Carrots and sticks characterize the eagerly awaited Alaska Gasline Inducement Act scheduled for unveiling March 2 in the state legislature, but vigorous action will be required to meet its goal of a mid-2008 start of the pipeline to deliver natural gas from the North Slope to the contiguous 48 states. In a preview of her pipeline proposal during a press conference Feb. 28 in Washington, D.C., Alaska Governor Sarah Palin ® talked about the plan's incentives and benchmarks. "We need to progress this project because there are concrete markets ready for Alaska's natural gas, entities competing for the right to tap our resources," Palin said.
The biggest carrot is up to $500 million for the developer who wins the job to help offset early regulatory and other startup costs. "We're proposing that this simply be gifted toward the project and not be allowed to be rolled into the tariff structure," explained Marty Rutherford, Alaska's natural resources deputy commissioner, and Palin's lead gasline advisor. Rutherford said the generous incentive would pay off in the long run by resulting in a lower tariff structure overall and by encouraging even more exploration and development beyond the 35 trillion cu ft of proven reserves on the North Slope.
Other incentives would include a state regulatory process that meshes as much as possible with the Federal Energy Regulatory Commission structure now in place.
The proposal's sticks, or benchmarks, include a provision for at least five "off-take points" on the pipeline from which gas could be removed for local use and guarantees the pipeline could be expanded to accommodate future gas finds. The developer would commit to budget reviews and construction timetables and would be required to set up a corporate headquarters in Alaska and hire in-state employees to build the project.
Palin and Rutherford outlined an aggressive timeline for the project.
They want the state legislature to pass AGIA by May 2007. Request for applications would follow in midsummer. In January 2008 the state would announce its selection of a developer. The selected builder would begin work by about June 2008.
The Alaska governor, who spent the last five days meeting with federal officials, industry executives and other Washington representatives, said she has no favorites for this project. "We have a competitive process where all viable entities can come forward and share their ideas on how to commercialize our gas and they'll compete for inducements that the state is ready to offer. State and quasi-state entities that want to compete, big three producers and the independents, they're all receiving the same message: that we have equal and fair objective criteria to judge their projects."
Potential bidders are mum on AGIA until they're able to review the proposal. David L. Sokol, chairman and CEO of MidAmerican Energy Holdings Co., Omaha, met with Palin earlier this week to talk about the gasline project. Susan Flaim, a spokeswoman for MidAmerican says, "It would be inappropriate to comment on the proposal until we have had a chance to review it."
The Alaska legislature, which must approve the project, failed to sign off on former Gov. Murkowski's (R) plan. At least one legislator is impressed with what he's heard so far. Alaska Senator Kim Elton (D) says he's pleased with the transparency the governor is building into the process. "This is not going to happen behind closed doors. Instead of being asked to just bless a product, Alaskans are going to be a lot more involved in it," he says. Nonetheless, the gas pipeline faces incredible challenges including crossing international boundaries, financing predicated on a volatile commodity and the price of infrastructure construction going up dramatically. "It will be one of the world's most expensive large-scale projects, breaking the $30 billion mark, if it hasn't already," suggests Elton.