AGIA (Alaska Gasline Incentive Inducement Act)- The Cliff Notes

What I Learned at the AGIA Forum Today (You'd think I could get the name right at least.)

Overview:

There were four basic questions:

1. Is TC Alaska up to the task? (TC Alaska is term people will need to know - it is the name of the company that submitted the proposal, Trans Canada Alaska)
   
   
2. Why should the Legislature choose the TC Alaska proposal over the LNG and the Producers (Conoco-Phillips/BP) proposals?
   
   
3. If the Producers control the gas, how do we get them to give us the gas?
   
   
4. Why does the state have to pay $500 million as an incentive?
   

There are other issues - jobs, energy cost relief now, tariffs - but these are essentially addressed directly or indirectly in the answers to these four questions.

Below, I’ve given a brief outline of the answers as I heard them today. But first a few more overview comments.

At the Special Session beginning June 3, the Legislators will decide whether to license TC Alaska to pursue the various permits they need to build a pipeline. Commissioner Irwin summed up what the legislators face very succinctly. Asked by a legislator something about various choices, Irwin bluntly replied (approximately),

“There are only two choices - yes or no. If you vote ‘no’ on AGIA, you are giving the Producers a free hand and giving up the state’s sovereignty.”

The Department of Natural Resources has reviewed the various proposals and decided the AGIA proposal from TC Alaska is best. Of course, there is some history here. Commissioner Irwin and some of his staff were among the state employees who resigned in protest to how Governor Murkowski was negotiating with the oil companies. They felt that he was making far greater concessions than he should.

There is a lot of research that underlies their proposal. Far too much for the average person, and even for most legislators.

Ultimately, the people of Alaska, and their legislators really have to decide if they trust the Department of Natural Resources or ConocoPhillips and BP. I, for one, was very impressed with

1. the quality of the data, (this was not fluff or buzzwords, it was hard content)
   
2. the arguments,
   
3. the transparency,
   
4. the ability of the staff and contracted experts to answer all the questions easily and in detail,
   
5. the apparent dedication to this process and to the people of Alaska

These are competent, skilled people who seem very much to have the public interest as their goal. This is a far cry from the Murkowski administration and the oil companies he negotiated with in secret who, now that their bluff was called, are making a (veiled?) threat of not releasing the gas.

For me the choice of whom to trust is pretty easy. I would mention that one legislator (Therriault, I think) asked if the experts were free to give their honest opinions or if everything was scripted. Irwin responded quickly, that they are expected to give their honest opinions and if anyone has a script he doesn’t belong here. Compare that to the secrecy and deceptions of the previous administration and the oil companies they dealt with.


The Basic Issues

1. Is TC Alaska up to the task?
1. They’re a big, well run pipeline company, “one of the best if not the best”
2. They are Canadian with connections to the Canadian galine hubs we need to go to, and probably will be able to work well with the Canadian regulatory agencies
3. They are in financially good shape, with strong ratings from Moody and Standard and Poors so they will be capable of getting the financing
4. The questions raised about former partners suing them for competing with them if they take on this project seem remote and not likely to win
   
   
2. Why TC Alaska over the LNG and Concoc Philips-BP Plans? (I refuse to call it the Denali - with a little trademark symbol - Plan because I think it’s disgustingly arrogant for ConocoPhillips-BP to trademark something as Alaskan as Denali and because that hides who the people behind the plan are. The other way they were described was “The Producers.” Hmmm, maybe we could make a Broadway play about this and the LNG plan)
1. The TC Alaska plan has the following benefits
1. It includes an open access policy. Open Access means to the State that anyone producer with gas has access to use the pipeline, not simply the pipeline owners.
   
