Now More Than Ever Alaskans Should Trust Bill Walker On The Gasline By Stephen McAlpine October 27, 2014
Today, Parnell claims that, “for the first time in Alaska’s history we have the alignment of the producers, the State of Alaska, and a pipeline constructor.” In fact, on June 25,1980, Alaska newspapers carried an article citing a “major breakthrough for the Alaska Pipeline Project” with the signing of an agreement between Northwest Alaska Pipeline Co. (the constructor), Exxon, ARCO and SOHIO (the producers) and the State of Alaska. The agreement gave the go-ahead for the “design, engineering , and construction planning of the gas pipeline.” It also gave the go-ahead for the design and engineering of a gas conditioning plant.” A second agreement set up a process “to develop private financing for construction of the pipeline.” All of this was to assure delivery of Alaska natural gas by 1985. Since then, the elusive gas project has been a political football. The producers hold the football, promising if the state does what the producers ask, they’ll get the ball down the field to the end zone. But it’s never enough, and time and again the ball is dropped. This recent effort is no different. In 2013, with no public involvement or discussion, the Parnell administration negotiated with the three major North Slope oil and gas producers and the independent pipeline company TransCanada on potential contract terms for a liquefied natural gas (LNG) pipeline project. In January 2014, the administration released a signed Heads of Agreement (HOA) negotiated with the producers and TransCanada and a Memorandum of Understanding (MOU) negotiated with TransCanada. The agreements identified principles and terms for the state’s participation in the pipeline project; and the conditions necessary for the producers and TransCanada to continue preliminary engineering and design work for the project. This past summer, the Parnell administration signed confidential agreements with the producers and TransCanada that, according to news reports, incorporate the principles of the HOA and MOU. Under the HOA, each producer owns and controls 100% of their share of the project. The producers get to decide whether the conditions for continuing the preliminary engineering and design work are acceptable, and whether the state fiscal, regulatory and commercial terms are acceptable to them before proceeding to the next stage of development. Under Governor Parnell’s pipeline deal, the state shares in the upfront costs and risks along with the producers and TransCanada, but only has a minority vote in management decisions. The state will take its royalty gas in kind rather than in cash – giving up our right to switch between taking the higher value of in kind gas or cash. The state will also take its gas production tax in kind at a time of the producers choosing. For gas taken in kind, the state assumes the responsibility and costs for treating, transporting and marketing the gas. The producers control the gas production on the North Slope with no responsibility for providing instate gas or pipeline access for independent producers. Other terms favorable to the producers include that they can deduct the costs of building gas infrastructure from what they owe the state under the oil production tax; a change to the pipeline property tax so it is based on throughput rather than property value; the end of the Alaska Gasline Inducement Act and its requirements for terms favorable to the state; the oil production tax provisions in SB 21; and more terms yet to be negotiated, including the potential for additional oil tax related terms. TransCanada also gets a sweet deal. The state’s portion of the project is commensurate with our royalty gas and gas production tax percentage, approximately 22%. TransCanada will own the state’s share of the pipeline and the gas treatment plant. The state commits to shipping its royalty and tax gas on the TransCanada owned piece of the pipe with the obligation to pay TransCanada transportation costs even if events beyond the state’s control limit or cease gas production. If the pipeline is not built, the state is obligated to pay back TransCanada’s development cost plus 7.1% interest. In exchange for the state commitments and other concessions to the producers and TransCanada, the state gets a continuation of the preliminary front-end work. The decision to proceed to the next phase of development is contingent on the producers approving more state concessions yet to be negotiated. Ultimately, it comes to a matter of trust. Governor Parnell’s plan opens the door to industry, while closing it to the public – the same way Parnell has shut Alaskans out of other important policy decisions. Giving the game over to industry has not worked in the past. We need only remember the fleecing the state took in the pipeline tariff agreements and Amerada Hess tax settlements (both negotiated in secret) to remind us that acquiescing to industry interests can seldom be reconciled with Alaska’s best interests. We need a new governor who will examine the deal and work with industry as an equal player, a governor we can trust to protect Alaska’s interests. That’s the way to get the job done. And Bill Walker is the one to do it. Stephen McAlpine About: Stephen McAlpine is a forty-four year resident of Alaska. He served as a contract administrator during construction of the Trans Alaska Pipeline, Mayor of Valdez and two terms as Lt. Governor of Alaska.
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