Alaska lawmakers approve LNG project legislation
Negotiations between the state of Alaska, major North Slope oil and gas producers and pipeline company TransCanada toward a partnership to develop the proposed Alaska LNG project will follow directions approved by state legislators April 20, the OFC for Alaska Natural Gas Transportation Projects reported. The measure, Senate Bill 138, was one of Gov. Sean Parnell's main legislative initiatives this year. It passed the Senate 16-4 and the House 36-4.
The legislation amends multiple state laws, allowing negotiations to proceed toward the state becoming an equity partner in the multibillion-dollar project — one of the world's largest liquefied natural gas export plants. Passage was essential for the five-party deal that will govern designing, permitting, building and operating the project.
Project teams this summer will ramp up preliminary front-end engineering and design work, known as pre-FEED, estimated in the hundreds of millions of dollars and expected to run through next year.
Full engineering, design and permitting would follow, estimated at more than $2 billion, with an investment decision whether to start construction possible by 2019 and gas flowing four or five years after that.
The legislation allows the state to take ownership of about 25% of the gas produced for the project in lieu of receiving payments for its royalty share and production taxes. The state would then sell its 25 percent of the gas and use the proceeds to pay its processing, pipeline and liquefaction expenses, depositing the balance in the state treasury.
The state would take an ownership stake in the LNG plant equal to its percentage of gas flowing down the line and would contract with TransCanada for the company to take the same percentage ownership on behalf of the state in the pipeline and North Slope gas treatment plant.
Signing a deal with TransCanada to stand in for the state on the pipeline and treatment plant would save the state from having to come up with about $6 billion to $7 billion for a 25 percent stake in those components at the same time that the state would be funding $6 billion to $7 billion for its 25 percent stake in the LNG plant. In return for signing on for the pipeline and treatment plant, TransCanada would be allowed at least a 12 percent return on its equity investment, built into the tariff it will charge for moving the state's gas.
Referred to as "enabling legislation," the changes in state law now will activate negotiations under two documents signed last winter: 1) the Heads of Agreement signed in January by the state and North Slope producers ExxonMobil, BP and ConocoPhillips and TransCanada covering joint ownership of the project, fiscal and other terms, and 2) the Memorandum of Understanding signed by the state and TransCanada, setting out terms for their pipeline arrangement.
Under the governor's plan, as outlined in January, state and company negotiators would present the contract and other commercial terms to legislators next year, likely in a special session in the second half of 2015. Though pre-FEED would be under way, the project would not proceed to full engineering, design and permitting until lawmakers approve the contracts, and until all of the parties feel more comfortable with the project's economics.
A project impact fund to cover municipal expenses during the construction boom — such as police, fire, schools and social services — and a negotiated annual payment based on gas flow in lieu of municipal and state property taxes also will be covered in the negotiations.
The producers and TransCanada estimate construction costs of the Alaska LNG project at $45 billion to $65 billion (2012 dollars). TransCanada would pay for the preliminary work for the gas treatment plant and pipeline but, under terms of the Memorandum of Understanding between the state and the company, the state would reimburse TransCanada for its expenses back to January 2014 — plus 7.1 interest — if the project fails to proceed. The Alaska Gasline Development Corp. estimates the state's repayment liability to TransCanada could total $70 million by fiscal 2017.