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Northern Gas Pipelines, (Alaska Gas Pipeline, Denali - The Alaska Gas Pipeline, Mackenzie Valley Gas Pipeline, Alaska Highway Gas Pipeline, Northern Route Gas Pipeline, Arctic Gas, LNG, GTL) is your public service, objective, unbiased 1-stop-shop for Arctic gas pipeline projects and people, informal and rich with new information, updated 30 times weekly and best Northern Oil & Gas Industry Links on the Internet. Find AAGPC, AAGSC, ANGTL, ANNGTC, ANGDA, ANS, APG, APWG, ANGTA, ANGTS, AGPPT, ANWR, ARC, CARC, CAGPL, CAGSL, FPC, FERC, GTL, IAEE, LNG, NEB, NPA, TAGS, TAPS, NARUC, IOGCC, CONSUMER ENERGY ALLIANCE, AOGA,AOGCC, RCA and more... 2009 LINKS: FERC Reports to Congress, 1, 2, 3, 4, 5, 6, 7....; USGS Arctic Gas Estimates; MMS hearings: RDC, Our NGP, AJOC, DH, ADN, KTUU; Enstar Bullet Line: Map and News Links; ANGDA; Alaska Energy Forum; Prosperity Alaska 2008 LINKS:
Shell Alaska OCS Study;
WASHINGTON: Alaska Natural Gas Pipeline Act; History of H.R. 4; DOE Energy Bill Position, 6-02; Daschle-Bingaman Energy Bill (Alaska, Sec. 1236 & tax credit, Sec. 2503 & H.R. 4 Conferees), Tax Credit; See amendments, "Energy Policy Act of 2002"; "Alaska Natural Gas Pipeline Act of 2001 (Draft)" & Background Paper, 8-9-01;Alaska Legislature Joint Committee position; Governor's position; Governor's 10-Point Plan; Anadarko Analysis; U.S. Senate Energy Committee Testimony, 10-2-01 - text version; U.S. Senate Energy Committee Testimony, 9-14-00; Report on the Alaska Natural Gas Transportation Act of 1971, prepared by staff of the Federal Energy Regulatory Commission, 1-18-01 ALASKA: 1-23-03, Governor Frank Murkowski's State of the State Speech; 2002 DRAFT Recommendations to 2003 Legislature; '02 Alaska Legislation; Alaska Highway Natural Gas Pipeline Policy Council; Joint Legislative Gas Pipeline Committee; 9-01 Alaska Models: Canadian Routes, LNG, GTL; HR 4 Story; Cook Inlet Supply-Demand Report: AEDC; Commonwealth North Investigation & Our Article; Report: Backbone; Legislature Contacts; State Gas Pipeline Financing Study; 5-02 Alaska Producer Update; Kenai: "Oil & Gas Industry Issues and Activities Report, 11-02"; Alaska Oil & Gas Tax Structure; 2-27-02 Royalty Sale Background; Alaska Gas Pipeline Office opens, 7-01, and closes, 5-02; Betty Galbraith's 1997-1998 Chronology. Our copy. CANADA: 1-10-03, "Arctic Gas Pipeline Construction Impacts On Northern Transp."-Transport Canada-PROLOG Canada Inc.-The Van Horne Institute;Hill Times Reports, 8-30-02; 9-30-02, Cons. Info. Requirements; CBC Archives, Berger Commission; GNWT Economic Impact Study, 5-13-02; GNWT-Purvin & Gertz Study, 5-8-02; Alberta-Alaska MOU 6-02; Draft Pan- Northern Protocol for Oil and Gas Development; Yukon Government Economic Effects: 4-02 & PPT; Gas Pipeline Cooperation Plan Draft & Mackenzie Valley Environmental Impact Review Board; Mackenzie Valley Pipeline MOU Draft, 6-01; FirstEnergy Analysis: 10-19-01; Integrated Delta Studies; National Post on Mackenzie Pipeline, 1-02;Northern Pipeline Act; Haida Nation v. British Columbia; Indian Claims Commission; Skeena Cellulose decision -- aboriginal consultations required, 12-02; Misc. Pipeline Studies '02 COMPANIES: Alaska Gas Producers Pipeline Team Newsletter, 7-27-01; APG Newsletter: 5-02, 7-02 & 9-02; ArctiGas NEB PIP Filing Background; NRGPC Newsletter: Fall-02; 4-02 ArctiGas Reduces Field Work; BP's Natural Gas Page; Enbridge Perspective; Foothills Perspective; Williams Perspective; YPC Perspective, 7-02 MEDIA REFERENCE: Alaska Journal of Commerce; Alaska Inc. Magazine; Anchorage Daily News; Canadian Broadcasting Corporation; Fairbanks Daily News Miner, Juneau Empire; Northern News Services; Oil & Gas Reporter; Petroleum News Alaska; Whitehorse Star, etc. EXTENDED CONFERENCE NEWS: Alaska Support Industry Alliance, Anchorage Chamber of Commerce, Canadian Institute, Insight Information, Inuvik Petroleum Shows, International Association of Energy Economists, Resource Development Council for Alaska, Ziff Energy Group
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Northern Gas Pipelines: 2001 Policy Council Reference; Additional 2002 References Here Mission of the Governor's Alaska Highway Natural Gas Policy Council: "To promote an Alaska Highway Natural Gas Pipeline project to the lower 48 that also enables creation of a natural gas business in Alaska." 11-30-01: After a year's effort, this is the final report of the Council to the Governor; as expected, it executes the policy direction (above) given Council members early in the year. See Tim Bradner's Anchorage Daily News Commentary. Also, see our special RDC report here. Draft Recommendations of Committees, issued 10-28-01: Alaska Hire/Buy/Build, State Pipeline Ownership and Tax Structure, Federal/International Action, Access for In-State Gas Use and Future Opportunities, Environmental Considerations
1. Timeline 2. Council Members 3. Council Committee Structure 4. Council Meeting Agendas and Transcripts and Reports: Anchorage 4-5/01, Fairbanks 4-18, Kenai 5-17, Anchorage 5-24, Anchorage 7-11, State Royalty Share Committee Meeting, Barrow 7-19, Juneau 8-2, Anchorage 8-13, Anchorage 9-21, State Ownership/Tax Structure Committee; 10-3, State Ownership/Tax Committee Meeting; 10-17: The Access for In-State Gas Committee; 10-31, Final Council Meeting
March 1, full council meeting kick-off in Anchorage March 23, full council meeting/workshop in Anchorage April 5, full council meeting/workshop in Anchorage April 18, Fairbanks public hearing May 17, Kenai public hearing May 24, full council meeting/public hearing in Anchorage June 14, Tok/Delta public hearing July 19, Barrow full council meeting/public hearing (videoconference from Anchorage) August 2, Southeast public hearing August 23, Valdez public hearing September 17, (Postponed to 9/25) full council meeting in Anchorage October 8, final full council meeting in Anchorage Other important dates: October 1, written reports from subcommittees; October 30 first draft of final report; October 31, full council meeting to consider reports; November 30, final report submitted to Governor Knowles.
