Resource Development Council

Parnell says bill is vital step to building gas line

The 2014 Alaska Legislature is drilling deeper into legislation introduced by Governor Sean Parnell to advance a $45-65 billion Alaska LNG project that would bring North Slope gas to Alaskans and markets abroad.

The governor’s bill (SB 138/HB277) comes after a milestone commercial agreement was signed by the state, the Alaska Gasline Development Corporation (AGDC), the producers, and TransCanada in January that laid out the roadmap for an Alaska gas line.

Legislative committees are working their way through the complex legislation, scrutinizing key elements of the bill.

Basically, the bill establishes state participation in the LNG project and defines a process for development of project enabling contracts and legislative oversight and approval of future contracts.

The legislation allows the state to carry out the commercial agreement, known as the Heads of Agreement (HOA), which provides a roadmap for the LNG project to ramp up the Pre-Front End Engineering and Design (Pre-FEED) stage. The HOA includes the state as an equity partner, provides gas to Alaskans, lays out proposed fiscal terms, and includes expansion principles that will allow third-party access to the project.

The legislation also provides authority to modify certain lease terms on property that commits gas to a natural gas project.

The bill would allow the state to pursue up to a 25 percent equity position in the project. It expands the purposes of AGDC to allow it, through a separate subsidiary, to advance a large-diameter natural gas pipeline project by carrying the state’s equity interest in the infrastructure, particularly the liquefaction and marine facilities in Southcentral Alaska. The legislation also ensures that AGDC will continue to aggressively pursue advancement of the Alaska Stand Alone Pipeline.

The bill includes provisions that relate to the oil and gas production tax, specifically to the tax levy on gas, changing it from a net tax to a new gross tax on gas.

In January, the state also signed a Memorandum of Understanding (MOU) with TransCanada defining the pipeline company’s role in developing a portion of the project.

The governor’s gas line proposal is complex. The HOA is 35 pages, the MOU is 29 pages and the enabling legislation is 49 pages, involving much more than state taxes. It calls on Alaska to invest billions of dollars into the project, sets up the state to undertake an active role in the design, development, and financing of the project, and aligns the state as a business partner with the producers and TransCanada.

Under the proposal, the state would not invest directly into the pipeline and a North Slope gas treatment plant, leaving that to TransCanada. However, the state would sign a long-term contract with TransCanada to ship its royalty gas.

The consulting firm Black and Veatch estimates potential profits to the state from its share of the project would be $3 billion a year by 2024.

Return to newsletter headlines