Alaska Legislature post-session update: SB21 authorizes natural gas negotiations.

• Author: Bradner, Mike
• Position: OIL & GAS

The state Legislature's signature natural resources accomplishment in its 2014 session was approval of Senate Bill 138 (SB138), a bill authorizing Governor Sean Parnell to begin negotiations for the state's financial participation in a large North Slope natural gas pipeline and liquefied natural gas, or LNG, project.

The negotiations are with major oil companies who are North Slope producers and TransCanada Corporation, an independent pipeline company. They would be the state's partners.

The governor signed the bill May 13. By June the state administration was to have signed several key agreements with the producers and TransCanada, including approval to move ahead with a $435 million Pre-Front End Engineering and Design for the giant project. The project overall is estimated to cost $45 billion to $65 billion, but the "pre-FEED" work getting underway this summer will also deliver an updated cost estimate. That will come in late 2015, state officials have said.

By 2015, negotiations are also expected to be complete on a Participation Agreement with the producer companies and TransCanada as well as a Precedent Agreement, or preliminary agreement, for the state to ship state-owned gas through pipeline capacity owned by TransCanada.

State legislators will have to approve those, and a special session of the Legislature will likely be called in late 2015 to review the agreements, state Commissioner of Natural Resources Joe Balash has said.

If the pre-FEED cost estimates are within an acceptable range, the companies and the state will decide whether or not to proceed to the full Front-End Engineering and Design, which will produce a more definitive cost estimate and set the stage for a possible Final Investment Decision in 2019. That would be the approval for construction.

Legislative approval is required at several stages, including the contract to ship the state's gas with TransCanada, the "Firm Transportation Agreement." That is important because it is a multibillion-dollar, long-term financial commitment by the state that is binding.

Structure of the Deal

Basically, the deal involves the state becoming a 25 percent partner in the project, investing in and owning a share of the large North Slope gas treatment plant, the eight hundred-mile pipeline, and the LNG plant now planned at Nikiski, near Kenai, sufficient to ship and process the state's "in-kind" share of gas production. That will be about 25 percent. Under SB138 the state will commit to take its...