 3.
Committee Structure of the Council:
Alaska Hire/Buy/Build – Mike Navarre, chair: Jerry Hood, Rhonda Boyles, Jake Adams, Peg TilestonFederal/International Action – Charlie Cole, chair: Esther Wunnicke, Bob Penney, Jon Rubini, Jeff Feldman, George Wuerch Domestic markets – competing sources/sharing of the market Canadian national and territorial relations Access for In-State Gas Use and Future Opportunities– Ken Thompson, chair: Carl Marrs (vice chair), Rhonda Boyles, Al Adams, Brian Davies, Jim Jansen, Jerry Hood, Bob Penney, Jack Roderick, Lee Gorsuch, Jeff Feldman, George Ahmaogak, Bill Corbus
· Promotion or attraction of investment for in-state distribution and value-added processing
Environmental Considerations– Peg Tileston, chair: Brian Davies, Esther Wunnicke, Lee Gorsuch, Grace Schaible · Environmental impacts and necessary protection measures· Doing it right4.
Council Meeting Agendas (Obtain
Meeting Transcripts)
2-7-02: Please move to this extended page for a report on Governor Tony Knowle's special work session with the Council, convened for the purpose of announcing a plan for creatively supporting a pipeline via the Alaska Railroad's unique tax-exempt bonding capability.
9-25:
The Governor’s Alaska Highway Natural Gas Pipeline Policy Council held committee meetings then a full session, producing much different conclusions than the CWN volunteer citizens reached. In the morning, In-state Gas Use and Future Opportunities chairman Ken Thompson presented Texas’ Deputy Land Director, David Hall (Photo-left) to members. Hall said 9-21: The State Pipeline Ownership and Tax Structure Subcommittee of the Alaska Highway Natural Gas Pipeline Policy Council met Friday in Anchorage under Chairman Bill Corbus’ (Photo-left) leadership, to
The Committee will advise the Council on matters pertaining to state state royalty share issues, promotion/facilitation of GP (i.e. Gas Project) financing, state ownership issues, evaluation of relevant state tax structure. Various committee reports, including this committee's, are due to the Council by October 1, and the Council's charge is to provide all of its final recommendations to the Governor by November 30. It is during this interim period that the various committees are reviewing alternatives for state involvement and taking public comment from citizens throughout Alaska. For purposes of yesterday's discussion, the Committee had to make assumptions regarding the 'cost' of the GP and potential state investment scenarios (See draft, ...Investment Scenarios). Since producers and various project proponents are engaged in tens of millions of dollars of research (following 30 years of possibly $1 billion in research), and the state is not, the committee acknowledged that the final costs may be far different than those assumed at this time. For the sake of discussion yesterday, the committee assumed a $12 billion project, capital being financed with 40% equity and 60% debt. Under the first scenario, the state would own 12.5% (i.e. gas royalty percentage) of the GP segment from Prudhoe Bay to Fairbanks, with a state equity requirement of $180 million. A second scenario would have the state owning 12.5% of the GP from Prudhoe Bay to Alberta (Fox Creek) with a state equity requirement of $600 million. The last scenario would require $1.2 billion in state equity with the state claiming 25% ownership of the GP from Prudhoe Bay to Fox Creek. According to various member comments, a primary reason for exploring the option of state ownership at all, dealt with the value of having the state at the table of the GP's Board of Directors to oversee state interest.
Revenue Commissioner Condon (Photo; also, see draft DOR questions here) identified "places" for the state to look for capital to fund any of the scenarios, cautioning that under present financial circumstances, there wouldn't be general funds available for these alternatives. Funding sources include: 1. The Constitutional Budget Reserve Fund. Condon advised members the fund today totals $3 billion, and that "it was established with a role of providing a cushion when oil prices are low. My strong recommendation would never be that we draw it down to zero and that we always maintain some appropriate minimum balance." 2. The state could look to the Permanent Fund's Earnings Reserve Account. 3. The state could establish a new, independent "Authority". Participants concluded that acts of the Legislature would be required for all three funding activities. Chairman Corbus asked Department of Law advisors if they believed such participation would require statutory authority, and they replied that they did.
