AGIA: Signing today, Sinking tomorrow

On Wednesday, Governor Sarah Palin plans to sign legislation granting TransCanada the AGIA license which gives them $500 million in state money and exclusive rights to try and get federal permitting to build the Alaska Natural Gas Pipeline.

TransCanada's proposal has many hurdles, most of them insurmountable. They control no natural gas, they don't have the balance sheet depth to build the project and even their CEO has admitted for years that they cannot do it without the financial backing of the same companies who have been ignored through the entire AGIA process.

On May 28, DNR Commissioner Tom Irwin told lawmakers that if TransCanada wasn't given the AGIA license, the state would be at the producers mercy. "They own us at that point," Irwin said of the oil companies. "That's what you get when you say no." 

However today, it appears that saying yes to AGIA actually meant nothing with regards to getting a pipeline built.

Three days after lawmakers voted to award TransCanada the AGIA license, TransCanada's CEO Hal Kvisle said that the pipeline wouldn't be built without the agreement and support of Exxon and the other producers. "Nothing goes ahead unless Exxon is happy with it", Kvisle said.

Many lawmakers still felt AGIA was the smart thing to support because supposedly TransCanada had value to offer through exclusive permits the held in Canada. The thought was that at the end of the day the producers and TransCanada would marry up out of necessity.

Now it appears the value that TransCanada was believed to have held, isn't much value at all.

In an interview today with a senior oil & gas executive, any value TransCanada appeared to have because of their permits in Canada, is non-existent. In short, the producers don't need TransCanada but at the end of the day, the state needs the producers if a pipeline is going to be built.

According to the executive, after discussions with both Canadian agencies and the NEB (National Energy Board) there is no evidence that TransCanada has exclusive permits. "We've been told they will permit our project just the same", he said. 

So without any leverage TransCanada might have had with their permits, this leaves them with nothing of value to bring to the project. And anybody who has followed this process knows that the producers have said consistently that they will bring in partners that add value.

I was told that if TransCanada was interested in joining the Denali project they would be welcomed into discussions. However the terms of engagement would have to be on Denali's terms as the AGIA terms are non-starters. But TransCanada has already stated that they are legally bound to the requirements of AGIA and will remain a partner with the state.

The creates a problem for TransCanada in that the unrealistic mandates of AGIA create a barrier for any producer to embrace. Something many of us have warned from day one.

So where are we?

Denali is pushing ahead and is on schedule and actually under budget on their field work. They'll continue to work through late fall to analyze freeze ups at river crossings and other changes the seasons have on the mapped route.

In addition, Denali is working on procurement contracts for next summer field work and has already begun review work on the Canadian side.

Meanwhile, TransCanada has been fairly quiet in the market place and no one seems to have heard of any firm work commitments they have made. If this is true, it seems odd since they said they were hoping to utilize this summer to do at least a little field work after the license was awarded.

The biggest concern for TransCanada is how cheaply they are getting to open season. According to their AGIA application, TransCanada plans to invest only $80 million ($40 million from the state) in field work and cost studies preparing for open season.

Compare that to the $600 million that Denali is spending and you can safely say who will have the better cost estimates for what will be the most expensive oil & gas project in the world.

"The amount of money TransCanada is spending creates a wider band of uncertainty for cost estimates", I was told. In addition, he went on to say that there is no way they'll be able to provide the detailed analysis for gas shippers weighing the risk of agreeing to 20 to 25 years worth of fiscal guarantees.

The biggest and most impossible hurdle for TransCanada to over come is that all of the gas shippers have clearly stated that they will insist on owning a percentage of the pipeline that is commensurate with their firm transportation commitments.

This means that there will be no ownership left for TransCanada and they are on record saying that they are not interested in building a pipeline for someone else to own.

Engagement from the administration

As has been the history with this administration, there is no productive dialogue being conducted directly with the producers regarding the pipeline project. In addition, I was also told that currently there is no productive dialogue being conducted with Exxon on Point Thomson either.

This creates problems because as we've stated before, Point Thomson is the key to making this project happen faster.

On a positive note, the Denali people have told me they have suffered no delays or pushback from state agencies.

The bill signing

As Governor Palin sings the AGIA legislation today at the AFL-CIO Convention, with what has been described as a "labor theme" lets remember who is actually putting Alaskans to work.

Exxon's Point Thomson development plan called for 200 jobs by the end of the year. Denali calls for establishing commercial space and  employing a staff of 150 while over the next 36 months the employment is predicted to grow to 500 employees with over 2000 subcontractors. Denali has also pledged $30 million for Alaska job training.

Contrast that to TransCanada's AGIA application where they don't even commit to opening a local office until after open season and  have pledged nothing for Alaska labor training.

In fact during testimony, TransCanada's Palmer stated that after construction they'd have a remaining staff of a mere 75 people in Alaska.

The irony is incredibly rich with Governor Palin's AGIA signing set for an Alaskan Labor Union Convention.

She is awarding $500 million of taxpayer money and exclusive rights to a Canadian company to push an Alaskan pipeline who cannot by any measure do the job, has never invested a dime in Alaska's labor force and will be long gone after the project is built.

Seems odd that at a convention where your mission is to create trained Alaskan workers and good paying Alaskan jobs would be the back drop for granting rights to a Canadian company with no Alaskan ties .