TransCanada Responds: The Truth Hurts
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On Monday, lawmakers in Juneau were sent into a frenzy after reading an interview published in the Canadian press with TransCanada CEO Hal Kvisle about the Alaska Natural Gas Pipeline.
Less than 72 hours after lawmakers in the State Senate voted to give TransCanada $500 million and exclusive contractual rights to chart an independent course to get Alaska's gas to market.
Less than 72 hours after lawmakers like Senator Hollis French stood on the Senate floor and advocated giving TransCanada the AGIA license while claiming: "If we don't capitalize on what we have in front of us we will be back at the mercy of those people who had the gas for the last thirty years."
Less than 72 hours after Governor Palin's gas line team drank champagne and danced with AGIA supporting lawmakers after the so-called "historic vote".......reality came knocking.
In fact reality kicked down the door.
In his interview with the Globe and Mail, TransCanada's CEO Kvisle stated the obvious: ""Nothing goes ahead unless Exxon is happy with it."
Kvisle's comments sent lawmakers into a frenzy. Those who supported AGIA for reasons of independence and the foolish notion that it would give the state leverage over the producers suddenly realized that wasn't the case.
But this should not have surprised any lawmaker. TransCanada's Kvisle has been making the same comment for over four years. In fact he wrote to former Governor Frank Murkowoski just two years ago and warned him about plans like AGIA that attempted to build a pipeline without the agreement and support of the major producers.
But still...after months of hearing the warnings that sooner or later the state would have to negotiate with the producers, some lawmakers were shocked at Kvisle's comments.
Comments that basically echoed the fact that until producers like Exxon are on board, there won't be a pipeline.
Immediately the subject in the capitol hallway turned to how they could stop the bill they had just passed from becoming law.
As it sits now, the bill has not been transmitted to the governor and there have been rumors of one or more of the bodies rescinding their action.
In addition, the legislture still hasn't approved the $500 million inducement as part of the AGIA package and there is talk about voting that down. If that happens, TransCanada will obviously have to re-evaluate its application in light of losing the subsidy which is the only reason they felt comfortable bidding on AGIA.
Also, given that the effective date clauses failed to pass both the House and the Senate, it could provide a small window of opportunity for TransCanada to back out of their AGIA application without penalty. So far there is no sign that they are wanting to take that route.
Late Monday afternoon, TransCanada's CEO sent an email reply to Speaker of the House John Harris and Senate President Lyda Green clarifying his comments.
However Kvisle's clarifying statements, only served to make his original point about needing Exxon all that more clear.
Dear Speaker Harris:
Thank you for your letter earlier today, congratulating TransCanada on receiving legislative approval of the AGIA license.
TransCanada is pleased to have reached agreement with the State of Alaska under AGIA. We sincerely appreciate receiving affirmative ratification from both your House and the Senate, and we now look forward to working closely with potential shippers, regulatory authorities and the State of Alaska to make this pipeline a reality.
In your letter you requested clarification regarding my comments in today's Globe and Mail. I offer the following background and clarification:
1. TransCanada has earned certain rights as the State's chosen party under AGIA. Of equal importance, TransCanada has made specific undertakings and assumed significant obligations to the State of Alaska. I am pleased to confirm that TransCanada is committed to fulfilling all its obligations under AGIA in a manner that satisfies the State of Alaska.
2. Attracting shippers is an essential element of any major pipeline project. As described in our AGIA application and in our responses to the legislature, TransCanada intends to vigorously pursue commercial negotiations with the Prudhoe Bay producers to secure their commitments as shippers. There are no more logical shippers for this project than the Prudhoe Bay producers.
3. It is TransCanada's clear intention to reach commercial agreement with the three Prudhoe Bay producers, together with other shippers that may materialize as a result of the open season process. That is the best way for this project to proceed in a speedy and secure manner.
4. It is a common phrase in the energy sector that "nothing goes ahead until Exxon is happy". My wry observation along those lines was not meant as a negative comment on ExxonMobil, nor was it meant to imply that ExxonMobil has any sort of veto on the building of an Alaska gas pipeline. In fact, the reporter and I were discussing the importance of developing commercial arrangements that satisfy all parties, and I observed that its often a challenge to meet all the expectations of all parties.
5. Clearly, neither ExxonMobil nor any other party has a veto over the manner in which the State of Alaska deals with its oil and gas assets.
6. Nonetheless, I do believe a sound commercial arrangement including the Prudhoe Bay producers as shippers is the most logical way to bring this pipeline project forward.
7. TransCanada is aware that the State of Alaska is pursuing resolution of various upstream matters. Those matters are not TransCanada's business, and TransCanada will not be a party to or take a position on any upstream matters.
Speaker Harris, I trust the foregoing clarifications adequately address the concerns raised in your letter of earlier today. Should you require further clarification of TransCanada's position or intentions please contact either Tony Palmer or myself.
Sincerely,
Hal Kvisle, CEO
TransCanada Corporation
Kvisle's points two, three and six basically reiterate exactly what he said in the Globe and Mail interview: "Nothing goes ahead unless Exxon is happy with it."
It simply can't be explained any clearer, except to repeat some of the things that it will take to make Exxon and the rest of the producers happy:
1.) Exxon, BP, ConocoPhillips and Chevron all testified that they would expect to retain ownership in the gas pipeline commensurate to their percentage of shipping commitments.
2.) The producers would want to control the flow of their gas to the market of their choice.
3.) The ability to establish tariff terms and negotiated rates according to FERC rules.
4.) The ability to offer rolled in expansion rates that are set by the rules of FERC, without having to commit to subsidizing their competitors up to 115% of the cost.
5.) And finally, the dreaded fiscal certainty. Believe it or not, the people who will assume the risk of paying for the largest oil & gas project in the world are going to need some assurances what the resources extraction terms are going to be and for how long.
However, the Palin administration still doesn't seem to get the lay of the land.
In an interview with CNN Money, Deputy Oil & Gas Director Kurt Gibson stated:
Building two pipelines doesn't make economic or logistical sense, said Gibson. BP and Conoco are likely to participate in the TransCanada pipeline, along with other producers, when they're given "fiscal certainty," or an agreement with the state regarding taxes and royalties that will lock their project economics in place, he said.
"They can commit gas to the TransCanada project and receive fiscal certainty, or they can move ahead with the Denali project and forego fiscal certainty," Gibson said.
This ignores one critical element that the producers voiced very clearly; they'll want to own a percentage of the pipeline commensurate with the amount of their shipping commitments which leaves TransCanada with nothing.
Lawmakers shouldn't blame TranCanada's CEO Hal Kvisle because he was simply telling the truth.
And when it comes to AGIA; the truth hurts.
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