Permanent Fund Executive Director Storer (Photo-foreground, as Governor Knowles' legislative assistant, Mike Abbott-right, observes) answered four written questions posed by the committee and other verbal queries. Storer reviewed Permanent Fund investment policies and legislative mandates. Summarized, the Permanent Fund adheres to the "Prudent Investor Rule," he said. He counseled that, "clear legislative direction would be best for any {GP} investment." Any Permanent Fund GP investment would include such considerations as rates of return, liquidity, and compatibility with total diversification of the portfolio, among others. A GP investment, he said, "must have comparable yield to other investment opportunities." Member Ron Duncan inquired as to the Permanent Fund's largest current investment, to which Storer replied, "U.S. Treasuries." Commissioner Condon, speaking as a member of the Permanent fund Board, said of a potential pipeline investment, that "if a GP proposal came to the Permanent Fund Board today, with existing policies, it would be precluded given the framework which exists now. In my judgment, a change of policy by the Legislature would be needed." The committee discussion paused for some
time on the subject of financing by a separate, independent Authority of the
state. Member Ed Rasmuson (Photo-below, left) questioned Condon on the
history of gas pipeline financing over the past 20 years. Condon advised the committee that Section 103 of the IRS Code would need to be amended to provide for a GP Authority to be tax exempt. But he offered the encouragement that from his viewpoint Congress would be more amenable to the concept than it indicated 20 years ago. "At our present bond rating," he said, "we can probably convince the rating agencies to support a $600-800 million investment." (Note: While the author endeavors to produce accurate reports, he encourages all persons and offices named in this and other articles to provide additions/corrections to ensure validity of the historical record. -dh)
“A Significant Day in the Life of Northern and Southern Gas Pipeline Routes...and perhaps ANWR” Governor Tony Knowles did not name the “Alaska Highway Natural Gas Pipeline Policy Council” without design. While the Council has courteously—and one might say—patiently, listened to virtually all project proponents in its community meeting schedule covering the state (See schedule here), the declared objective has always been to build momentum in support of a Southern pipeline routing along the Alaska Highway. At no time in the Council’s 5-month history has evidence of that intent and growing momentum been clearer than at yesterday’s meeting in Barrow. Four citizens gathered in the Anchorage conference room of the Governor's office in the Atwood Building, as lucid and heartfelt presenters painted a picture for us of what appeared to be a large audience gathered in the North Slope Borough Assembly chambers in Barrow. We quietly watched the speakerphone on a polished conference table as the drama unfolded before us in a Technicolor movie focused on the screen of our own imaginations...and the conference operator professionally verified that Anchorage was plugged in, then Atqasuk, Anaktuvuk Pass, Kaktovik, Nuiqsut, Point Hope, Point Lay.
Co-Chairman Frank Brown (Photo-Brown, left, touring Phillips' LNG facilities at Nikiski with host, George Findling, during 5-17-01 Council meeting in Kenai), a retired Arco executive familiar with the Alaskan Arctic and her people gently opened the meeting, asking everyone to devote a moment of silence to the memory of Rosemarie Maher, a Council member and recently deceased President and CEO of Doyon Ltd., the Fairbanks-based Alaska Native Regional Corporation. In a resonating southern accent, Brown warmly thanked the North Slope Borough, Arctic Slope Regional Corporation’s Jake Adams and former state Senator Al Adams (Council Members) for helping to facilitate the meeting. He thanked Governor Tony Knowles and Lt. Governor Fran Ulmer for their attendance and asked them to speak. Knowles again thanked the group’s hosts, then settled into his message. He recognized the leadership North Slope residents have shown through their support of economic development balanced by protection of the environment and subsistence lifestyle. "The North Slope is ground zero for oil and gas development," Knowles said. "The Inupiat people of this region strongly support jobs, schools, and sewer systems that oil and gas production brings .... They are also fierce protectors of whales, sea mammals, and a subsistence way of life. That's why they support the Alaska Highway route and adamantly oppose the risky gamble of a pipeline into the Arctic region." Ulmer referred to her May visit in which hunters escorted her out on Beaufort Sea ice to witness subsistence landings of two Bowhead Whales in the same day. Yesterday she visited municipal utilities, including the natural gas plant. She said that there are lessons all Alaskans can learn from North Slope residents on “how the state can balance a subsistence lifestyle with resource development.” Natural Resources Commissioner Pat Pourchot offered the official state pipeline presentation, saying that the “purpose of the Administration” is to move gas along the highway while making use of the gas in Alaska and achieving other benefits. (See full presentation here.)
Brown introduced North Slope Borough (NSB) Assembly President, Molly Pederson (Photo-right, 7-19-01, by Noe Texeira), speaking for Mayor George Ahmaogak, now attending International Whaling commission meetings in London. She spoke of NSB, "...partnership with the state and the industry", balanced by "...adequate protections for the land and the wildlife...." In a quiet but forceful voice, she told of North Slope citizen support for ANWR efforts. "The (ANWR) lobbying effort has demonstrated that our people get a very warm reception from Congress," she said. "...because we have an agenda that extends beyond oil income...and because we deliver the most powerful response to the Gwich'in, who are among the environmentalists' most potent weapons". She moved to the subject of the day. "We bring the same attitude of partnership to the issue of gas development....By using the existing pipeline corridor instead of the Beaufort Sea, the highway route makes the most environmental sense....we increase the potential for in-state use of gas....gas production and transportation down the existing pipeline corridor...will help to sustain our tax base...." (Full text available here.) Barrow Whaling Captains Association Vice President, Charlie Neakok, speaking for the Alaska Eskimo Whaling Commission (AEWC) offered empassioned endorsement of the Alaska Highway route, first stating that "We understand that the United States needs North Slope oil and gas, and we are a people who believe in sharing. ...there have been some indirect physical benefits to our communities from oil development and....we gladly acknowledge them and are grateful for them." As to pipeline routing, Neakok said, "...the AEWC supports this...'Alaska Highway Route' for a number of reasons....access to natural gas...job opportunities...North Slope Borough tax base....The AEWC adamantly opposes the proposed...'Northern Route'." That route, he said, would "go directly through the fall migratory route of the bowhead whale...through important feeding areas for the migrating whales...disrupt the diet and lifestyle of the many communities and families." Finally, he said, "We will share...up to the point where they threaten our subsistence....Then we will not share anymore. We will fight....we will oppose them absolutely." (Full text available here.) Former Natural Resources Commissioner John Shively, representing Foothills Pipe Lines Ltd., announced approval of a memorandum of understanding with the state to continue work, on a Right of Way application first filed in 1981, involving about $2 million for approximately 230 miles of routing. Chairman Brown invited Alaska Gas Producers Pipeline Team's Curtis Thayer to take the microphone for an update on the over $70 million study project designed to produce a pipeline routing decision and FERC application by year-end or shortly thereafter. (See 5-28-01 Archive reference and this week's Legislative testimony of the Producer Team scheduled for uploading here this weekend.) The Team is studying the two major routes and expects to have results and a FERC application by year-end or shortly thereafter. About 90 company employees are assigned to the project with support from about 500 contractor employees. ... Even those at the other end of a speakerphone could sense growing tension in the meeting atmosphere when, quite unexpectedly, the Governor himself began to question Thayer: Acknowledging that, as many have observed, Thayer is , "...a good representative of the producers," Knowles wanted to know, in light of the "outstanding testimony of AEWC" how the companies were going, "to quantify this kind of testimony". Council members began to probe Thayer with similar questions, many of them rhetorical, and offering their own comments. Council Member Carl Marrs, also President of Cook Inlet Region, Inc., wondered: "How do you respond to these groups on the North Slope that are most affected?" Thayer repeated that the companies were in the midst of a study of the two primary routes and that , "...neither analysis is complete." Member Bob Penney, counseled, "I hope you'll take this message back...." In response to a question from Member and Fairbanks North Star Borough Mayor Ronda Boyles, Thayer verified that the "human elements" of the alternative projects would be considered. Former Attorney General and Council Member Charlie Cole of Fairbanks delivered testimony on behalf of the Alaska Gasline Port Authority (LNG project) earlier in the week and wanted to know how anyone could say the northern route would be cheaper if studies on the sea bed were incomplete. Thayer said that without checking with his bosses (welcome pause for laughter), he could say that it would involve a shorter distance. Council Member Ken Thompson, said that speaking as a former president of Arco Alaska, Inc., the overall benefits to the state should be considered, even if a certain project resulted in a "...lower cost per MCF." (Obtain Thompson's 7-9 Chamber PowerPoint speech here, story below. He told Northern Gas Pipelines this week that "...the primary focus of the speech was "Clean Energy Self Sufficiency for Alaskans". This important vision will be realized if a gas pipeline comes south...it will not be realized if a pipeline goes north.... The secondary focus of the presentation was the concept of a centralized trading hub off a southern gas pipeline route to allow for future access to multiple markets, including access within the state for the very valuable North Slope gas resource for Alaskans.") Member and retired BP executive Brian Davies wondered if Thayer's group had an economic project; Thayer repeated that studies are ongoing, that when the analyses are complete the companies would make their decisions. Attorney Cole probed further: "What is it that leads you to say the project is not economically viable?" Thayer said he could not announce an economic project because the economic analysis is not complete and, "...until such analysis is complete we can't know if it is economically viable." He said the process was like designing a car, that alternatives would be presented to the companies and they would choose a design. Arctic Slope Regional Corporation Vice President-Lands, Richard Glenn, spoke eloquently of ASRC's desire for "Access: ...to Capacity, ...accommodating areas of new natural gas production such as in the central Arctic; ...to Opportunity...in the design, construction and future operations of this major development project; ...to Process...an equity position in the Alaska gas pipeline or any of the related systems." He reminded the Council that "...ASRC is the largest landowner on the North Slope outside of the Federal government, with title to more than four million acres of surface and subsurface estate. ASRC's lands include more than three million acres in the central Arctic foothills, one of America's premier natural gas provinces." Glenn then said that, "ASRC would like to join the North Slope Borough, the whaling captains of our villages, and many others in supporting an overland route for the Alaska natural gas pipeline." (Full text available here.) The ever affable Charlie Cole, possibly not intending to rise above his inherent Fairbanks and LNG project conflicts, observed that the northern route would provide no gas for Fairbanks and asked Glenn, "Do you think gas would benefit Fairbanks?" Once again room tension eased with laughter and Glenn cheerfully responded, "I can take a stab at that, Charlie...", reiterating the superiority of gas as a fuel to coal, wood and diesel. Member Jack Roderick questioned Glenn further on his earlier statement regarding pipeline ownership and Glenn replied that ASRC wanted, "...a place in the process...," and ways to, "...better the lives of our shareholders". Moving to the teleconference network, Chairman Brown called upon Alvin Lieb of Atqasuk, who supported an overland route for the pipeline. Kaktovik Inupiat Corporation President Fenton Rexford spoke for "110 shareholders ... in the middle of 1002 (ANWR)", also supporting an overland pipeline route and observing that, "...ice conditions this summer are very thick. ...ice ridges this summer bigger than the Egan Convention Center" have moved up on beaches and could preclude company sea bottom research. Jack Shaeffer of Point Hope, Will Tukrook of Point Lay and Kuukpik Corporation President Isaac Nukapigak of Nuiqsut also expressed opposition to the northern pipeline route. In addition to those named above, other Council Members attending included Bill Corbus, Peg Tileston, Jon Rubini, Anchorage Mayor George Wuerch, Jim Sampson and Grace Schaible who all expressed appreciation to their hosts as the meeting opened. Just as the impressive array of stakeholders expressed support for a pipeline route, so did they reaffirm solidarity for the need to properly explore the small portion of the Arctic National Wildlife Refuge previously set aside for that purpose. (Note: See author's commentary on this week's events here. While the author endeavors to produce accurate reports, he encourages all persons and offices named in this and other articles to provide additions/corrections to ensure validity of the historical record. -dh)
Federal/International Action Committee: Charlie Cole, Chairman Chairman Cole
introduced Alaska’s longtime Washington D.C. representative, John
Katz (Director of Alaska State/Federal Relations and Special
Counsel to Governor Knowles), and Robert Loeffler (former
Alaska Assistant Attorney General, Attorney, Morrison & Forrester) both of
whom attended the meeting via teleconference. (Please reference
Northern Gas Pipelines Links to the
"AGREEMENT
BETWEEN CANADA AND THE UNITED STATES OF AMERICA ON PRINCIPLES APPLICABLE TO
A NORTHERN NATURAL GAS PIPELINE", the "Treaty", along with Canadian
legislation; and bibliographical reference to THE
ALASKA NATURAL GAS TRANSPORTATION ACT OF 1976 "ANGTA". Northern Gas
Pipelines has requested a copy of proposed, draft producer Amendments
to the "Securing America's Future Energy Act of 2001, H.R. 4" now being
circulated for comment, and will link them here shortly.
Now available, here. 8-9-01 with
background paper, here.) Cole asked about draft
enabling legislation North Slope producers have submitted to various offices
for comment, ultimately intended for Senate Energy Committee consideration.
Katz said it could be seen as an alternative to the Alaska Natural Gas
Transportation Act of 1976 (ANGTA) with respect to the Southern Route,
providing a 2001 process for enabling as contrasted with the 1976 process.
It could also give a “leg up” to producer applicants due to its criteria,
including gas ownership. “I think that in absence of these enabling
amendments, if the producers proceed with a route other than the southern
route they would have to comply with requirements of the Natural Gas Act.”
