In 2007 the Alaska Legislature passed AGIA - the Alaska Gasline Inducement Act (Alaska Statute AS 43.90 et. al.). AGIA was intended to encourage expedited construction of a natural gas pipeline that facilitates commercialization of North Slope gas resources, promote exploration and development of oil and gas resources on the North Slope, maximize benefits for Alaskans from the development of our state's oil and gas resource and to encourage oil and gas lessees and other persons to commit to ship natural gas from the North Slope to a gas pipeline system for transportation in Alaska and elsewhere.
To meet this intent AGIA called for establishing a license and enacting statutory requirements for maximizing benefits for Alaskans during and after the construction of a pipeline. The entity selected to be the AGIA licensee was required to put forward a plan for a pipeline project that produces low tariffs (transportation costs) so that tariffs are not a barrier to continuing exploration, development and investment in Alaska's gas basin. Other required commitments include regular expansions of the pipeline, local hire, instate delivery service at reasonable costs and a firm timeline for development.
In exchange for meeting the state's requirements, the successful AGIA project applicant is entitled to certain inducements that will facilitate project development. An AGIA license entitles the licensee to up to $500 million in state matching funds to offset some of the initial risk borne by the project developer, and to a project coordinator who will help facilitate and expedite project permitting requirements.
AGIA also addresses the "upstream" needs of the project. Upstream is where the gas resource is produced, gathered and processed for shipping in the pipeline for delivery to market (the pipeline is "downstream"). AGIA provides for "resource inducements" to encourage North Slope oil and gas producers to commit gas for shipment on the pipeline. An oil and gas leaseholder who commits to ship gas in the pipeline in the first binding open season will be entitled to favorable changes to the state's royalty valuation method and to a 10-year freeze on gas tax rates with the rate set at the start of the first binding open season and beginning at the commencement of commercial operations.
In August 2008 the Alaska Legislature passed House Bill 3001, authorizing the administration to award the AGIA license to TransCanada Alaska. A comprehensive discussion about AGIA and the analysis that went into awarding the AGIA license can be found in the Findings and Determination made by the Commissioners of the Departments of Revenue and Natural Resources.
In June 2010 the project gained momentum when ExxonMobil and TransCanada announced that they had reached terms on a gas pipeline development agreement. This resulted in the creation of the Alaska Pipeline Project (APP). Since its formation, the APP has completed the commercial work necessary to develop an Open Season plan to identify the terms and details under which it would issue a precedent agreement seeking firm transportation commitments from entities interested to commit gas to an Alaska pipeline project. The plan was submitted to the Federal Energy Regulatory Commission (FERC) on January 29, 2010. FERC approved the plan on March 31, 2010. On April 30, 2010, TransCanada Alaska, through the APP, held the first-ever Open Season for Alaska North Slope natural gas. On July 30, 2010, APP announced that it had received multiple bids for significant volumes from major industry players and others.
Following the conclusion of the Open Season the APP moved from the project development phase into the permitting phase. FERC was the lead federal agency exercising oversight of the permitting phase. During this time APP conducted extensive field seasons on the Alaska and Canadian sections of the proposed pipeline route from 2010 to 2012. Under the tight deadlines governing this project the APP was required to prepare a complete application for a Certificate of Public Convenience and Necessity (CPCN) by October 31, 2012, in order for FERC to prepare a project environmental impact statement or EIS.
As part of the pre-filing process with FERC, APP prepared 11 comprehensive draft resource reports collecting and analyzing detailed information related to such topics as the project description, wetlands, cultural resources, socioeconomic impacts, etc. The draft resource reports were filed with FERC in December 2011.
Draft Resource Reports
With the completion of the 2010 Open Season, APP made significant headway on the regulatory path of the project. Progress on the commercial side of the project was slow. Due to the confidential nature of these commercial negotiations, very little information was publically available.
Towards the end of 2011 and into 2012 Alaska Governor Sean Parnell called upon ExxonMobil, BP and ConocoPhillips (the “Alaska North Slope Producers” or “ANS Producers”) to align with the APP and identify a concept for a large-diameter liquefied natural gas (LNG) export project from Alaska’s North Slope to tidewater in Southcentral Alaska.
In the January 2012 State of the State address Governor Parnell announced a roadmap for progressing an LNG project to monetize ANS natural gas. That roadmap identified five benchmarks:
- Resolution of the Point Thomson litigation (http://dnr.alaska.gov/commis/priorities/point_thomson.htm)
- ANS Producers align under an Alaska Gasline Inducement Act framework and work on a large-diameter liquefied natural gas line through Alaska to tidewater
- Discuss potential to consolidate two state-funded projects, one advancing a large-scale natural gas project under the Alaska Gasline Inducement Act (AGIA), and a smaller-scale, in state gas pipeline project, under the Alaska Gasline Development Corporation (AGDC)
- ANS Producers and APP to harden their numbers on an Alaska liquefied natural gas project that will identify a pipeline project with an associated work schedule, and
- Providing the first benchmarks are met, that the 2013 Legislature can take up gas tax legislation designed to move the project forward.
A full discussion of the Project Transition is available in a report submitted by the Alaska Gas Pipeline Project Office to the Alaska legislature in August 2012. Project Transition Report
The first four benchmarks were met by the end of 2012:
- On March 29, 2012 the State of Alaska settled its litigation with ExxonMobil and the ANS Producers over Point Thomson. Details of that settlement are available on the Alaska Department of Natural Resources website at: http://dnr.alaska.gov/commis/priorities/point_thomson.htm
- On March 30, 2012 the CEOs for the ANS Producers jointly signed and submitted a letter to the Governor announcing their companies alignment, under AGIA, to explore an LNG project to tidewater.
- Ongoing discussions were effected by representatives of AGIA and AGDC to determine the potential to consolidate these projects.
- On October 3, 2012 the ANS Producers and TransCanada announced that they had made significant progress in developing the parameters around an Alaska LNG export project.
In September 2012 TransCanada announced the results of a recently completed market solicitation to identify interest from potential shippers in a major natural gas pipeline project. TransCanada is required under its license with the State of Alaska to conduct non-binding solicitations of interest every two years. Though the results of the solicitation are confidential, a representative of TransCanada reported that the company had received interest from potential shippers and “major players from a broad range of industry sectors and geographic locations,” including North America and Asia.
As the ANS Producers and TransCanada move forward in the process that will refine the concept selection process for an LNG export project, a significant development took place on December 3, 2012 when the U.S. Department of Energy, Energy Information Office released a comprehensive study evaluating the macroeconomic impact of LNG exports prepared by NERA Economic Consulting. As reported in Reuters on December 5, 2012, this report “offered a strong endorsement for expanding liquefied natural gas exports” asserting that “shipping the nation’s surplus gas abroad would clearly help the overall economy even though it will cause domestic energy prices to rise.”
Alaska Pipeline Project