State says it's keeping close eye on gas line project: REPORT: Ramras wants clarification of license agreement.

Nov 04, 2009 (Anchorage Daily News - McClatchy-Tribune Information Services via COMTEX) -- TRP | Quote | Chart | News | PowerRating -- State officials said Tuesday that they are closely monitoring a major pipeline company's progress on a North Slope gas line to ensure the state's multimillion-dollar stake in the project is well-spent.

The Alaska Department of Natural Resources on Tuesday issued a 51-page report detailing work so far by TransCanada Corp. and Exxon Mobil, the two companies attempting to develop the pipeline under a state license, which requires the state to reimburse up to $500 million of the cost of the multibillion-dollar project.

The two companies now have 100 people working full-time on the project and have hired 24 Alaska firms as contractors. State officials and consultants are flying twice a month to Canada and Texas to monitor the companies' work. Also, TransCanada has purchased office space in Midtown, the report said.

Within hours of the report's release, state Rep. Jay Ramras, R-Fairbanks, announced that he will introduce a resolution asking Gov. Sean Parnell and his commissioners to clarify certain legal aspects of the state's license agreement with TransCanada. For example, the legislation that paved the way for the license -- the Alaska Gas Inducement Act of 2007 -- requires the state to pay treble damages to the Calgary-based company if the state makes tax concessions to help out the developers of a competing gas line project.

There is such a competition. Two North Slope producers, BP and Conoco Phillips, are working on a rival pipeline project called Denali and, like TransCanada, they plan to seek gas commitments next year for their project in an event called an "open season." They and Exxon have said the state must hammer out a new tax policy before a gas line is built.

The Denali project already has offices in Anchorage and in Canada. It has spent more than $100 million so far in pipeline studies and will spend "whatever it takes next year" to prepare for its open season, said Denali spokesman Dave MacDowell.

TransCanada had spent $18 million through June and was expected to spend an additional $125 million by the middle of next summer, when its open season will end, according to the new state report.

Ramras cautioned Tuesday that "the decisions moving forward could potentially have a billion-dollar impact to the state treasury and our ability to provide natural gas to our own residents."

State officials, in a press conference Tuesday in Anchorage, said they disagree with people -- such as Ramras -- who say AGIA might fail to result in a pipeline.

Instead, the officials said they are confident that a pipeline will be built by 2018.

They said TransCanada's open season is not a "litmus test" for the project. North Slope producers are likely to commit their gas, with conditions, to TransCanada's pipeline next year. That will trigger private negotiations between the producers and the pipeline company that could go on "for months," they said.

In Tuesday's report, the state Department of Natural Resources said:

--TransCanada's cost estimate for the gas line will be available by the end of April next year.

--The state hasn't reimbursed any of TransCanada's expenses yet but the amount due for the first seven months of work will likely total $5.1 million. Much of the state reimbursement -- almost $250 million -- will likely be paid during a two-year period that starts next July.

--Despite recent publicity about massive gas deposits in the Lower 48, the long-term outlook for North American natural gas demand and its future pricing has not "materially changed" in the past several years.

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Find Elizabeth Bluemink online at adn.com/contact/ebluemink or call 257-4317.

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