He observed that with the legislation applicants would have access to
expedited procedures for the northern or other routes. The amendments would
“expedite and circumscribe the administrative, legislative and judicial
processes with respect to either route,” he said. Asked about Foothills’
position, Katz said, “I think Foothills might argue that ANGTA provided an
exclusive franchise and they might even argue that theirs is the exclusive
route that has been sanctioned….” He added that Foothills might also say
that the new procedures would “skirt previous agreements”. Asked if the
draft amendment could affect the success of the northern route, Katz said,
“I think this makes the Beaufort Sea route easier. If they picked the
northern route, they would be able to avail themselves of an expedited
process…and in absence of this they would have to comply with provisions of
the Natural Gas Act that does not provide expedited…processes.” Loeffler
added that the 2001 bill would, “provide an overriding of older legislation
which in effect writes off ANGTA. On its face,” he said, “this new
legislation purports to be neutral…but the practical effect is that without
it Foothills has an argument that they have rights under the 1976
legislation and the producers have no such rights….” Cole asked if the
“…producers, in your view sent any signals in the last few weeks that they
favor the Beaufort Sea route,” and Katz replied that the producers have,
“said to us nothing in private that they haven’t said publicly.” Thompson
asked if Katz’ office received an advance copy of the legislation, or did
the producers do an ‘end run’. Katz said that “…to his knowledge there was
no consultation with state officials…,” but he said the producers had stated
they were submitting drafts to all of the offices and would consider all
input prior to formal submission to the Senate Energy Committee. Thompson
asked about the process of the legislation. Katz said that the House had
finished the bulk of its energy work for the year. “Clearly,” he said, “the
focus shifts to the Senate Energy Committee. “…the expectation is that in
mid September the Committee will begin to mark up oil and gas provisions…the
producers want to be in a position to interact with the committee staff in
August…the Senate leadership clearly wants to produce its own version of
energy legislation, moving it to the full Senate by Fall.” Sampson asked
about the “Billy Tauzin amendment” (i.e. eliminating
consideration of a Beaufort Sea route). Katz replied it was in the Energy
Bill. Wunnicke observed that the Producers may not feel a need for an
expedited approach in Canada. Katz said that he had been in touch with
consultants and other sources, that “…as far as I know there is not a
contemplation that similar legislation is needed in Canada.” Cole brought
up the subject of Prime Minister
Chrétien’s “open mike”
statement last month to President Bush indicating support for the
northern route. Ken McKinnon, Chancellor of Yukon College,
introduced himself offering staunch defense for the Alaska Highway route,
the Foothills project, ANGTA and US-Canadian treaty agreements. He
qualified his remarks by describing frequent trips to Alaska, family
relationships here, his former responsibilities as cabinet minister under
Premier Mitchell Sharp and his working relationship with former U.S.
Federal Inspector, Jack Rhett. “Our Prime Minister (Chrétien)
is astute…he doesn’t have to make a decision immediately on either route…the
Canadian position really is that they say eventually a pipeline down the
Mackenzie River will bring Canadian gas to Canadian markets…. We in the
Yukon can’t quite understand why there’s even talk about a pipeline across
the Beaufort. The Gwich'in
would fight it with everything available to them. The Beaufort route is a
‘no-go‘ as far as the government of Yukon and Yukon first nations are
concerned.” McKinnon said that Foothills has kept its right-of-way valid
through the Yukon. “Foothills,” he said, “believes they have upheld their
rights under the treaty and believes they have an enforceable treaty.”
Thompson referred back to the 2001 Energy Act draft amendments attributed to
the producers as suggesting that the provisions were a “direct attack on the
treaty”. McKinnon responded that, “Foothills has spent over $500 million
protecting their rights under the treaty and would fight the producers all
the way….” Katz responded that the producers have represented that the
amendments wouldn’t upset ANGTA, but observed that whomever, “…has the gas
determines how it goes. I do not think that the executive branch could
simply set aside the treaty….” Loeffler added that, “…a treaty can be
amended by the two countries…the legislation raises questions with respect
to ANGTA and whatever treaties and agreements are still in force.” Roderick
said that Mackenzie Delta producer statements suggested that Delta gas could
stand on its own. McKinnon said more proven reserves would be needed and
that, “I’m of the opinion that 10 years from now the battle will be whether
there will be a lateral along the Dempster Highway to join the Alaska
Highway pipeline at Whitehorse.” Sampson asked if producer ownership of a
gas pipeline should be an issue. Katz said the question is not currently at
issue in Washington. Davies distinguished between Dempster Highway and
Mackenzie River pipeline routing. McKinnon said both the Dempster and
Mackenzie Valley routes are being studied. Davies observed that the
Delta-only project was focused on the Mackenzie River route, not the
Dempster route, as the former is shorter.
Rep.
