Canadian Manufacturing

Alaska considering buying stake in pipeline project

Natural Resources Commissioner Joe Balash said the administration is considering a potential equity stake of 20 per cent to 30 per cent

November 19, 2013  by Becky Bohrer THE ASSOCIATED PRESS

JUNEAU, Alaska—An Alaska official said the state is looking at taking a multibillion-dollar equity stake in a major natural gas pipeline project as a way to protect its interests and help make the long-hoped-for project a reality.

Natural Resources Commissioner Joe Balash said Gov. Sean Parnell’s administration views a potential equity stake of 20 per cent to 30 per cent favourably. But he said any level of participation would depend on legislative buy-in and the terms the companies pursuing the project are willing to accept.

Assuming the project costs $45 billion—a figure at the lower end of the range previously announced by the companies—the state would be looking at $9 billion to $13.5 billion for such a stake.

Balash said he’s hoping that range narrows significantly over time as the idea gets more scrutiny.


The option stems from a report commissioned by the state to see how Alaska could protect its royalty interest and ensure it receives the maximum value possible for its natural gas.

The North Slope’s three major players—Exxon Mobil Corp., BP and ConocoPhillips—are working with TransCanada Corp. to advance a liquefied natural gas project that would be capable of overseas exports.

The proposed line would run 800 miles from the slope to south-central Alaska and could cost from $45 billion to more than $65 billion, according to company estimates. The companies haven’t committed to building it and have repeatedly said they needed competitive, predictable and durable terms on oil and gas taxes and royalties.

Alaskans have long dreamed of a gas line as a way to create jobs, provide energy for residents and shore up revenues as oil production declines. While there have been fits and starts over the years, state officials believe the current project has momentum, and Balash said it’s reaching the point where the state needs to start making decisions about its terms.

Black & Veatch Corp., in its report for the state, found that changes to Alaska’s royalty and tax structure and to the project’s cost structure could improve the economics of the project and make it more competitive. Balash said the project economics seem “fairly good overall,” though he said levels of government take might be a little high and company returns a bit short of what they might expect in other places.

The state has already committed up to $500 million to TransCanada for reimbursable costs associated with advancing a project, and Parnell has said the state is willing to make commensurate, proportional steps with the companies to keep the project on track.

The Legislature at some point will have to revisit the issue of gas production taxes, which was left unresolved during the recent rewrite of the state’s oil tax law. Balash said it’s premature to say whether there will be gas tax legislation during the next session, which starts in January, but he said some legislators and others are expecting to have that discussion then.

He said he considers a royalty reduction “one of the worst things we can possibly do,” since it’s through the royalty that the state gains benefit to the treasury or in terms of energy for Alaskans. He said the other alternative might be reducing taxes, but he said a reduction now might not be considered a reasonable level of taxation later, when the project gets underway.

The study found an equity stake could be more beneficial to the state than a mere reduction in fiscal take and could create more transparency in the project, greater alignment of economic interests among the companies and the state, and allow the state to have influence in granting outside parties access to the line. It would not necessarily guarantee a vote in the decision-making process, though, the study said.

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