alaska's senior U.S. Sen. Ted Stevens told state legislators this spring that it would be very difficult to get such an exemption.

Sempra is the second company to break off talks with the state on a gas line. MidAmerican Energy Holdings, which is controlled by Warren Buffet's Berkshire Hathaway Inc., shut down its efforts for the second time this spring.

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