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Alaska continues to invest in TransCanada’s natural gas pipeline

LNG Industry,

The State of Alaska has extended an agreement with TransCanada, promising to continue offering state subsidies for a natural gas pipeline and LNG export project.

New deadline

Last month, the commissioners of Revenue and Natural Resources in Alaska agreed to a project plan amendment that would give Calgary-based TransCanada Corp. an additional year – until October 2015 – to file an application with federal regulators for the North Slope, Alaska-Alberta, Canada pipeline. The previous agreement expired 30th June.

Following market shifts due to the shale gas revolution, in 2012, the North Slope's three major players — Exxon Mobil Corp., BP and ConocoPhillips – all agreed to pursue a large LNG project, which would allow for LNG exports to the Pacific Rim, putting TransCanada’s pipeline on the backburner.

However, the pipeline has not been forgotten. Governor Sean Parnell is unhappy with the rate of progress on the natural gas pipeline project, but Alaska Deputy Natural Resources Commissioner Joe Balash said the state believes TransCanada and North Slope producers are making progress toward a key milestone, an agreement to begin pre-front end engineering and design (pre-FEED).

TransCanada is working with BP, ConocoPhillips and ExxonMobil on the pipeline project, which if built, will cost in the region of US$ 45 - 65 billion.

One year extension

Originally, TransCanada had requested a two year extension, which entitles the pipeline operator to up to US$ 500 million in state funds. However, Balash confirmed that the state only agreed to a one year extension, through to October 2015.

As of 30th June, Alaska has remunerated TransCanada US$ 259.4 million under the subsidy agreement.

Terms of agreement

In offering the license and continued subsidy arrangement, Alaska asked for some terms in return, including assenting to use rolled-in tariffs on pipeline expansions, to facilitate access for new gas, and certain debt-equity relationships in financing, which would shape tariffs and state revenues from gas production.

Most significantly, TransCanada agreed to file for authorisation for the Alberta pipeline with the US Federal Energy Regulatory Commission and Canada's National Energy Board.

TransCanada Vice President Tony Palmer has discussed the pipeline project and confirmed that although the North Slope companies' plan has now switched from an all-land pipeline to an LNG export project, TransCanada is keeping its options open for a possible pipeline extension to Alberta at some time.

And although the State of Alaska is changing the license agreement to an LNG project in several stages, Balash said it is holding TransCanada to its contractual agreement to file for a FERC application, although the new deadline for that is now late 2015.

Summer field work

On 21st June, the North Slope companies announced Summer field work plans, which, combined with other activities, they said would allow them to evaluate “major future engineering commitments.”

“Towards this goal, a competitive, predictable and durable oil and gas fiscal environment will be required for a project of this unprecedented scale, complexity and cost to compete in global energy markets,” the companies said in a recent statement.

Joint venture

The Alaska state government is also concerned by the North Slope company’s administrative agreements. Balash noted the lack of a formal Joint Venture Agreement between the four companies so far is troublesome. While ExxonMobil and TransCanada have a formal relationship under the Alaska Pipeline Project, BP and ConocoPhillips are not part of it.

The project organisation is still ad-hoc at this point, Balash said. “For example, there's no project office where you can see people from all four companies working together. TransCanada has an office in Anchorage, but there's not many people in it. Steve Butt, the ExxonMobil manager of the project, is based in Houston.”

“We remain optimistic that this will come together. If we see it in four months or so, that would be okay,” he added.

The three development majors, BP, ConocoPhillips and ExxonMobil, have all previously said they expect to own, and finance, a share of the project equal to their gas ownership on the North Slope. However, that means for TransCanada, which owns no North Slope gas reserves but has previously said it wants to own 51% of an Alaska gas pipeline, a stake is unclear.

The State of Alaska has also offered to take a 20% equity share of the project in the past, and some believe a similar proposal will return to the table again in the near future.

Edited from various sources by Cecilia Rehn.

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