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Royal Dutch Shell Plc .com: Port authority lawsuit dismissed

Judge finds authority’s antitrust allegations inadequate; Alaska Gasline Port Authority does not have legal standing to pursue action; Whitaker disappointed, but undeterred, deciding on next steps

By Alan Bailey
From Petroleum News

A federal judge has rejected the Alaska Gasline Port Authority’s antitrust lawsuit against Exxon Mobil and BP, in response to a June 2 request by the oil companies for dismissal of the case.

On June 19, Judge Ralph Beistline of the U.S. District Court for the District of Alaska granted the motion of dismissal, because the port authority “has not pleaded adequate facts to show that it is authorized, and has antitrust standing, to pursue this action.”

The port authority proposes building a gas line from the North Slope to a proposed LNG plant in Valdez, for the export of North Slope natural gas from Alaska.

Formed by three municipalities along the route of the proposed pipeline, the port authority is a political subdivision of the state of Alaska. As a government entity, the port authority would be able to issue tax-advantaged bonds for funding the pipeline project.

Competing proposals

But the port authority’s proposal competes with a proposal by North Slope oil producers Exxon, BP and ConocoPhillips to build a gas export line to the Lower 48 via Canada. The companies have argued that exporting the North Slope gas as LNG through Valdez is uneconomic.

The companies have also questioned the port authority’s ability to successfully complete its proposed project both on the basis of a lack of experience and because the producers have refused to commit gas to any line except their own.

“The port authority has no experience and no background in the very complex and demanding businesses of designing a pipeline, constructing a pipeline — particularly in the very adverse Arctic conditions in Alaska,” said BP attorney Matthew Heartney on June 2.

Alaska Gov. Frank Murkowski has endorsed the oil companies’ proposal for an Alaska Highway pipeline and has also proposed that the state partner with the companies to build the pipeline. The Murkowski administration has negotiated a contract with the companies under the Stranded Gas Development Act — that contract is now undergoing public review.

Refusal to sell gas

The port authority’s lawsuit, originally filed Dec. 19, stemmed from a refusal by the oil companies to sell natural gas to the port authority’s project. The port authority has said that the refusal of the companies to sell gas is the only factor holding up its project and that the refusal caused Sempra Energy Co. to back out from being a potential gas purchaser and providing some of the funding for the project.

“This is an effort to acquire a supply (of gas),” said Jim Whitaker, chairman of the port authority and mayor of the Fairbanks North Star Borough. “They have refused to deal, therefore we are here.”

The lawsuit claimed that Exxon and BP are restricting the nation’s supply of natural gas and eliminating competition for the exploration, development and marketing of natural gas from Alaska’s North Slope to U.S. markets.

But BP said that the question remained one of project viability.

“Our North Slope gas has always been available to commercially viable projects. It’s not at all clear to us that the port authority project is viable,” BP spokesman Daren Beaudo said.

Independent consultants have determined the companies would get a lower wellhead price with an LNG project.

Lawsuit dismissed

Judge Beistline praised the efforts that the port authority has made in trying to bring North Slope natural gas to market. But Beistline dismissed the lawsuit for several reason.
First, Beistline said, the port authority had failed to meet required standards of preparedness as a potential market entrant in an antitrust case.

For example, “Plaintiff’s ability to finance the construction of its pipeline is speculative at best,” Beistline said.

Next Beistline rejected a port authority claim that BP’s acquisition of ARCO, the merger of Exxon and Mobil Corp. or Exxon’s acquisition of half of Shell’s production interest in Prudhoe Bay were illegal under federal antitrust laws. Beistline commented that the Federal Trade Commission had approved the company acquisitions and that the port authority had failed to show that the acquisitions “could have had any effect on the refusal to sell Plaintiff the North Slope gas that is the core of the case.”

The port authority also sought a claim under Alaska’s Unfair Trade Practices and Consumer Protection Act. But Beistline dismissed that claim because the claim was “based upon the same allegations of anti-competitive conduct as plaintiff’s federal antitrust claims.”

Charter provisions for gas expired

And Beistline upheld the oil companies’ rights not to sell their gas to the port authority.
The port authority had also claimed breach of contractual obligations under the Charter for the Development of the Alaska North Slope, a contract that formed part of the settlement between BP, ARCO and the state of Alaska following BP’s takeover of ARCO. Beistline said that the port authority is not a party to the charter and cannot, therefore, enforce its provisions. Moreover, charter provisions relating to North Slope gas expired on Dec. 31 2003, Beistline said.

Beistline also upheld a challenge by Exxon that the lawsuit conflicts with Alaska’s Stranded Gas Development Act.

In it for the long haul

Following the dismissal of the lawsuit BP said that Alaskans now have the opportunity to support a fiscal contract that will move a real gas pipeline project forward.
“We’re pleased that the court agreed with us that the port authority case has zero basis of credibility and was without merit,” said Beaudo. “A gas pipeline can’t be built on lawsuits, advertisements and Powerpoint presentations — it has to be based on good business.”

Whitaker said that his group is disappointed but undeterred and the port authority is in the process of deciding on its next steps.

“This is a long road and we are in it for the long haul,” he said.

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