The Pipeline to Nowhere : Lipstick on a Pork Barrel

Gov. Palin andFederal Coordinator for Alaska Natural Gas Transportation Projects, Drue Pearce at AGIA signing ceremony last year.
‘The pipeline exists only on paper. The first section has yet to be laid, federal approvals are years away and the pipeline will not be completed for at least a decade’
By Bill Narum / The Rag Blog / September 17, 2008

[The following article incorporates material from the New York Times and other sources. See links below.]

In 2007, the Alaska Creamery Board recommended closing Matanuska Maid Dairy, an unprofitable state-owned business. Palin objected, citing concern for dairy farmers and a recent infusion of $600,000 in state money. When Palin realized that the Board of Agriculture and Conservation appoints Creamery Board members, she simply replaced the entire membership of the Board of Agriculture and Conservation. The new board, led by businesswoman Kristan Cole (friend of Palin since 3rd grade), reversed the decision to close the dairy.

The new board approved milk price increases offered by the dairy in an attempt to control fiscal losses, even though milk from Washington was already offered in Alaskan stores at lower prices. The new board reversed the decision to close the dairy. The price of milk increased by $1 a gallon. Later in 2007, the unprofitable business was put up for sale. No offers met the minimum bid of $3.35 million, and the dairy was closed. In August 2008, the Anchorage plant was purchased for $1.5 million, the new minimum bid. The purchaser plans to convert it into heated storage units.

The Palin/McCain ticket fails to tell this story when they talk of putting the plane on Ebay.

Now the (true) story of Gasline – I would rather post a link but only now is the press starting to look into the facts and have yet to do a detailed review.

The pipeline to nowhere.

The pipeline exists only on paper. The first section has yet to be laid, federal approvals are years away and the pipeline will not be completed for at least a decade. In fact, although it is the centerpiece of Ms. Palin’s relatively brief record as governor, the pipeline might never be built, and under a worst-case scenario, the state could lose up to $500 million it committed to defray regulatory and other costs.

Contributing to the project’s uncertainty is Ms. Palin’s antagonistic relationship with the major oil companies that control Alaska’s untapped gas reserves. Now, though, she will need the industry’s cooperation if her plan is to succeed, and just this week, her office said she intended to reach out to the North Slope oil companies.

State Senator Bert Stedman, a Republican who is co-chairman of the finance committee, said that in its contract with the chosen developer, TransCanada, the state bargained away too much leverage with little guarantee of success. “There is no requirement to lift one shovel of dirt or lay down one inch of steel,” he said.

Congress has prodded all parties involved to develop a plan to tap the gas since at least the 1970s, but the private sector has been unwilling to assume the huge cost of building a pipeline without considerable government tax breaks and other concessions.

Once elected, Ms. Palin set about fashioning an alternative that was essentially a 180-degree turn, intended to open up the bidding process to other companies. While Ms. Palin’s legislation did away with the concessions to the oil companies that she considered to be excessive, it committed the state to paying the winning bidder up to $500 million in matching money to offset costs of obtaining regulatory approvals and other expenses.

When the state solicited proposals from interested companies, it soon became apparent that the big oil companies would not participate. One of them, ConocoPhillips, submitted a proposal outside the process, but it was swiftly rejected by the Palin administration.

Of the five companies that eventually bid, Ms. Palin’s administration chose TransCanada Pipelines. TransCanada had previously tried to negotiate a pipeline deal with the Murkowski administration, but was sidelined by the governor. The proposal that TransCanada negotiated with the Murkowski administration was structured differently from the current one and had no provision for a $500 million state subsidy.

Under the most optimistic circumstances, dirt is not expected to be turned for years. TransCanada’s plan calls for it to file an application with the Federal Energy Regulatory Commission by the end of 2011, and to have the pipeline operational by late 2018. The company is not obligated to proceed with the project even if it clears all the financial and regulatory hurdles.

A number of important decisions remain in the relationship between the state and TransCanada, including whether the state will ultimately endorse the company’s application to the federal government.

The state’s commitment to match some start-up expenses, up to $500 million, is among several aspects of the deal that have prompted some legislators to second-guess their initial support.

Lyda Green, a Republican and president of the State Senate, voted for Ms. Palin’s Alaska Gasline Inducement Act but said that in the interim, it has not “shown itself to be open and competitive, and it is a very expensive risk.” “I regret the vote now,” she said last week.

Mr. Stedman, the Senate finance committee co-chairman, said he now believes that the Legislature was overly eager to support a new governor and see a pipeline project move forward. He contended that Ms. Palin’s bill seemed intentionally written to keep the three major Alaska oil producers from submitting proposals. Demonizing Big Oil, he added, could come back to haunt the state.

Beyond the $500 million subsidy, a central criticism of the deal is that for it to succeed, TransCanada needs to secure shipping commitments from the oil companies, which control most of the North Slope gas resources. Those pledges are far from certain.

Meanwhile, the oil companies seem to be charting a course of their own. A month before Ms. Palin announced the selection of TransCanada, BP and ConocoPhillips unveiled a partnership to construct their own pipeline, and started the process of seeking federal certification.

Two of the three major producers on the North Slope, BP and ConocoPhillips, announced last month that they were moving forward with building a pipeline on their own, and that demand and the high price of natural gas meant they would not need subsidies from the state. They say they have committed to spending $600 million on early development of the pipeline.

But critics are questioning TransCanada Corp.’s bid and Palin’s optimism.

