
In a plan sent to Palin Nov. 30, ConocoPhillips said it proposes to build a 48-inch high-pressure natural gas pipeline from the North Slope to Alberta, with an option to build a new pipeline segment from Alberta to Chicago.
Cost of the project is estimated at approximately $30 billion. ConocoPhillips said it will seek partners for the project, including independent pipeline companies. Bechtel Corp. is providing engineering and technical support through initial phases of the project, the company said.
The proposal was made outside a solicitation process the state initiated under the Alaska Gasline Inducement Act, or AGIA, which is a state law that grants incentives for projects that meet certain criteria.
“Our proposal is an alternative to AGIA and outside of that process,” said Brian Wenzel, ConocoPhillips' vice president for Alaska North Slope development.
Other proposals received Nov. 30 were under the AGIA solicitation.
A key difference between what ConocoPhillips is proposing and what the state seeks is a set of special fiscal terms to be negotiated for the project.
“We believe it is critically important to define a framework for gas fiscal terms now such that we can complete a successful open season in 2010,” ConocoPhillips CEO Jim Mulva said in a letter to Palin that accompanied the proposal. “ConocoPhillips is prepared to work directly with the state to develop a fiscal framework to make this project a success.”
The Alaska Gasline Inducement Act allows a 10-year reduction of state production taxes on gas committed to a project licensed under the act, but ConocoPhillips is seeking a broader agreement on taxes and other terms.
The proposal is different than one made last year, when ConocoPhillips, BP and Exxon Mobil made a joint proposal to then-Gov. Frank Murkowski seeking a long-term freeze on crude oil as well as gas taxes. ConocoPhillips' current proposal refers only to fiscal term on gas.
The tax terms on oil as well as gas in the previous proposal were accepted by Murkowski but rejected by the state Legislature.
ConocoPhillips also proposed negotiating a project labor agreement with Alaska labor unions before project construction, another departure from the plan put forth by the three companies in 2006. This will be important in gaining political support in Alaska.
The proposal also involves a commitment to a non-binding solicitation of interest by the end of 2009 and a binding open season in 2010.
ConocoPhillips will still need the other North Slope gas owners, BP and Exxon Mobil, to support its initiative. North Slope gas owned by the other two companies is needed for the project, and since most of the gas will come from the Prudhoe Bay field, BP and Exxon Mobil will have to agree to a gas and oil depletion plan for the field.
The Alaska Oil and Gas Conservation Commission will have to approve a plan to withdraw gas that minimizes loss of oil production from the reservoir, commission chairman John Norman said Nov. 29.
Another problem that faces the Alaska gas project is that the ownership of leases in the Point Thomson gas field east of Prudhoe Bay is still in dispute. The state is seeking to reclaim the leases from the major owners of Exxon Mobil, BP and Chevron in a dispute over work obligations. The issue is in court but it means that the legal status of 8 trillion cubic feet of gas, a major part of the 35 tcf of gas reserves needed for the project, is unclear.
State revenue Commissioner Pat Galvin said earlier that the state would consider proposals made outside the AGIA process, but that priority will be given to proposals that the state receives under the solicitation and meets the state's requirements.
“We're committed to the AGIA process,” Galvin said. “AGIA is the law of the land for gas pipeline proposal evaluation, and defines the interests of the state for gas commercialization projects. There will be an extensive evaluation of each AGIA compliant application. That will be our area of focus. Proposals that come in outside the AGIA process will be looked at in the normal course of business.”
Efforts have been underway for decades to build a pipeline to bring North Slope gas to market. North Slope proven reserves re estimated at 35 tcf, but industry and government geologists believe there are substantial undiscovered gas resources.
(alaskajournal.com)