Alaskan legislators on Wednesday approved the state's buyout of TransCanada's interest in the Alaska LNG Project.
The state House of Representatives voted Wednesday to approve funds for the acquisition, which was proposed by Governor Bill Walker. The state Senate approved the deal Tuesday.
Walker is expected to sign the bill. The acquisition is to be effective December 1, under the terms of the legislation.
Delaying the purchase would have hiked the state's costs, lawmakers voting for the deal said. "Today is better than tomorrow to take this off ramp" with TransCanada, said Senator Anna MacKinnon, co-chair of the Senate Finance Committee.
"This legislation is a debt we need to pay TransCanada, and our state administration, which wants a gas pipeline as much as we do, needs our support," MacKinnon said in a statement.
TransCanada, the state and three North Slope gas producers -- BP, ConocoPhillips and ExxonMobil -- are in a partnership to build Alaska LNG, a $45 billion to $65 billion North Slope gas pipeline and LNG project that would export up to 20 million mt/year of liquefied gas.
S.B. 2003 appropriates $68.4 million to repay TransCanada for its expenses to date in preliminary engineering on its share of the project. The bill also authorized Alaska Gasline Development Corp., the state gas corporation that will step into TransCanada's place, to spend $75.6 million to pay what would have been the pipeline company's share in completing preliminary engineering now underway.
Preliminary engineering is expected to be finished in mid-2016.
The state actually holds 25% of the project in line with its share of North Slope gas reserves, but a 2014 agreement with TransCanada brought in the pipeline company as an investor and owner of the state's one-quarter share of the 800-mile pipeline and gas treatment plant on the North Slope. The state itself would invest in, and own, 25% of the LNG plant planned at Nikiski, south of Anchorage. About half of the project's overall investment would be in the liquefaction plant.
The contract with TransCanada had a provision for the state to buy back the pipeline and gas treatment plant holding by December 2015, repaying the pipeline company for its investment to date. That is now being done.
The governor proposed the buyout on the grounds that the state would be better off financially in the long term owning its full 25% share rather than splitting it with TransCanada.
Marty Rutherford, Deputy Commissioner of Natural Resources, said the state could earn up to an additional $400 million a year from the project if it owns a full quarter of the project. That is mainly because the state will have cheaper financing costs, as a government, than TransCanada would.
In an interview, Rutherford also said the state needs to be at the table now, representing its upstream interests, during discussions of final engineering and cost allocations on the gas treatment and dispositions of byproducts like carbon dioxide.
"We have a more direct interest in these, as an upstream resource owner, than does TransCanada, which would have been a midstream owner. We have to engage ourselves in negotiations and not have to rely on TransCanada as our representative," Rutherford said.
Decisions on the allocation of upstream costs related to the project could result in billions of dollars of gain or loss to the state over the life of the project, Rutherford said.
Although most state legislators backed Walker's decision on the acquisition there is still serious concern as where the state can adequately manage its 25% share, which would be done through AGDC and also how the state will acquire the financing for the investments TransCanada would have made.
The state is already running huge budget deficits due to the slide in crude prices and state oil revenues.
As a full share owner, Alaska will have to come up with an estimated $675 million if the project moves into the final engineering phase, or Front-End Engineering and Design, and an estimated $13 billion to fund one fourth of construction costs.
Cash-calls for the building of the project would come from 2019 through 2024, years when construction would be underway.
State officials are looking at a variety of ways the financing could be carried out, including issuing state general obligation bonds, which would require voter approval, or revenue bonds under a project financing plan that would pledge future revenues to repay the bonds.
Some form of financial guarantee from the state would likely be required by lenders under a project financing plan, a consultant to the state told legislators previously in briefings. The state's Permanent Fund, a $53 bill savings fund from accumulated oil revenues, could be used as part of a guarantee.
In legislative hearings this week and last in Juneau, lawmakers also grilled state administration officials on whether AGDC has the experience or staffing adequate for overseeing the state's interest.
MacKinnon said one of the original reasons for bringing in TransCanada was to have the pipeline company's expertise available to the state.
Dan Fauske, AGDC CEO, told legislators the agency has built up its staff and honed experience over the last year while completing final engineering on a smaller gas pipeline that could be built from the North Slope in case the large project falters.
Final permits for the smaller Alaska Stand-Alone Project are also being secured, Fauske said. "We've demonstrated that we can do this. This (ASAP) project is ready to go if we need it," he said.