- Associated Press - Monday, January 27, 2014

JUNEAU, Alaska (AP) - An agreement to advance a liquefied natural-gas project represents a “groundbreaking achievement” for Alaska, Revenue Commissioner Angela Rodell said Monday.

But the project is far from a done deal, with several decision points over the next few years in which the state - or any of the other parties - can step away.

Administration officials on Monday gave lawmakers an overview of the agreement, which includes the state, TransCanada Corp., the Alaska Gasline Development Corp. (AGDC) and the North Slope’s major players: BP PLC, ConocoPhillips and ExxonMobil Corp.

This year, lawmakers are being asked to pass legislation introduced by Gov. Sean Parnell that would set general tax terms and allow the project to move through a phase involving preliminary engineering and design and refinement of project costs. That phase is expected to cost more than $400 million among the parties, with Alaska’s share between $70 million and $90 million.

A fiscal note attached to the bill estimates more than $80 million would go into a new fund and be drawn on by a subsidiary of AGDC. The legislation outlines the creation of both the fund and a subsidiary that would carry Alaska’s interest in things such as liquefaction facilities and marine terminal facilities.

Mike Pawlowski, a deputy revenue commissioner, said the fiscal notes are at the upper end of the costs laid out by Parnell. He expects that figure to be refined as the bill goes through the legislative process.

The state is pursuing an equity share in the project as a way of protecting Alaska’s interests. The commercial agreement, which has been described as a broad roadmap for a way forward, anticipates the state’s equity share at 20 to 25 percent.

The enabling legislation would move from a net tax to gross tax on gas, and set the rate at 10.5 percent on gas. That, combined with royalties, would determine the state’s participation rate.

The state also would have to pay its way on construction costs, commensurate to its stake in the project, Pawlowski told members of the Senate Finance Committee. But he said later it would not be, say, a $9 billion appropriation. Recognizing the costs, the state is bringing in partners like TransCanada and AGDC, and financing structures - like debt and equity terms - can help carry some of the state’s interest.

Sen. Bill Wielechowski, D-Anchorage, said the administration’s proposal strikes him as similar to the failed Stranded Gas Act, a suggestion the Parnell administration has rejected. He said the mistake that’s been made is asking how the state can help build a pipeline, rather than how the state can make money from Alaska’s gas.

The current proposal, he said, could well be the best option, but he believes the state has a duty to explore other ideas, too, like converting gas to liquids.

During the Senate Finance Committee hearing, the first of three in which administration officials presented, Sen. Kevin Meyer, R-Anchorage, said he wanted to be excited but “it seems a bit deja vu,” noting past efforts to bring about the long hoped-for line.

Natural Resources Commissioner Joe Balash said there are two differences on the producers’ side: One is the settlement over the disputed Point Thomson leases, which calls for the field to be more fully developed, and the other involves changes at Prudhoe Bay. He said he expects there to be a turning point in the economics at Prudhoe in the next decade where it will make sense for the companies to produce the gas and sell it without economic losses on the oil side.

Prudhoe has been a mainstay of Alaska’s oil production, and a major driver of oil recovery has been reinjection of gas, Balash said in an interview. The more gas you sell or take away from a field, the less there is to reinject, so companies for years have had to weigh that against the impact that would have on oil, he said.

“That’s been the case for quite some time,” he said. “We are getting to a point as we see it in the next decade (where) that is no longer true. That the gas if sold is just a revenue stream. There’s no loss of oil that goes along with it. So you don’t have to overcome that loss. We think we’re crossing over a critical threshold early in the next decade that’s going to facilitate this from the producers’ perspective.”

He said this is because so much of the oil has been recovered.

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