2. It includes an expandable pipeline Expandable pipeline means that the capacity of the pipeline must be increased if there is demand by producers to use the pipeline to get their gas to market.
   [Both of these were identified as “must haves” by Commissioner Tom Irwin, because they make the long term jobs and revenue potential much greater by encouraging other developers to explore and produce gas once the pipeline is approved.]
3. It includes lower tariffs
4. It maximizes state revenue and future economy
5. It is the only proposal that was responsive to the States requirements and on time.
   
   
2. TC Alaska, unlike the Producers, is a pipeline company, not a producer. Their incentives are to move gas. They aren’t competing with other gas producers. “If the tarifff's high, at the end of the year, a producer owner gets its own tariff money back. The state’s high tariff money goes out of the state and to the producers. Independents just might not want to be here.”
   
3. The Producer proposal had no enforceable commitments. No time lines. No specific goals. No conditions on tariffs.
   
   
4. Maximizes state revenue and creates future growth of the state economy and jobs, because open access and expandable pipeline conditions mean more exploration and production and jobs in the future.
   
   
5. The Producers did not submit a proposal to the state under the bidding process. Their later proposal does not meet the conditions set up by the State. TC Alaska had the only proposal that complied with the Request for Application (rfa). The LNG proposal needed some fixing, but when they resubmitted it, it was a totally new proposal. "We feel we need to keep our word and play by the rules to develop credibility with all future bidders." AGIA does not preclude LNG in the future.
   
6. There were issues with LNG
1. The market is Asia. That market requires a higher grade of gas which raises various issues.
2. With the high price of oil and the US’ need tor energy independence, Congress is not likely to approve exporting our gas to Asia.
3. Financing is more difficult
   
   
   
   
   
   
7. Preserve state sovereignty. In the TC Alaska plan, the various state conditions have been met. The Producers have refused to meet the State's conditions - ie, open access, mandatory expandable pipeline, lower tariffs, etc.
   [Some of this is repetitive because the issues overlap. But the repetition will help you remembr.:) ]
   
   
   
3. If the Producers control the gas, how do we get them to give us the gas?
1. Economic Incentives. Even without considering Point Thompson, the Producers will make lots and lots of money from this.
   
   
2. Pressure. There will be pressure from Congress to get the gas to the Lower 48 because of shortages. When stockholders understand the money the Producers will make, they will pressure them too.
   
   
3. Much of this is gamesmanship. They thought they had a deal with the former governor to get an agreement that would give them concessions from the state without their having to make any commitments. The state didn’t fall for their bluff. Now, after the process, they came back with a new proposal, but it still has no concessions. Technically, they could build their own pipeline, but we expect that in the end this is part of their negotiating ploy for when they work things out with the State and TC Alaska.
   
   
4. The regulatory commissions will weigh everything and consider it all. FERC (US) is looking after the interests of the US, not Alaska specifically, so we do have to look after our own interests in what they don’t require.
   
   
5. The Producers say they can't do a pipeline without State concessions.
   
   
6. Potential lawsuit and/or cancellation of their leases by the State.
   
   
   Ultimately, there is a risk that the Producers could refuse to release the gas or could build their own pipeline, but the various presenters felt that much of this is posturing in hopes that AGIA is rejected and the Producers can then get what they want. Or can negotiate some piece of AGIA after all, even though they have missed the boat now.
   
   
   
4. Why does the state have to pay $500 million as an incentive?
1. Shouldn’t think of it as a subsidy, but as an investment.
2. The beginning is always the hardest part of a big project like this. The money will help show we are serious and help get the project off the ground.
3. The money we invest at the beginning has a much higher return than money we invest later down the line.
4. We get the money back in lower tariffs.
   

This is an incomplete outline of the arguments. I was there for almost eight hours of presentation. But it gives a sense of the basic arguments I heard today. They were backed up with a lot more information, which is further backed up by the report which is available on the AGIA website.

The Executive Summary is 17 pages and fills in some of the pieces I left out above. People who want to have an idea of the issues would do well to read it.

And today's session should be up tomorrow on Gavel to Gavel. The morning session - about three hours - should give you a good introduction as well.