Alaska's Legislature has approved a plan for the state to negotiate a partnership with North Slope producers BP, ConocoPhillips, and ExxonMobil and pipeline company TransCanada in a proposed Alaska gas pipeline and liquefied natural gas export project.
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Governor Sean Parnell must still sign the bill, but that is expected. The Legislature's approval to Senate Bill 138 came late Sunday as lawmakers worked to finish their other business in their 2014 session in Juneau.
The plan is for the state to take its royalty and tax revenue share of natural gas production "in kind," or in gas instead of cash, and to invest in 25% of the project, or sufficient capacity for the state to ship its own share of gas production, state natural resources Commissioner Joe Balash said in briefings.
The bill further provides for the state to separately negotiate a deal with TransCanada to invest in the state's 25% share of the proposed 800-mile, 42-inch-diameter pipeline and a large gas treatment plant on the North Slope, Balash said.
The state would retain ownership of 25% of the LNG plant, which is planned at Nikiski, in Southcentral Alaska, through a state corporation, the Alaska Gasline Development Corp.
"This is truly a historic moment for Alaskans," Parnell said in a statement. "By passing Senate Bill 138, the Legislature has put Alaska on a path to controlling her own destiny by becoming an owner in the Alaska LNG Project. Alaskans have waited a long time for a gasline, and for the first time in our history, we have alignment, authorization from the Legislature, and a clear path forward. The Alaska LNG Project has begun."
Preliminary estimates for the cost of a project is a range between $45 billion and $65 billion, but those estimates are to be refined in further engineering studies. In operation, it would produce between 16 million and 18 million mt of LNG yearly, mostly for export markets. While state participation in large oil and gas projects in common in many parts of the world this would be the first time a US state has entered such a partnership.
The legislation passed Sunday will allow the producers to begin the preliminary front-end engineering and design stage of the project to further refine cost estimates, Balash said. Work will begin this summer on that, and the state to share part of the costs.
The producers will also begin a more formal LNG marketing effort that will include the state's 25% share of LNG, he said.
Negotiations will also begin on a formal participation agreement between the state and producers and, separately, between the state and TransCanada. Those are expected to be concluded in 2015 and must also be approved by the Legislature.
If the projects appears feasible after completion of refined cost estimates in the pre-FEED phase, the consortium will proceed to a multi-billion-dollar front-end engineering and design, or FEED, stage that will accomplish final engineering and set the stage for a final investment decision to proceed with the project. That is expected in 2019.
If all proceeds as planned, the project would begin operating in 2024.
Legislators have been working on S.B. 138 since January, when their 2014 session was convened. There were points when disagreements developed, mainly over TransCanada's role. Some lawmakers felt the state did not need to partner with TransCanada and that it could finance its full 25% share itself, without the participation of the pipeline company. A former Alaska governor, Frank Murkowski, also lobbied legislators to kick TransCanada out, arguing that the terms of the proposed deal with the pipeline company were too much to TransCanada's advantage.
In the end, TransCanada stayed in the deal at the urging of Balash and state Revenue Commissioner Angela Rodell, who argued the advantages for the state in partnering with an experienced pipeline company in dealing with the three major slope producers outweighed the financial consequences.