The latest on the potential Alaska natural gas pipeline

Josh Painter posted earlier about todays announcement of the agreement between TransCanada and Exxon to do pipeline preparation together.  I thought I would pass on an email to his constituents from Les Gara, the State House rep. from my district.  He is a Leftie Dem, (and a pretty strange guy), but his analysis on this issue makes sense to me. 


Dear Neighbors,

           Today Exxon and TransCanada announced a joint agreement between those companies to do pipeline preparation work together.  The Governor’s Commissioners of Revenue and Natural Resources held a press conference supporting the agreement.  The Governor issued a press release.  OK, maybe I didn’t make that sound interesting – many on all sides are over-hyping the greatness/awfulness/positives/negatives of today’s announcement.  I’m not going to help them. 

           Here’s an early analysis I wrote on what the agreement means (http://alaskadispatch.com/tundra-talk/energy/1234-we-must-base-exxon-transcanada-proposal-on-merits-not-politics-).  It doesn’t mean there will be a pipeline tomorrow.  It doesn’t mean that Exxon, Conoco and British Petroleum won’t try to block a pipeline, or that they won’t support one.  Today’s announcement doesn’t answer any of those questions.  It does mean TransCanada is continuing to meet their commitments to the State of Alaska to move forward with planning this project, and to try to make it a reality.  But they were doing that already, on the schedule required by the law the Legislature passed last year.

So where are we?

           As has been the case since the Legislature issued TransCanada a license to plan and move ahead with a gas pipeline, the billion dollar question is this:  Will the major oil companies, which hold the leases to Alaska’s largest known reserves of natural gas, sell their gas into a gas pipeline? 

           The answer is this, as I’ve written in the past (http://www.newsminer.com/news/2009/may/23/gas-line-challenge-coming/?opinion).  This pipeline will move forward when the major oil companies commit to sell their gas to this project.  They have publicly stated – and Exxon subtly repeated this today during their press conference – that they will try to force tax and other financial concessions from the state in exchange for selling their gas.  If they demand unreasonable concessions, we either have to accept them, or resist them and, if that doesn’t work, threaten to sue.  

           They risk a lot if litigation occurs, as do we.  Under Alaska law, if they refuse to sell gas to an economic gas pipeline project, we likely have the right to cancel their North Slope leases for natural gas, and bid them to companies willing to sell gas into a pipeline.  They have what the law calls a “duty to produce”.  If we litigate, the state risks delay, and Exxon, Conoco and BP risk losing leases worth over $10 billion in future profit to them.  There’s risk for both sides if we litigate.  And, my guess is that as long as we stand strong, they will ultimately agree to sell their gas – their shareholders will demand it, and demand that they not risk losing billions of dollars worth of lease interests.

           So, what happened today?  Exxon agreed to help TransCanada pay for pipeline design, and preparation work.  Not much more.  Not much less.  It’s work TransCanada was obligated to do under the contract we signed with them last year.  It’s work that would have been done absent this agreement.  The more important information is in the tea leaves we are left to read.  Does this mean Exxon is willing to sell their gas, and Conoco and BP aren’t?  Have the oil companies developed conflicting interests?  Hard to know.  What we do know is that this agreement doesn’t change a lot on its face.  And we know all three companies will try to extract concessions from the state before next year’s “open season”, when they have to announce whether they’ll sell gas into a pipeline.

           One other thing.  Under Alaska law, TransCanada can, with state approval, sell an interest in the pipeline to any third party they want – PROVIDED they get state consent.  At this point TransCanada has not sold any of its interest in this project.  And if it does, I have been promised by TransCanada personnel dating back to 2008 that they are not interested in ever selling a majority stake to Exxon.  But if a sale occurs, we’ll have a raucous debate then.

           And we have to remember this.  Today’s agreement doesn’t change the law we passed in 2008.  Under the law, TransCanada’s pipeline has to allow for fair access by competing independent gas producers.  It has to allow for fair cost access to the pipeline so we can take gas off the line for Alaska’s communities.  It has to promote Alaska and union hire through a Project Labor Agreement.

           In the end, we need to read the terms of any agreement between TransCanada and Exxon to make sure the state’s interests are being protected.  We need to put aside the hype – by those who want to kill this project in favor of a competing Denali project owned by British Petroleum and Conoco.  We need to put aside the hype by the Governor’s national campaign supporters that this is somehow a deal-creating announcement.  We need to put aside the temptation by those who don’t like the Governor to criticize this agreement, out of dislike for the Governor’s politics or national ambitions.  That is, we need to put politics aside.  OK, one can dream. 

           The truth is that there will be lots of chatter about those from all sides, and from people with all sorts of agendas.  I only ask that you keep your eye on the prize.  What’s best to move a pipeline project forward?


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