LNG Pipeline bill passes through Senate committee

  • By Becky Bohrer
  • Saturday, March 15, 2014 10:19pm
  • News

JUNEAU — A bill aimed at advancing a major liquefied natural gas project in Alaska cleared a key Senate committee Friday, with a provision that would allow for a portion of the state’s royalty revenue from the project to go toward energy projects in areas without direct access to a North Slope gas line.

Sen. Lyman Hoffman, D-Bethel, said that’s a critical piece for him and the other amendment sponsors, Sens. Donny Olson, D-Golovin, and Click Bishop, R-Fairbanks.

Hoffman has been outspoken in wanting to ensure the benefit of a gas line is spread to all Alaskans — including in rural communities suffering from high energy costs. During Friday’s Senate Finance Committee hearing, Hoffman said the provision would go a long way toward making Alaska a more affordable place for many residents.

SB138, from Gov. Sean Parnell, would advance the proposed mega-project into a phase of preliminary engineering and design and cost refinement. Current cost estimates for the project range from $45 billion to more than $65 billion. The bill also would allow the state to enter into negotiations for project-enabling contracts that would be brought back to the Legislature for approval, as early as next year.

The Senate Finance version sets a gas-tax rate at 13 percent of the gross value at the point of production beginning in 2022. The tax rate, together with royalty, determines the state’s equity share, which would be about 25 percent, Natural Resources Commissioner Joe Balash said.

The bill also would have the Alaska Gasline Development Corp. — rather than a subsidiary, as originally proposed — carry the state’s interest in liquefaction and marine terminal facilities. AGDC would have separate funds for the large project and the smaller, in-state gas pipeline it is currently pursuing. There also would be a project director within AGDC for the liquefied natural gas project who would report to the corporation’s board and president.

The Senate Finance version also struck language from the original bill that would make companies’ election to pay production tax in gas instead of money irrevocable after lawyers for the Legislature raised questions with that language. Balash said the word was included to make sure the companies could not decide to pay in gas one day and in cash the next and leave the state without sufficient gas for its share of the project. But he said the administration could work with that language.

The bill also tightened language concerning how leases could be modified. The measure was being sent on with a letter of intent that the parties to the project would honor the commitments they previously agreed to, including hire qualified Alaska residents; work with the state to provide training for workers and prior to construction, commit to negotiate in good faith project labor agreements.

The bill calls on Parnell to create a board to advise him on municipal involvement in the project, a step Parnell’s spokeswoman has said he is considering. Several mayors have raised concerns about being able to have a say on terms that will be negotiated that will affect local communities. The bill also calls for the Alaska Energy Authority, in consultation with others, to devise a plan for developing infrastructure to provide more affordable energy to parts of Alaska not expected to have direct access to the gas line. And it calls on the Revenue commissioner to devise a plan and suggested legislation for how municipalities, regional corporations or residents could participate as co-owners in the pipeline.

The Senate is expected to vote on the bill as early as Monday. Assuming passage, the measure would then go to the House. Some committees there have already held hearings to try to familiarize members with the complex issue.

Kelly’s co-chair Kevin Meyer, R-Anchorage, raised concerns with the proposal to put 10 percent of the revenue left from the state’s royalty gas used in the project, after payment is made to the Alaska Permanent Fund, for the rural capital energy fund. He said he didn’t want to limit availability of revenues for future legislatures. But Hoffman said if the state can’t address the energy needs of Alaskans, “what good are we doing?”

Kelly praised the amendment, saying looking back 20 years from now, “I think we’ll be very pleased we made that decision.”

Olson said he would not vote for the bill without that element. Bishop, when asked if there were any must-haves in the bill now, said “all of it.”

The state has signed an agreement with pipeline company TransCanada Corp., the North Slope’s major players — BP, ConocoPhillips and ExxonMobil Corp. — and AGDC, setting out broad terms for moving forward. The oil and gas companies have called state involvement in the project key to its success.

The state has signed a separate agreement with TransCanada to manage the state’s interests in a gas treatment plant and pipeline. While there is an equity buy-back option for the state, the arrangement is seen as a way for the state to not have to shoulder as much in upfront costs as it would without TransCanada. The agreement also would serve as a transition away from terms of the Alaska Gasline Inducement Act, which Parnell has said no longer fit with the type of project being pursued and the change in players.

Senate Minority Leader Hollis French, D-Anchorage, has continued to question whether the state could get a better deal if it went out for open bids. The departments of Natural Resources and Revenue say the state could do that but it would likely hurt the momentum of the project.

The agreements are contingent upon passage of enabling legislation deemed acceptable by all the parties.


Fiscal notes attached to the bill total nearly $80 million for this year and next. Of that, AGDC has requested $66.7 million in the current year for its work related to the project, including new hires, travel and other costs. The corporation anticipates drawing on that money this year and next.

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