Ethan Berkowitz
(Photo, right) asked if the ANGTA/treaty would affect any LNG project. Access for In-state Gas Use and Future Opportunities: Ken Thompson, Chairman: Chairman Thompson said that the royalty formula for determining the value is, “…something we may look into for gas.” He suggested looking at the “higher of” methodology: market value vs. actual proceeds, and said that during a fact finding trip, the state of Texas had offered to provide Alaska with its model. Brown gave an example of California determining the value of a gas field near Long Beach by setting a fair market value, which the companies pay regardless of what the actual sales price is. Thompson introduced Bonnie Robson, Deputy Director of the Division of Oil and Gas, who discussed methods of valuation embodied in lease sales, including: “field market price, value at the well, value not less than, price agreed to pay at well by purchaser, posted prices by lessee or other producers in the field at the well, etc. She asserted that there are clearly alternative measurements of value. She noted it is, “mathematically given”, that using “higher of” measures of value always produces a higher value than if one used any single measurement of value. Thompson said that, “When we asked in Texas if they hear complaints from Exxon, Phillips or BP about ‘higher of valuation’, they said, ‘no’…. These parties have been living with these provisions elsewhere for decades.” Davies referred to the concept of a “quality bank”, given that, “…the gas person ‘a’ puts in the line is different that the gas put in by person ‘b’.” Thompson briefed the committee on European Union valuation principles and the need to properly monitor “forward integration”, to assure proper income to the state. Robson said her division has reviewed a number of issues applying to gas pipeline tariffs and valuation of gas. Some gas principles are in common with oil but some are unique to a gas line. Pipeline tariffs are based on estimated costs, she said, but actual costs may be different. “We don’t want to reward anyone for overestimating costs,” she said. Davies was concerned with lines of responsibility: valuation and royalty issues that should be the concern of the Council and those that should properly belong with government administration. Thompson concurred and the meeting adjourned as the Council regrouped to entertain public comment.Public Comment: Haines Mayor Don Otis offered the city as a future export site for ANS gas, highlighting port facilities and highway connections to Fairbanks. Sampson asked for producing company comment, indicating the Council ‘enjoyed’ Curtis Thayer’s appearance in Barrow (See 7-19-01 report above). Speaking for the Alaska Gas Producers Pipeline Team, Michael Hurley of Phillips Petroleum Co., smoothly delivered the standard presentation: mission, 100 company employees, over 500 contractor employees, seven lenses of evaluation, need for cost competitiveness with other sources of supply, etc. (See Team presentation, here). Boyles observed that in Barrow the, “…testimony was overwhelmingly, profoundly against the northern route.” She asked if the Team’s principals received that message. Governor Knowles, following up, said, “…if the message was heard, I hope that in the next presentation your ‘seven lenses’ would turn into ‘eight lenses’, the 8th being subsistence. That would make six of the eight lenses clearly linked to the highway route….” Hurley answered that the message had been heard. Berkowitz said there had been no mention of an all Alaska route and, “…has it been studied by the companies…dropped off the radar screen.” Hurley indicated the most likely scenario today was a pipeline to the Lower 48 but that some of the companies continued to study LNG and GTL alternatives. Corbus expressed interest in gas pipeline ownership and state participation. Hurley said the companies are aware of the State’s potential interest and that, “we’re not opposed to it.” Thompson commented on the potential synergy of an LNG route with the highway route. Hurley concurred that current LNG project scope of work involved that synergy and that, “…one would expect that to make a difference, but the top part doesn’t come for free….” Brown spoke of a “hybrid” pipeline concept, involving contract and common carriage. Hurley said he wasn’t aware of a situation in
 which
common and contract carriage would be combined in a FERC regulated
pipeline. Sampson welcomed Permanent Fund
Chairman Clark Gruening (Photo, left) and
Rep. Beth Kerttula (Photo, right) into the room. Robert
Venables observed that while “Haines is a valley of eagles, I’d also
suggest it is a valley of opportunity.” He reinforced Mayor Otis’ remarks.
“We have a deepwater port…wonderful road straight to Fairbanks…makes it
logical for Haines to be involved with staging areas during the construction
phase. We’ve had gas producers come through as they make their analysis,”
he said. In the future, Venables said Haines could fulfill a marketing
role, processing the gas for LNG shipment to Asia and/or processing other
gas components for sale in Southeast Alaska. Bill Leighty introduced
himself as director of the Leighty Foundation and suggested various concepts
including conversion of methane for fuel cell applications. Teamsters Local
959’s Tim Sunday gave his support for the Highway route and
emphasized the importance of providing Juneau workers an opportunity to
obtain pipeline jobs. Dave Hunts of the Skagway City Council said
his town was the gateway to the Yukon, with such facilities as a haul road,
railroad, deepwater port, and expressed support for development of Alaska’s
natural resources. White Pass Railroad president, Fred McCourse,
said pipeline work would give Skagway the opportunity for non-seasonal jobs,
stimulate the Whitehorse economy, which benefited Skagway as a logistical
center. He described local cooperation and support for the Highway route
from the railroad, the city, the Teamsters, the Marine Highway. Sue
Schraeder represented the Alaska Conservation Alliance. She did not
support any pipeline route and expressed determined opposition to the
northern route. She expressed concern against “streamlining or expediting”
processes applying to any project, supporting a “full public EIS process on
all routes and formation of a citizens advisory council”. Thompson asked
for her opinion on whether a northern route “…could ever be permitted”.
Schraeder said, “…’over our dead bodies’ comes to mind…(laughter)”.
Thompson said, “We’ve certainly heard that from the people on the North
Slope….” Schraeder said she was particularly concerned about “…the safety of
going under the sea and under pack ice….” Knowles thanked Schraeder for her
comments and encouraged her national affiliate organizations to become
engaged. Don Ethridge, AFL-CIO lobbyist, spoke in support of a
southern route, emphasizing the need for an “economic boost in Southeast.
…we want to see as many Alaskans as possible at work on the project,” he
said. Frank Avezak, Chairman of Alaska Interstate Gas Company
registered support for “…the Administration’s position of bringing gas as
close as possible to Haines.” He indicated his company has recent RCA
certification to serve up to 25 communities, “…from Kodiak to Metlakatla”.
He would provide methane, propane and butane to the service areas from a
purchase of state royalty gas. Jamie Parsons of the Juneau Chamber
said the Highway gas project would be good for Southeast Alaska. -dh
(While the author endeavors to produce accurate reports from meeting notes, he encourages all persons and offices named in this and other articles and readers-at-large to provide additions/corrections to ensure validity of the historical record. -dh...Draft Revision: 8-5-01, 1215 ADT.)
Revenue Commissioner Wil Condon reported on the status of research required by SB 158 to be competed by January 2002. As with other committees, Corbus’ shares the limitation of having its charter end by November with the Council’s final report scheduled for submission to the Governor. Meanwhile, the US Senate Energy Committee is likely to have completed its revisions to the Energy Act by then and the producer group is not expected to issue the result of its routing study before year-end. In that context, Condon said his department will, “…share with you preliminary conclusions, but we are now in the information gathering stage.”
