JUNEAU, Alaska – The state should cut its losses on a major natural gas pipeline if, by summer, it doesn't look like a project will be viable, a leader of a powerful state Senate committee said.
Sen. Bert Stedman, co-chairman of the Senate Finance Committee, told The Associated Press that he doesn't want the state spending much more money on a "dead project."
Under an exclusive license issued in 2008, the state committed to pay Alberta, Canada-based TransCanada Corp. up to $500 million to advance a major line to carry gas from Alaska's North Slope to market. Reimbursements so far have topped $36 million. More than $100 million remains set aside, and Gov. Sean Parnell has requested $160 million more for next fiscal year.
TransCanada, which hoped to have shipping agreements signed by December, missed the self-imposed target. But the company and Larry Persily, federal coordinator for Alaska gas pipeline projects, said negotiations are complex and no official deadlines have been missed.
"They didn't make it. So what?" Persily said, noting that the only failure was the failure to meet expectations.
But that's been enough to stoke the skepticism among lawmakers who already are antsy about securing the long-hoped-for line and are less than bullish on its chances.
Stedman said it's time the state starts looking at cutting its losses, "and if that's not going to move forward, we need to shut it down."
"I think you've got to give them a bit more time; I would not say next week," Stedman, R-Sitka, said this week. "But I would say we have to start having that discussion. I am hoping the governor will start having that discussion with TransCanada on how to pull the plug on this, and if it doesn't look like it's going to be viable, that, you know, we pull the plug on it this summer."
Parnell remains committed to the process, moving ahead under terms of the Alaska Gasline Inducement Act championed by his predecessor, Sarah Palin. He said the state is closer than ever to realizing a line — a position some House Democrats share — and he has urged lawmakers to be patient.
TransCanada and Denali-The Alaska Gas Pipeline, a competitor moving ahead without state support, each reported receiving bids from gas producers who want to use the line. But the producers imposed conditions whose nature has not been disclosed.
Tony Palmer, vice president of major projects development for TransCanada, said Friday that the negotiations have unveiled "major issues" that the pipeline and shippers must resolve. He gave no new target for completing talks and no determinant point for when the parties would walk away — a point he said TransCanada is not near.
Palmer said the plan to have the line in service around 2020 remains unchanged, and work on other aspects of the project is moving forward.
Companies must weigh a number of factors, including the competitiveness of Alaska gas against the rise of North American shale, price and gas market forecasts, and the resolution of disputed leases seen as a key to further unlocking the state's development potential. There's also the issue of long-term certainty from the state on taxes and other fiscal issues.
Project costs have ranged from an estimated $20 billion to $41 billion, depending on the route. Both TransCanada and Denali have proposed lines that would deliver about 4.5 billion cubic feet of gas per day to North American markets by larger lines to Canada.
TransCanada is working with Exxon Mobil Corp. to advance a line. Denali is working with BP PLC and ConocoPhillips.
Stedman said he's not sure what the state should do to commercialize its gas if a major line falters or the state walks away. Estimates have put proven gas reserves on the North Slope overall at 35 trillion cubic feet, and a large line has been seen as a way to help create jobs and shore up state revenues as oil production declines.
Stedman was the central figure of one of the biggest fights of the last legislative session: Efforts to change Alaska's system of taxing oil and gas production together. He and other lawmakers argued that once gas begins flowing through a major line, the state stands to lose potentially $2 billion or more unless the two taxes are split.
Parnell vetoed the bill, which he said would have represented an overall tax increase on energy companies. Oil remains king in the state, with relatively little gas activity.
Stedman wants to take another look at the gas tax this year — an idea rebuffed by Parnell, who's pushing an oil tax overhaul — to see how much the state treasury is losing with "no gas sales to speak of." Stedman's own rough estimate is about $150 million during the last fiscal year. He's unsure yet whether he'll push the issue further, such as proposing changes to the tax.
On the pipeline issue, "We need to be pretty careful on our conclusions," Stedman said. "And quite frankly, if the gas structure stays the way it is, the gas tax stays the way it is, we're better off leaving the gas in the ground."
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