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TransCanada courting Alaska lawmakers for license
2008-06-15
JUNEAU, Alaska - TransCanada Corp. has 36,000 miles of pipeline moving natural gas throughout North America, enough pipe to circle the earth along the equator with about 11,000 miles to spare. Now TransCanada wants to add another 1,715 miles by building a pipeline rooted in the Arctic oil fields on Alaska's North Slope that would deliver natural gas to markets in the Lower 48. The pipeline would move 4.5 billion cubic feet of natural gas daily -- or about 7 percent of the nation's daily demand -- and potentially 6.5 billion cubic feet. TransCanada Chief Executive Hal Kvisle has the support of Alaska's governor, but it must still win over the state legislature. "We are the largest pipeline company in North America by any measure," Kvisle said. "We are the only company who has built gas transmission projects of this scale, this length, this magnitude before." But TransCanada is competing with oil giants ConocoPhillips and BP PLC, which recently joined forces on an alternate pipeline. The companies already hold leases to North Slope natural gas. Some lawmakers and energy experts question whether TransCanada has the financial wherewithal to handle a project that could reach $30 billion -- or $10 billion more than TransCanada's market capitalization. The Alaska Legislature has until Aug. 2 to decide whether to grant a state license to TransCanada, which has been the subject of an already heated two-week debate among lawmakers. If Alaska rejects a license for TransCanada, which comes with $500 million in matching seed money, the state would be back at the bargaining table with producers like BP and ConocoPhillips. That effort failed two years ago when former Gov. Frank Murkowski agreed in principle with oil companies on a long-term contract on fiscal terms, such as taxes. But the Legislature never voted on it, saying it was too generous. State Rep. Mike Kelly, a Fairbanks Republican and former chief executive for a utility company, said keeping TransCanada in the game means maintaining a competitive field. "I want to keep both of the girls at the dance until we get this thing done," Kelly said. "And I'm convinced TransCanada can do it." But some lawmakers are balking at the $500 million in seed money, especially when BP and ConocoPhillips aren't asking for any money upfront. If Calgary-based TransCanada does get the license, the next step is securing long-term financial commitments from producers that would ship gas and underpin the project's financing. That is the biggest risk and failure to secure a commitment, which can last a quarter century, could kill the project. ConocoPhillips and TransCanada recently signed a deal to build a huge oil line, a deal cited by CEO Kvisle as evidence that company has a good track record. Under that project, the companies will send oil in a 2,148-mile pipeline ultimately capable of delivering 590,000 barrels of crude daily from Hardisty, Alberta, to Midwestern markets. "ConocoPhillips would have to have a very high opinion of them or they wouldn't have done that," said Steven Paget, FirstEnergy financial analyst. TransCanada must also convince lawmakers it will control construction costs. The company estimated the project at $26 billion, but the state's own consultants put the project closer to $30 billion. Lower costs translate into lower transportation fees -- tariffs -- and that means more royalties and production taxes for the state. A North Slope gas line has been discussed since oil first moved down the 800-mile trans-Alaska pipeline in 1977. Now, as oil repeatedly soars to record highs, there are massive, competing projects to make it happen. Analysts said any project of this size is too big for one, even two companies, and two pipelines aren't likely to get built. "Chances are TransCanada would end up have some sort of partnership in this pipeline," said FirstEnergy's Paget. "The question is what shape will it take?" ___ On the Net: http://www.gov.state.ak.us/agia/ http://www.Denali-TheAlaskaGasPipeline.com http://www.transcanada.com
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