Revenue Commissioner Condon was then asked to address tax structure issues. “Oil is a distinctive substance”, he said, “and has particular qualities…,” which make it subject to tracing. “Gas is much more fungible,” he said, pointing out that it is a mixture of molecules which, “…you can put in one day and take it out the same day in a different part of the country….” He pointed out that while he was confident the State could develop an appropriate accounting system, the complexity of gas transmission would impact both tax and royalty calculations. He then introduced State consultant, Pedro Van Meurs (via teleconference) as “…a private consultant in the business of advising governments in the area of oil and gas investments and fiscal systems and their competitiveness in the world market…, (and, who) did an extensive study on fiscal systems in place and how an Alaska LNG system could compete….” Rose asked if Van Meurs would be doing a more current economic study on LNG. Condon said that wasn’t the current plan, and that if there were to be an interest it could be pursued though if the Highway project is chosen there wouldn’t be a need. Member Jack Roderick asked if Condon was satisfied with Cambridge Energy’s studies (See previous council reports). Condon pointed out that though the study was completed almost a year ago and much has happened since, “…I am very satisfied with it.” Corbus, asked, “do you think the present tax structure is progressive or regressive and why…?” Van Meurs said, “When we were doing the work for possible LNG exports to East Asia…at that time we concluded it was not that suitable a system if you wanted to do relatively high risk projects. The fiscal system is what you call regressive.” He said it results in a situation in a ‘thin margin’ project where the burden becomes disproportionately high, because royalties are gross revenues paid, no matter the profitability…same with severance taxes. “Of course,” he said, “property taxes, relate to the cost…so, the higher the cost, the higher the tax…,” regardless of profitability. He said, “If you take all of that into account, the Alaska tax system relating to oil or gas is regressive…the thinner the margin, the heavier the government burden…. It hampers big large scale projects.” Representative Ethan Berkowitz asked if Van Meurs could identify a country or state that has a model tax structure. Van Meurs replied that Alaska is not alone in having a regressive fiscal system. There are similar regressive systems in the lower 48 and Alberta, Bolivia, Peru and Argentina. However there are many countries, which in order to promote diverse and high cost projects taxes have been restructured so as to not be regressive. “For example,” he said, “Norway has very high cost oil fields and has developed a system that when the profit margin is thin the burden of government is less. Brazil has had a successful offshore bidding round that has progressive elements. Alberta has done it with the oil sands projects. So these governments have modified their systems to be more oriented to profit.” He said that countries had created progressive tax structures and are successful with such systems if there are conditions which justify it. Governments implement such systems when they believe they should be sensitive to lower profits, he counseled. Roderick asked if a tax on profits is difficult to administer. Van Meurs replied that countries, “… like royalties because relatively speaking royalties are easy to administer.” As one knows the price of production, a percentage royalty is relatively easy to administer. Profit based systems, progressive tax structures, he said, are more involved system involving cost verification and price verification and requires a more skillful administration which sometimes results in disputes. On incentives, Van Meurs said it is possible to develop a more generic system, a system wherein royalties, severance and property taxes remove some of the burden and make the system more progress. And, he said, such a system can reduce the risk on the pipeline, “…thereby enhancing the chance that such a project can come about.” If the project made a bigger profit the state would make more, and if it made less the state would get less. It would redistribute the risk and thereby make it more attractive, he said.Roderick asked if the tax regime changed when one works with the producers as opposed to the owners of the gas pipeline. Van Meurs said that if the parties are separate each party has its own tax system to observe, but that the total project doesn’t occur unless the entire package makes sense for investors. Corbus recalled that the latest information he had received from Van Meurs was the 1997 LNG project report. “We are looking at highway routing”, he said. “In your 1997 study you had recommendations for improving the tax structure.” He asked if those would apply to the highway project. Van Meurs said that the earlier recommendations were based on the economics of an LNG project selling large volumes of gas to East Asia. The highway project is also a large project, he said, transporting large volumes of gas with a large risks and, “that some of the conclusions in our study would apply. “Of course,” he qualified, “the risks, prices, and marketing opportunities are different. Some of the logic of making government revenues on the back end instead of the front end may be applicable, he said. Corbus asked about the 20 mil ad valorem (i.e. property) tax , applied during the construction phase wherein there are no revenues. “It is quite burdensome”, he said, “but that is when the municipalities need the revenues most. How do other governments handle this situation?” Van Meurs said that property taxes are typically North American taxes; other governments do not typically have these taxes…and even in North America relative few governments have property taxes as high as 20 mils. Van Meurs agreed that property tax, “… is a very burdensome tax…,” but he went on to point out that in other areas local governments are often supported by the larger jurisdiction which, in turn, levies taxes. Roderick asked about the effect of partial state ownership of a pipeline on taxation of the pipeline. Van Meurs said that while there are various options for state ownership, he didn’t think it would change the overall equation.
Jerry Hass (Photo), Professor of Finance at the Cornell School of Business, briefed the committee on the Trans-Alaska Pipeline, tariff and profitability issues. He reviewed the history of oil pipeline tariff regulation, Trans-Alaska Pipeline System (TAPS) settlement methodology, TAPS profitability and gas pipeline regulatory methodologies. He said the FERC Williams II ruling for oil pipelines, ‘…is to this day the operative way of regulating the pipelines.” Looking back, he said, “…the TAPS investment was good for the companies: not generous, but not stingy.” As to the gas pipeline, Hass said the FERC and NEB are “likely” to use original cost, and reasonable rate as a regulatory standard. He said FERC “…over the last 2 decades has shown a willingness to let the parties negotiate a reasonable agreement, but if any party doesn’t agree, the ‘rock hard’ formula might be used.” He emphasized the importance of understanding ownership categories. "If a partnership and partners are corporations they can immediately take any tax credits or tax losses generated during construction or the early years of operations against taxable income from other activities, he observed, but if a pipeline is a stand alone corporation, any tax credits or losses would have to be carried forward to future years." Michael Hurley represented the Alaska Gas Producers Pipeline Team. He said the producers would like to initiate a dialogue with the state on fiscal certainty. He pointed out that Taps tariff issues covered by Jerry Hass just discussed is a part of history the companies don’t care to repeat. “Our goal”, he said, “is to have clarity and certainty as to what the rules will be for taxes and royalties, and hope that we can have that discussion before the legislature meets.” He said the companies had no specific proposal but had initiated dialog with the state, realized it was a time consuming process, but hoped that if it achieved visibility on decision makers’ ‘radar screens’, the issues could be resolved ahead of time. Member Rose asked if the producers could assist the state in reducing volatility by assisting it with such