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Alaska governor announces new plan for gas pipeline that scraps old deal with TransCanada

JUNEAU, Alaska - Gov. Sean Parnell on Friday announced a new way forward on a long-hoped-for natural gas pipeline that includes scrapping the terms of a 2007 law he says no longer works well for the situation.

In a major policy speech in Anchorage, Parnell said the state and Canadian pipeline builder TransCanada Corp. have agreed to terminate their involvement under the Alaska Gasline Inducement Act. He made clear, however, that TransCanada would remain a partner in the project, just under new terms.

Parnell said he would seek legislative approval for the state to participate in a new commercial agreement with TransCanada; the North Slope's three major players, Exxon Mobil Corp., BP PLC and ConocoPhillips; and the Alaska Gasline Development Corp. He said he expected a set of terms to be signed soon.

Natural Resources Commissioner Joe Balash called the commercial agreement a "broad roadmap" and statement of intent. He said in an interview that legislation would have to be passed to accomplish what is being contemplated and the state plans to enter a separate, more narrowly defined agreement with TransCanada for pipeline services.

The terms of the inducement act will remain in force for the time being, though the parties envision transitioning into the new arrangement once enabling legislation is passed, Balash said.

"Nobody's letting go of the rope just yet," he said, but he noted the state and TransCanada had "pre-agreed" to make the transition. A TransCanada spokesman said the company would continue working to advance the pipeline project.

Parnell said he would propose legislation that would allow the state to enter into shipping agreements to move and sell gas. The legislation also would ask lawmakers to switch to a flat gross tax and allow for certain leases to pay production taxes with gas. Parnell previously said he would not propose gas tax legislation unless he saw demonstrable progress on the line.

"The bottom line: We will have an investment-quality project when that's complete," he said Friday.

Balash said he thinks the Legislature can act on the proposal this session — which is what the commercial agreement contemplates — "in large part because what we're asking the Legislature to do essentially is set some of the specific terms that would then go into a contract to be negotiated over the next 18 months or so and would then come back to the Legislature for approval."

"It's not like we're asking the Legislature to make the big decisions this year, but we're asking them to make some pretty important ones," Balash said. The next set of agreements would set out specific equity terms, he said.

Parnell said having the state participate in a line is a way to protect the state's interests, and as a partner, Alaskans stand to gain more. He said the structure is attractive to North Slope oil and gas companies, too, because it could reduce their costs.

The scheduled 90-day legislative session begins Jan. 21.

Alaskans have long seen as a gas line as a way to create jobs, provide energy for residents and shore up revenues as oil production declines. There have been fits and starts over the years, but Parnell and other state officials believe the current project has momentum.

While Parnell in the past argued for continuing to pursue a project under terms of the Alaska Gasline Inducement Act, even as some state legislators saw it as a dead end, he has indicated he no longer views it as the best way forward. He said the law was designed for one project developer, but the project initially envisioned — a pipeline that would run from the prodigious North Slope into Canada to serve North America markets — has changed, and so have the players.

In 2008, TransCanada won an exclusive license to pursue the project, with a promise of up to $500 million in reimbursable costs from the state. Exxon Mobil later joined TransCanada's effort. ConocoPhillips and BP, which opposed provisions of the law, pursued a rival line of their own before abandoning it in 2011.

The companies, at Parnell's urging, united in the last few years behind a liquefied natural gas project capable of overseas exports. The proposed line would run from the slope to south-central Alaska and could cost from $45 billion to more than $65 billion, according to company estimates. The companies have repeatedly said they need competitive, predictable and durable terms on oil and gas taxes and royalties but also have indicated they are open to having the state take an equity position.

Natalie Lowman, a spokeswoman for ConocoPhillips Alaska, said the company sees the new direction laid out by Parnell as a positive step forward and looks forward to working with the state and the Legislature.

The Canadian Press


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