The Alaska LNG project: another natural gas partnership.

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

Once again, a plan for the state to partner with North Slope oil and gas producers on a large North Slope natural gas project is before the Legislature. Lawmakers are being asked for permission this year to make two key changes in law that would set the stage for negotiations of a final participation agreement to be brought to the Legislature next year. Two changes are needed: the first is to change the current natural gas production tax from a net profits tax to a tax on the gross value of the gas. This is needed to make possible the second change being asked this year, to take the tax in kind, or in the form of gas instead of cash.

The state already has authority to take the gas royalty in kind, the option it would exercise if the deal goes forward. The tax share and royalty share combined would be 20 to 25 percent of the gas production, the amount depending on the tax share decided by the Legislature in the 2014 session. That share of production, 20 to 25 percent, would be the share of the project the state, and its proposed pipeline company partner, TransCanada Corporation, would have in the overall project.

As a part of its decisions this year, the Legislature will also give the state permission to continue negotiations toward a participation agreement with its industry partners and to finalize a separate deal with TransCanada for the pipeline company to be the state's partner in its share of the project.

Gas Pipeline Efforts

There have been many efforts over several decades, in fact since North Slope oil production began in 1977, to build a gas pipeline. Several efforts developed to advanced stages, including a consortium of gas producers and gas utilities (the customers) in the Lower 48 to build a pipeline via the MacKenzie River valley in Canada, which Canada blocked because of unresolved Native land claims, and a project in the 1980s led by Lower 48 gas companies that included Foothills Pipe Lines (now TransCanada). That project ended when Lower 48 gas prices collapsed. There were other proposals studied along the way including one for a pipeline, a liquefied natural gas (LNG) export project in the 1990s, by a consortium of North Slope producers BP and ARCO; Marubeni, a Japanese company; and Foot Hills Pipe Lines. The Asia market did not appear ready at that time to purchase enough Alaska LNG to make the project workable.

The most recent previous attempt, in 2006, was a proposed state-industry partnership with the three North Slope producers, BP, ConocoPhillips, and ExxonMobile, by former Governor Frank Murkowski, which did not advance.

The plan...