Alaska natgas pipeline sponsors remain bullish

ANCHORAGE, Alaska, June 23 Tue Jun 23, 2009 8:00pm EDT

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ANCHORAGE, Alaska, June 23 (Reuters) - Sponsors of competing proposals for a massive Alaska natural gas pipeline said Tuesday they remain confident that their mega-projects are viable, despite the current economic recession.

TransCanada Corp (TRP.TO), which holds a state license entitling it to preferred treatment and a subsidy of up to $500 million, is working with new partner Exxon Mobil (XOM.N) to prepare for an open season next July to solicit potential shippers, a company official told state lawmakers at special hearings in Anchorage.

The current recession and a recent dip in natural gas prices are short-term problems that do not affect the project's long-term outlook, TransCanada Vice President Tony Palmer said during a break in the hearing.

"The project's going to be in service, in a success event, in nine years," Palmer said. "The current economic situation hasn't changed our commitment to the project, and we don't think it's changed the commitment of shippers."

The alternative proposal, pursued by a partnership between BP (BP.L) and ConocoPhillips (COP.N) called "Denali," is also seeking to hold an open season next year and has already spent $100 million toward that goal, an official told lawmakers.

"Denali is on track and we're moving ahead," Bud Fackrell, Denali's president, told lawmakers. "We are taking a long-term focus on the project, and the economy and competition is not fazing us."

But representatives of the oil producers that hold leases to most of the proven 35 trillion cubic feet of North Slope natural gas -- BP, ConocoPhillips and Exxon -- said the project's success depends on the state providing a long-term freeze or lockup of gas-production taxes.

"One of the things that you've heard me mention time and time again is that you need to have predictable and durable fiscal terms. Similar to any other project around the world of this magnitude, that is something that you have to have," Marty Massey, U.S. joint interest manager for Exxon, told lawmakers.

Alaska Revenue Commissioner Pat Galvin said state officials have seen nothing yet to justify tax changes or a tax-system freeze.

The state's current tax system and inducements embedded in current law appear sufficient to support a profitable project, Galvin told lawmakers.

"We do not intend to negotiate against ourselves. We are not going to propose a tax change just to throw something else on the table," Galvin said.

Some lawmakers, meanwhile, were troubled about the prospect of the state subsidizing Exxon, a corporation that has had rocky relations with Alaskans because of the 1989 Exxon Valdez disaster and its aftermath.

Many constituents have objected to the idea of Exxon sharing in the $500 million state subsidy, something to which it is entitled through its new partnership with TransCanada, said state Rep. Bryce Edgmon, who represents a fishing-dependent district in southwestern Alaska.

"How can we as a state commit to fund the biggest company on planet Earth on a deal that's going to be highly profitable to them in the end?" Edgmon said. "I think it's going to be hard to reconcile in a lot of Alaskans' minds."

Under both the TransCanada-Exxon and Denali proposals, the natural gas pipeline would run about 1,700 miles from Prudhoe Bay to Alberta and ship about 4 billion cubic feet a day.

Recent state estimates put the project cost above $30 billion. (Editing by Christian Wiessner)

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