OCTOBER 30, 2015  

Should Alaska buy out TransCanada in the AKLNG Project?

Dear Friends and Neighbors,

Should Alaska buy out TransCanada in the AKLNG Project?  That’s the question under consideration during this special session.  Here’s a quick explanation.  Please know you can always call me at my office at 269-0144 or on my cell at 360-4047 if you want to learn more.

What got us to this point?

Rep. Tarr with Rep. Kawasaki combing over the finer details of the AKLNG Project.

In 2014 Senate Bill 138 was passed, allowing the state to become a partner in a liquefied natural gas project.  The concept, known as a “pipe in a pipe” model, was that the State of Alaska, along with the three major producers, BP, Exxon, and Conoco Phillips, would become roughly equal partners in a project.  The project became known as AKLNG.  Each partner would have about a 25% ownership stake in all aspects of the project, which include a Gas Treatment Plant (called a GTP, would be located at the North Slope to treat the gas and remove CO2 before entering the pipe), a pipeline (to transport the gas to the terminal), and a liquefaction terminal (called an LNG facility, would liquefy the gas for shipping). 

Along the way the state entered in a relationship with TransCanada to be our representative on two portions of the project, the GTP and the pipeline.  Essentially the state would let TransCanada move forward on those pieces of the project, also known as the mid-stream.  Just for background, the project is also described as having upstream (the natural gas resource), mid-stream (the GTP and pipeline), and downstream (the LNG facility).  TransCanada is often referred to as representing the state in the mid-stream portion of the project. 

Where We Are Now

Rep. Tarr joined the Finance Committee for hearings this week.

The legislature will decide whether or not to buy out TransCanada’s interest in our portion the project, changing the way Alaska funds the project and increasing the state’s influence within the partnership. It is critical to understand TransCanada’s role in the current AKLNG model.

TransCanada is currently acting as a lender to the state, covering Alaska’s cash calls during the early stage work, called the pre-FEED (pre-Front End Engineering and Design) and FEED stages. Later they would get paid back that money from the state either as cash payments with interest, if the project fails, or in the form of tariff payments (tariffs are the charge levied for shipping the gas) if the project succeeds.

What makes buying out TransCanada attractive at this time is that the current agreements allow for a clean off ramp, meaning we can sever our relationship with TransCanada and all remaining parties can move forward with the project.  In considering this decision we should keep in mind that the state is on the hook to repay TransCanada, plus roughly 7 percent interest under any circumstances. If the project fails, Alaska must payback TransCanada. If TransCanada pulls out early, the state is on the hook. If the project succeeds, Alaska is on the hook.

The AKLNG Project is often referred to as a giga-project because each of the three components, the Gas Treatment Plant, the pipeline, and the LNG facility, are each considered mega-projects.

By severing ties with TransCanada now, the state will be responsible to make the early cash calls, but Alaska will have its entire 25 percent interest in the program, giving us a much more powerful seat at the table. That means that while the state will have to come up with more money in the early stages of the project, Alaska will receive more revenue once the project is online – as much as $360 million per year more. We could wait until a later date to buy out TransCanada, but the longer we wait the higher that payment would be, potentially forcing the state to come up with billions of dollars on short notice.

From everything I know and after intensive study of the issue, I believe the decision to sever ties with TransCanada now is the right call. It will give us a better bargaining position throughout the projectwhich will help ensure a successful project. I’m attending every committee hearing and will continue to listen and learn.

I’ll keep you posted as the special session progresses. Again, please get in touch with any questions.

Sincerely,

Representative Geran Tarr