TransCanada Says State Partially to Blame for Lack of Potential Shippers

TransCanada, the state’s license-holder for a large-capacity natural gas pipeline from the North Slope to North American markets, told a legislative committee Tuesday that the state is partially responsible for the lack of potential gas shippers willing to sign contracts to use the project.

Legislators meeting this week in Anchorage are looking at the state’s long-term energy future – particularly gas supplies that will become available for the Railbelt and Southcentral. They’re finding that the high-volume TransCanada project has no customers yet – and lawmakers are giving serious consideration to shifting their support to a lower capacity Bullet Line to supply the Railbelt and SouthCentral.

TransCanada is a year behind its original expectations on commercial negotiations – and it’s limited by confidentiality agreements to discussing details of the arrangements that have been made. However, TransCanada Vice President Tony Palmer told the Senate Resources Committee that three unresolved issues face decision-makers among the gas suppliers, gas supply uncertainty such as availability of gas from the Point Thomson field, a state gas tax system that is unlikely to change, and better pricing projections for the world marketplace. Of those, the first two need the state’s attention.

“When we obtained the license two years ago – three years ago now – we assumed Pt. Thomson and fiscal would be resolved between the state and the producers by the time our open season was concluded a year ago. That’s turned out to be wrong. That was our assumption, nothing more than that. I’m not suggesting you were obliged to do that, but that was our assumption. We thought that in two years those things would have been resolved. They have not been,” Palmer said.

Palmer said that if those involved in the project are not optimistic the supply and tax issues will coalesce, TransCanada would have reached what he called a “decision point” on the continuation of the project. However, he said he’s still holding out hope for a positive resolution.

“If there continues to be optimism that they will be resolved in a timely fashion, then we’re going to let the game play out, I would suggest,” Palmer said.

However, Palmer did not hang possible shippers’ decisions entirely on the state. He said there’s no reason to have a supply or fiscal solution if companies believe market prices will remain at $3 – as they now are.

“You may find yourself having resolved these issues with producers and still have no project. That’s not where we are today. We think resolution will finally reach a conclusion and we remain optimistic this can occur. But I can’t pinpoint one or the other. Now if gas prices were ten dollars and it were guaranteed it would be ten dollars forevermore in North America or Asia, perhaps you don’t need to resolve these issues. But they’re not there today,” Palmer said.

Palmer said gas explorers are sophisticated investors – and they can live with changes in prices and market conditions. That was a caution that Anchorage Senator Hollis French picked up on.

“He was careful to say these are necessary conditions, but not sufficient. Meaning you could solve Pt. Thomson, you could solve the fiscal issues, and still be left with no project if the producers look long term and don’t see it as being economic given supply issues worldwide,” French said.

There has been no indication of negotiations ongoing to settle the state-related issues.

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