Celtic Diva's Blue Oasis: Special Session: Sen. Johnny Ellis Newsletter

Sunday, June 08, 2008

Special Session: Sen. Johnny Ellis Newsletter

I love my district! Here is a summary from Sen. Johnny Ellis which gives us information that piggybacks nicely with what we heard from Berta Gardner!

June 6th, 2008


Friends and Neighbors,

Tuesday evening, the legislature began the 60-day clock to approve or deny TC Alaska’s application for an AGIA license to build a natural gas pipeline. After Governor Palin’s intensive three-day conference in Anchorage , this week was dedicated to the independent experts, hired by the legislature, who presented their analysis of the proposal, and for the most part, they have confirmed what we have previously heard. The hearings will be traveling around the state, and will be in Anchorage June 16-20, when I encourage you to attend and get a first-hand look at this debate. There are a number of key issues, but I would like to address a few which have received a lot of attention. Although I am favorably impressed with the information we are receiving regarding the AGIA license the Governor is proposing to award to TC Alaska, I am keeping an open mind as information continues to come forward.

This week we heard from the legislature’s independent experts on the TC Alaska gasline proposal. They have, for the most part, confirmed the analysis of the Governor’s team which presented last week in Anchorage , although I will wait until all the information is made available to make a final decision.

LNG: A pipeline from Prudhoe Bay to a liquefied natural gas (LNG) plant in Valdez has been discussed in Alaska for decades. Although such a line is possible, and is likely economic, it is less profitable for both the state and the producers and faces higher costs and risks than an overland connection to the Lower 48. The extremely high costs of an LNG plant, the complications of shipping contracts, and the political difficulties of exporting Alaska ’s gas to Asia at a time of record-high energy prices may outweigh the higher gas prices available overseas and make this option more difficult. However, the overland route does offer the possibility of a Y-line, which would give Alaskans the ability to choose the best market for our gas.

$500 Million: Under the terms of AGIA, the state will match up to $500 million of the costs of applying for and receiving FERC certification, which is the federal regulatory approval necessary for any project to move forward. The question raised is why this money is necessary if the project is already profitable. The matching funds provide insurance that TC Alaska will live up to the AGIA ‘must-haves,’ which are designed to ensure that the project provides the maximum benefit to the state by promoting further exploration and development, creating long-term jobs, and allowing in-state access to gas. It also lowers the tariff to the point where, over the first 25 years of operations, the state is projected to make our money back along with more than 5% interest.

Duty to Produce: One of the largest question marks facing the TC Alaska proposal is whether the North Slope producers would be willing to commit their gas to a pipeline project that they did not control. Oil and gas leases contain a clause which requires them to be developed as long as it is “reasonably profitable.” While this clause does not require the producers to build a line themselves, legal experts we have heard from agree that it would force them to put their gas into a third-party line. Profits for producers – especially from the reserves at Prudhoe Bay , which require very little additional cost to produce – are substantial under all foreseen scenarios.

In fact, a slide presented by one of the legislative consultants spells out the potential profits for all parties involved. Over the first 25 years, the State of Alaska is projected to take in $115 billion (all numbers are nominal undiscounted cash flows), the producers stand to make $74.1 billion in profit, the federal government $46 billion, TransCanada $16 billion, and $8 billion remains for the Canadian government and provinces. Although many people had discounted the earnings potential of Alaska ’s gas, and it is not as valuable as oil, the sheer volume gives it the ability to match or surpass the impact North Slope crude has had on our state if we are able to build a pipeline and bring it to market.

***NOTE: We had some very interesting and informative dialogue in the comments on the Berta Gardner newsletter thread:***

Polarbear said...

I am listening, also, and thank you for the post. A few more points...

Trans Canada already possesses the rights of way through Canadian Native land on the pipeline route. I understand they are the only company to possess these rights beforehand, thereby eliminating years of delay.

The five natural gas spurs mentioned in the TCA proposal are under-appreciated. A southcentral spur would not only reach Anchorage, but would also provide gas to under-served rural communities along the route. Other small-diameter spurs could be constructed to other under-served rural areas of Alaska, long in need of basic infrastructure.

Last, a concern. I am told that all the pipe for the TCA line would be ordered overseas - that US steel mills cannot produce the pipe. I have not double-checked this claim. Still, the gas pipeline will be the largest single steel order in history. I would think a certain Presidential candidate from Chicago might want to use this as an excuse to upgrade US steel production capability. This steel order could rejuvenate many communities in the rust belt.

CelticDiva said...

Thanks, Polar!

I don't think I've ever gotten so much information in so few words!

Perhaps this is an issue that Superdelegate Patti Higgins could discuss with the Obama campaign before she announces her movement to the Obama camp.

Polarbear said...

Good idea. There are substantial steel mills in Illinois, Indiana, Ohio, Pennsylvania, and West Virginia. The TCA steel order, if placed in the USA, would be large enough to rejuvenate the entire industry. I hope Patti Higgins is able to have that conversation.


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