State officials are “fully engaged” in negotiations over commercial agreements needed in 2015 for the large North Slope natural gas pipeline and liquefied natural gas project, but declining to give specifics.
“We are in commercial negotiations with all Alaska LNG parties and are making every effort to maintain timelines. However, commercial negotiations can only occur as quickly as all parties come to agreement,” Marty Rutherford, Deputy Commissioner of Natural Resources, said in a statement released to reporters.
Gov. Bill Walker has designated Rutherford as the state’s lead negotiator in the gas project negotiations.
“It is premature to predict when all project-enabling contracts will be ready for legislative approval,” she said in the statement.
Talks now underway include the “upstream gas supply, commercial structure and fiscal terms,” the statement said.
On gas supply, the issue involves an assurance that the state will be able to receive its full 25 percent share of gas production in the event of a problem in the producing fields on the North Slope or some other disruption.
Because the state does not control gas production operations, unlike the producer company partners in the project, some agreement must be in place to guarantee the state a steady supply. This is needed so the state can sell its share of LNG and to guarantee customers on delivery.
Similar agreements will be in place among he producer company partners but those firms have operational control of gas production plus access to other LNG on world markets to make up any supply shortfall in commitments to customers.
The fiscal terms discussion relates to some form of agreement with gas producers that tax terms will not change on the project.
Another important action for the state is a formal determination that royalty will be taken in kind, or as gas, rather than cash. This will be tied to modifications of the state leases, Rutherford said.
“An RIK (royalty-in-kind) decision itself does not require legislative approval but it is tied together with the lease modification, which will need legislative approval,” she said.
It is difficult to link the RIK action to a specific timetable because it is part of the overall negotiations.
“The final RIK decision must be made before FEED (the decision to begin front-end engineering and design) and this decision is closely linked to the ongoing commercial negotiations,” Rutherford said.
In a related development, Senate Resources Committee chair Sen. Cathy Giessel said Feb.2 that the Senate Republican leadership has started planning for an October special session in anticipation of needed legislative approvals of the agreements.
The agreements are also needed before a Dec. 30, 2015, deadline for the state to sign a long-term gas “throughput” agreement with TransCanada Corp. to transport the state’s 25 percent share of gas through TransCanada’s portion of the gas pipeline and North Slope gas conditioning plant.
Rutherford’s comments came amid expressions of concerns by legislators over whether the state is on track with the necessary negotiations. The overall project is on a tight schedule for the agreements to come into place if the FEED, a multi-billion-dollar commitment to detailed engineering, is to begin in 2016.
The FEED is needed for a Final Investment Decision on the project, basically the approval for construction, which would come in late 2017 or early 2018 under the current plan. That would allow time for equipment and materials procurement and construction, and a start of operations in late 2023 or early 2024.
The state would be an equity partner in the project with North Slope producers BP, ConocoPhillips, ExxonMobil and TransCanada, a pipeline company. The state-owned Alaska Gasline Development Corp. would own the state’s interest in the large LNG plant now planned to be built at Nikiski, near Kenai.