And TransCanada itself is urging a radical policy shift for Palin — that her administration should negotiate taxes with the trio of oil companies controlling the North Slope’s prodigious gas reserves.

That cuts against the grain for Palin, who has taken a tough stance toward the oil giants and has shown little interest in negotiating a tax deal as a pipeline precursor.

The critics note TransCanada’s proposal is rife with clues that it will take far more than a newfangled state license and $500 million in seed money to launch the state’s most important and elusive economic development project.

While not demanding — it can’t, under terms of Palin’s Alaska Gasline Inducement Act, or AGIA — the company is suggesting a pipeline might need billions in new financial backing from the U.S. government. To some, TransCanada is signaling the foundation is not yet in place for the Alaska Highway pipeline the company has proposed. And that Alaska’s government risks wasting years and huge sums of money by throwing in now with TransCanada.

“They’ve already admitted they can’t do the job, so why are we giving them $500 million and a state license?” said Andrew Halcro, an AGIA critic who in 2006 ran for governor as an independent against Republican Palin.

The critics, however, say TransCanada has salted its bid with a wish list that reaches well beyond what the Palin administration said it was prepared to offer under AGIA. The company also shows reluctance to shoulder an essential, multibillion-dollar piece of the project.

A review of TransCanada’s 300-page application turned up these items:

Ask the federal government to kick in shipping fees if the owner fails to attract enough paying customers to fill the gas line.

TransCanada says it “would rely on the state” to “reach agreement” with the North Slope oil companies — Exxon Mobil, Conoco Phillips and BP — on “reasonable and predictable” taxes on gas production.

TransCanada “proposes” to use part of $18 billion in construction loan guarantees Congress approved in 2004 to cover cost overruns. Pipeline users would have to repay a cost overrun loan only if gas prices were above a certain level.

Whether federal regulators would allow this is uncertain. Congress didn’t specify whether the loan guarantees could be used for cost overruns, U.S. Department of Energy officials said.

The plan includes pushing for the loan guarantee and bridge shipper ideas.

Unless no one else will do it, TransCanada says it won’t build or run the gas treatment plant, an enormous North Slope factory for stripping liquids and carbon dioxide out of the gas before it goes into the pipeline.

This suggests the major oil companies might need to be enlisted to build the nearly $6 billion plant, although Palin’s gas team said others such as a Native corporation might be interested.

Halcro said he can only imagine the reaction in Congress if TransCanada and the state ask for more federal financial help.

“There’s going to be a tremendous amount of laughter. Congress is going to look right back at Alaska and say, “Excuse me, you people have $40 billion in the bank,’ ” he said, referring to the state’s Permanent Fund.

“They wrote off four bidders immediately. You’ve got one left,” he said. “They’re making a special exception for TransCanada because they didn’t want to have a press conference and say, ‘Geez, nobody qualified.’ “

Cost of building a North Slope gas pipeline would exceed TransCanada’s net worth. Without shipper commitmentsand/or government guarantees, TransCanada could not finance construction of a North Slope gas pipeline.

OK – so that is the gist of it – not so positive as the Palin/McCain team wants us to believe. Here is a link to a lengthy review of the problems for further reading:

AGIA & Transcanada. Why This Dog Won’t Hunt by Andrew Halcro / Alaska State House of Representatives / AndrewHalcro.com

And here is some more info of interest:

JUNEAU — A published comment from TransCanada Corp. Chief Executive Hal Kvisle sent a chill through the Capitol halls just days after the Legislature awarded the Canadian company an exclusive license toward a pipeline project.

Some Alaska state lawmakers wondered if a review to rescind the approval should be considered before Senate President Lyda Green, R-Wasilla, and House Speaker John Harris, R-Valdez, sign the bill approving the license. . . .

It was Harris who wondered what Kvisle meant when the Toronto’s Globe and Mail quoted him saying, “Nothing goes ahead until Exxon is happy with it.” . . .

Kvisle responded in a letter later Monday by saying: “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 Exxon Mobil, nor was it meant to imply that Exxon Mobil has any sort of veto on the building of an Alaska gas pipeline.” . . .

TransCanada Vice President Tony Palmer said the article changes nothing about the company understanding it needs to solicit commitments to ship gas in the proposed 1,715 mile line that would run from the North Slope to a pipeline hub in Alberta.

These are called firm transportation commitments and they underpin the financing of any pipeline. Without them, there is no project.

Palmer said the article doesn’t change the company’s long-held position that it plans to work with North Slope producers to strike a deal that would move the gas to U.S. markets. “I’ve been clear on that for many years,” Palmer said. “We need customers. We need credit in order to build the pipeline.”

Source / AP / Yahoo.com

One more thing: the Gasline is called the pipeline to nowhere because the Gasline project only takes the gas from the north slope to Alberta Canada – then we still have to find a way to get it the additional distance (almost as long as the original Gasline) to get the gas into the US in Chicago – so, we are building a pipeline to supply central Canada with gas but still wont be supplying any to us. As my favorite statesman Bugs Bunny would say “What a moroon”.

Do we really want a VP that we feel good about “shooting moose with” as we did with a President we felt good about “drinking a beer with”? When that person will be filling key top government positions without daddy’s black book as Bush had, but instead will be pulling from her high school year book?

That is what we are facing.

Please see Palin’s pipeline exists — but only on paper / Reuters / MSNBC / Sept. 4, 2008

And Palin’s Pipeline Is Years From Being a Reality by Serge F. Kovaleski and Mike McIntire / New York Times / September 10, 2008

The Rag Blog