A Citizen’s Guide

Alaska Gasline Port Authority officials criticized Gov. Frank Murkowski’s pipeline proposal and charged his administration with being uncooperative as they defended their own project Friday on the second day of a Senate committee meeting in Fairbanks.

The debate at times pushed beyond project economics to a fundamental disagreement between the administration and the port authority over the interests of the state and its three major oil and gas producers.

Port authority chairman and Fairbanks North Star Borough Mayor Jim Whitaker argued that if the port authority project did prove more profitable, lawmakers and the administration would be legally obligated to force the companies to ship gas through it.

If they were unwilling to pressure the companies, he said, the state would end up with a less valuable project, no project for 30 years, or whatever is in the interest of BP, ConocoPhillips, and Exxon Mobil, with whom the administration negotiated the proposed pipeline contract.

“We’re here to say we think that’s unacceptable,” he told members of the Senate Special Committee on Natural Gas Development and other lawmakers. “You do have another option, and you have the responsibility to ensure that that option is given fair vetting.”

Steve Porter, deputy commissioner of the Department of Revenue, said he appreciated the state’s responsibilities but argued that the port authority’s project was not more profitable and that it was better to start by working with the companies.

“You try to cut your commercial deal first,” he said.

Much of the debate on Thursday and Friday focused on the economics of the port authority’s proposal to transport gas by pipeline to Valdez, liquefy it, and ship it by tanker to the West Coast.

Natural Resources Commissioner Mike Menge said the state had considered the proposal.

“If there was any way on this green earth we could have embraced it,” he said, “we’d be behind it leading the charge.”

A new economic analysis done by a Legislative consultant boosted the port authority’s claim that its project is competitive.

Anthony Finizza, a consultant with Econ One Research, told the committee that under certain circumstances, the port authority’s “all-Alaska” pipeline, together with a branching pipeline to Canada, would be at least as profitable for both the state and the oil companies as a pipeline through Canada. Specifically, the project would be more profitable if the pipeline to Valdez could be completed significantly before a Canadian pipeline. The increased cost of the branching pipeline would be offset by the ability to earn revenues sooner.

Administration officials Friday challenged the assumptions behind the study. Ed Twomey, a lawyer working for the administration, argued the project wouldn’t be able to charge pipeline users for the oversizing of the pipe meant to accommodate a future pipeline into Canada. As a result, he said, the project would struggle to find investors. Roger Marks, an economist with the Department of Revenue, argued that the study had likely underestimated the cost of acquiring liquefied natural gas tankers that would meet federal requirements.

Twomey and Marks also questioned whether the project could in fact start earlier than a pipeline along the Alaska Highway through Canada. They argued that the project could be delayed if existing permits proved outdated or if the port authority was not exempt from oversight by the Federal Energy Regulatory Commission, as it claims.

“There’s just no question that FERC is going to take control,” said Twomey.

Finizza, the consultant, explained the importance of the jump start. He said any analysis would show that without the timing advantage, estimated at three years, the port authority project would be less profitable than a pipeline along the highway. Rep. Mike Kelly, R-Fairbanks, likened choosing the port authority project to picking a mule over a train because it could start sooner.

While the administration questioned the port authority’s claim that it could start by 2013, Sen. Gene Therriault, R-North Pole, questioned the administration’s claim that its project could be completed by 2016. He questioned whether the pipeline agreement, made with Alaskan subsidiaries of the oil companies, would require additional agreements with the Canadian subsidiaries.

“We don’t know that you’re going to be able to get through Canada in three years,” he said.

Menge responded.

“There’s no guarantee in anything in life, and certainly there’s no guarantees in Canada,” he said.

The important thing is to consider the interests and motivations of the parties, he said, and moving quickly on the pipeline would benefit all parties.

Whitaker suggested the administration’s proposal relied too heavily on matching the interests of the oil companies.

“Their mandate is to enrich their stockholders,” he said. “Our motivation is to do what is in the best interest of the state of Alaska.”

Whitaker argued the greatest risk for Alaska was that a pipeline would not get built. While the oil companies can choose among projects around the world, the port authority and Alaskans can’t, he said.

“We don’t need a four-year study to know that we damned well want to build this project,” he said.

During the meeting, Whitaker and project manager Bill Walker charged the administration with being uncooperative toward the port authority.

“It’s just tiring,” said Walker after defending the project from challenges by Marks and others.

“One of the biggest hurdles that we have now crossed,” said Whitaker, “is dealing with a very uncooperative administration.”

Whitaker argued it would be normal for the administration to help the port authority overcome its regulatory and fiscal hurdles.

“Instead what we’ve found is what you’re witnessing–continual, incredible resistance,” he said.

Porter said he mostly agreed but accused the port authority officials of being less than outright with information. He encouraged them to lay out their project, work on their hurdles, and make their project viable to the point where a gas producer would want to ship gas through it.

“The first and foremost thing this project has to do is get competitive,” he said.

Staff writer Stefan Milkowski can be reached at smilkowski@newsminer.com or 459-7577.