techniques as ‘hedging’. Member Rasmuson agreed that such an approach was reasonable. Hurley responded that it could be considered but that a pitfall could be that state officials might be concerned with ‘how’ the companies would hedge. “Realistically”, he said, we are looking at valuation clarity for severance taxes and royalties.” These are relatively easy to track with oil production, he said. “But with a gas market it is much more difficult to keep track of the molecules going in different directions.” He said state departments will have to become familiar with markets. He added that there is a distinction between producers who pay royalties and taxes as opposed to the pipeline company transporting the gas. He concluded that pipeline ad valorem (i.e. property) taxes tend to be regressive and front-end loaded. State and local governments begin to collect these taxes long before the first gas flows and begins generating revenue. “We don’t have any specific proposals in mind,” he said, but indicated it was an area that the state and companies could work on. He also noted the difficulty which would be posed should the state request royalty gas ‘in value’, causing the companies to arrange for long term sales, if the state were then to come back and ask for the royalty volumes to be paid ‘in kind’. (While the author endeavors to produce accurate reports from meeting notes, he encourages all persons and offices named in this and other articles and readers-at-large to provide additions/corrections to ensure validity of the historical record. -dh...Draft Revision: 8-20-01, 1015 ADT.) |
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Condon replied that pipelines used to be "universally" financed on company
balance sheets, but in recent years, more have used project financing. "The
more we get into this the more important I believe it is to determine the
financing practices employed during the last 20 years." Members concurred
with Rasmuson’ s reasoning, concluding that with advances in pipeline
industry financing and the state's own experience in revenue bond and tax
exempt municipal bond financing, more research should be done. "I think
(Rasmuson's) comments are important," said member Roderick (Photo, brown
coat); "we
need
to know how others approach such financing issues." AIDEA Executive
Director Poe (Photo, above-right), with support from Commissioner Sedwick
("Our deliberations about ownership interest in a GP are ... timely"),
stated their resources would be available to the committee (
attending
the Baranof Hotel meetings included: Jim Sampson,
Co-Chairman (Photo-right, visiting Phillips' LNG facility
at Nikiski, 5-17-01); Frank Brown, Co-Chairman; Mayor Rhonda
Boyles, Bill Corbus, Brian Davies (Photo, left
touring Nikiski facilities with Lt. Gov. Fran Ulmer and
Council, 5-17-01), Ron Duncan, Mike Navarre, Ken Thompson,
Jack Roderick, Peg Tileston, and Esther Wunnicke.
Governor Tony Knowles, various state and elected officials from around
the state attended as well. Natural Resources Commissioner Pat
Pourchot, provided the State's standard, gas pipeline briefing
presentation,
Loeffler opined that the treaty doesn’t affect an export project. Loeffler
said he’d been advised that northern route aboriginal land claims have been
resolved that that issues about aboriginal pipeline ownership have not
(Note: refer to
interest
in fully developing the gas reserves. Davies clarified that Cole meant
there should be an opportunity for all gas producers to have access to the
pipeline. Thompson recalled a conversation with 
firms which specialize in such financing and Garner concurred. Member Dave Rose (Photo-below, right) inquired about the typical ‘coverage ratio’ for such financing. Garner said, “Typically you would like to see 1.3-1.4, but implied that the risks associated with an Alaska gas pipeline might require a greater coverage requirement and more equity than typical projects. (Note: ‘Coverage ratio’ refers to the amount of revenue in excess to its debt payment which a project must achieve in order to give investors confidence in the sufficiency of project cash flow. -dh) Rasmuson inquired about ‘ship or pay’ sales requirements which guarantee investors that regardless of future conditions the buyer will pay for the volumes for which he has
contracted. Garner said that these were common. Rose inquired about ‘completion risks’ (i.e. the risk that a project might be nearly
completed, but then fail. –dh) Garner discussed lines of credit. Rasmuson asked if Garner had, “…seen many such projects with government ownership.” Garner replied that he had not known of such large projects being government financed in the US though there was precedent in other countries. Rose expressed concern that if the State wished to employ tax exempt financing a gas project’s requirements could exceed the allowed quota for such financing in Alaska, that Congressional exemption would be required. He asked if Garner’s research would explore Alaska’s public financing quotas and the process by which the quota could be raised. Garner affirmed. Rasmuson briefed the Committee on prepayment penalty requirements common in some financing agreements and cautioned that if these were present in gas pipeline financing the economics of future refinancing to gain lower rates might be more difficult. “This is something the State should look into, since a reduction of rates may result in a desire to refinance.” He then added that, “…it appears that the financing may be fairly routine; but, the political aspects could be more difficult…. If we go the Canadian route we could cross several provinces/territories all with their own nuances.” Garner concurred. Corbus observed that cost estimates for an Alaska Highway route have increased (i.e. note: producers have recently indicated the cost could be within the $15-20 billion range). “Do you still see an appetite in the market for financing this type of energy project,” he asked. Garner said that, yes, it was the only major North American project immediately available. While all projects in the world will be looking to the same financial markets, he said, “…obviously, a U.S. project will be attractive to the marketplace.” Corbus cited reasons some say the State should invest in the gas pipeline. Garner said his firm was studying that issue and
while there are clearly positives and negatives associated with state ownership, there will be a recommendation in the report. “As part of our work we will be interviewing a vast number of stakeholders,” he said. Rose said that while the Permanent Fund had the latitude to make a limited investment in such a project, it would be a decision for the board (Note: Rose is former Executive Director of the Alaska Permanent Fund, now is in private practice as a professional fund manager. -dh). Member Mike Navarre said that, “If a pipeline is relatively risk-free, why wouldn’t we invest? While we are looking at a relatively low rate of return, maybe it would be sufficient for State fund investment.” Rose pointed out that another way the State could be involved would be by purchasing equity directly from pipeline owners. Garner repeated his earlier reference to project risks. Garner pointed out that this project would have political and environmental issues, like other projects, but that this project’s scale makes it different from projects built in more confined areas. Corbus asked if the study would look into possible participation by a tax-exempt ‘authority’ of the State. Garner affirmed. Corbus then reviewed the mission of the committee in light of deadlines discussed above. He suggested that while the committee would not have definitive answers on all issues by November, perhaps it should produce a matrix illustrating the process and options for use by the full Council. Navarre added that, “We should identify a process for evaluation since the committee work will be completed before this (i.e. Garner’s) report is submitted.” Rasmuson concurred, stating that pipeline ownership issues would be before the Legislature for at least the next session or two. Rose noted that part of the process should be to identify the variables. On a related subject, Navarre said the State should clearly identify any pitfalls involved in any tax changes. “My main interest,” he said, “has always been looking out for the State’s interest.” Rose and other members concurred with the Chairman’s suggestion that the committee provide the Council with a matrix.
