A gas line bill passed by the state legislature last month is a step, not a slam dunk. That was the message from interior legislators questioned yesterday at a Fairbanks Chamber of Commerce luncheon. Republican Representative Steve Thompson was clear that SB 138 does not build a pipeline.
"This moves us to the next phase. This is called the Pre-F.E.E.D., which is the Preliminary Front End Engineering and Design. The next phase of the project would come in the fall of 2015 when the producers and the state and TransCanada come together with contracts that would have to be approved by the legislature," he said. "This will call for a special session hopefully around October, November of 2015."
Thompson said the envisioned gas line, from the North Slope to Kenai, is estimated to generate four to four and a half billion dollars annually for the state. The state would forego production tax and royalty revenue in exchange for 25 percent of gas shipped through the line. The state would also partner with TransCanada to invest in project infrastructure, an arrangement Democratic Representative Scott Kawasaki, who voted against the bill, expressed concern about.
"Just about every one of our legislative budget and audit consultants agreed that TransCanada's involvement in this particular bill is seen as a loan, and that the state will pay back the loan later in the form of tariffs," he said.
Kawasaki is referring to a tariff that would be charged by TransCanada to move state gas through the pipeline system. Kawasaki equated investing in the project through Trans Canada to buying stock in the company, leaving the state with little control of what happens. Kawasaki said the SB 138’s fatal flaw is a lack of adequate future opportunity for the state to back out of the deal.
"If we go down this road where we finally have a contract in front of us, how many people are going to stand up and say 'this is actually not a good contract for us', and that's the real problem is that we don't have the adequate off ramps under senate bill 138," Kawasaki said.
Republican Senator Pete Kelly countered that state investment is essential to getting revenue out of a gas line. "Transportation costs in gas lines are very, very high, and so the companies would simply reduce those costs from the royalty and the tax, and you would end up taxing probably nothing or something near nothing," Kelly said. "It's nothing like an oil pipeline, it's quite different. So if we're going to benefit from the pipeline we really have to be an investor.”
The 45 to 65 billion dollar gas pipeline project outlined in SB 138 would provide gas for in-state use, and the LNG export market. It’s planned to be on line by the mid 2020’s, a time Kelly said major Asian gas supply contracts will be coming up for bid.
