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Fairbanks Daily News-Miner: Anadarko, Shell back gas line plan

By Stefan Milkowski
Staff Writer

JUNEAU — Two oil companies with leases on the North Slope said Friday they were pleased with Gov. Sarah Palin’s natural gas pipeline legislation.

Representatives from Anadarko Petroleum Corp. and Shell Exploration and Production both offered their support for the Alaska Gasline Inducement Act, or AGIA, which sets up a competitive bidding process for companies that want to build a gas pipeline from the North Slope.

Mark Hanley, Anadarko’s public affairs manager, told members of the Senate Finance Committee he thought AGIA addressed the concerns of exploration companies like Anadarko and would provide the competitive process Palin is seeking.

He and Cam Toohey, Shell’s government relations manager in Alaska, both gave their backing to provisions in the bill spelling out how the pipeline owner should expand the pipe to meet additional demand.

The provisions require that any company wanting to build the line commit to assessing demand every two years and expanding the pipe when it’s “commercially reasonable” to do so.

They also require the pipeline owner to push for spreading the cost of expansions among all pipeline users through adjustments to pipeline tolls, rather than forcing new shippers to pay the full cost of expansions. “We think that’s critical,” Hanley said.

The requirement is waived if expanding the pipe would increase the tolls, or tariffs, by more than 15 percent.

Hanley explained that Anadarko probably won’t be ready to commit gas to a pipeline at the beginning — simply because it doesn’t know how much gas is on its leases — and will rely on being able to get space in the pipe later.

He suggested the requirement would have little negative effect on shippers that commit their gas at the beginning. Even though an expansion would add to the cost of the project, there would be more gas going though the pipe, so tariffs could actually go down for the first few expansions, he said.

Toohey also stressed the importance of “rolling-in” the cost of pipeline expansions.

If companies trying to ship gas down the pipe have to pay the full cost of expansions, they might not develop their gas fields at all, he said.

Toohey argued that encouraging exploration on the North Slope was also important to the state, which would benefit from the taxes and royalties associated with increased production.

The issue has been hotly debated over the last few weeks, with some arguing that rolling in rates forces existing shippers to subsidize new shippers.

Palin defended the provision in her weekly gas line briefing released Friday.

“If explorers were forced to shoulder the entire cost of the expansion, that expansion almost certainly would not occur,” she wrote.

“There are 35 trillion cubic feet of natural gas reserves proven on the North Slope, but many times that amount waiting to be discovered,” she added. “Only through use of rolled-in rate treatment can we establish the economic environment that will spur long-term exploration for these additional hundreds of trillions of cubic feet of gas.”

At the hearing, Sen. Charlie Huggins, a Republican from Wasilla, asked Hanley whether Anadarko was consulted in the design of AGIA.

Hanley said the company shared its concerns with the administration and met once or twice with them, but added that the administration met with lots of interested parties.

Hanley also offered lawmakers a warning and a plea.

He warned them that if the state went ahead with a pipeline owned by the three major producers, BP, ConocoPhillips, and Exxon Mobil, which control the vast majority of the gas, it would have to give the pipeline “extra scrutiny.”

Hanley challenged the producers’ argument that they are particularly motivated to limit the pipeline cost — and the tariffs needed to recoup that cost — because they’re the ones who will be paying the tariffs.

“They want the lowest cost, absolutely,” he said, “But we’re not convinced they want the lowest tariff.”

When the tariff is higher, the production arms of the companies just end up paying the pipeline arms, he said. “It’s going from one pocket to the other.”

And while the higher tariffs won’t hurt the producers, they will hurt the other gas producers and the state, he added.

Hanley’s plea related to the incentives AGIA offers to companies that commit gas at the first chance, during the initial “open season.”

The incentives, which include a 10-year freeze on gas taxes and adjustments to royalty provisions, are designed to entice companies to get on board early and help finance the project.

Hanley, whose company most likely won’t meet the first open season, said the incentives should also apply to companies that come in later.

The House Finance Committee on Friday began its review of the House version of the bill with an overview by Revenue Commissioner Patrick Galvin and Natural Resources Commissioner Tom Irwin.

The House and Senate finance committees are both scheduled to continue hearings on the bill today. The Senate committee is planning to take testimony from BP, Canadian pipeline company Transcanada, and the Alaska Gasline Port Authority.

Contact staff writer Stefan Milkowski at 388-6141 or [email protected].

Published April 28, 2007

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