After more than a year of negotiations, the proposed natural gas pipeline from the North Slope through Canada still has no customers lined up, the head of the project told legislators on Tuesday.
Tony Palmer, vice president of Alaska development for TransCanada Corp., blamed the inability to ink firm agreements on three things: uncertainty over the gas supply on the North Slope due to an ongoing lawsuit over the Point Thomson oil and gas field, uncertainty over what long-term taxes and royalties might be on the gas, and uncertainty over the market for gas in the Lower 48 and overseas.
Even if the Point Thomson lawsuit is settled and the state and producers come to agreement on the cost of getting the gas out of the ground, the market is still unclear and "you may find yourself with no project," Palmer cautioned.
Palmer also pointed out the country's recent financial struggles with the debt crisis and credit rating reductions have made financing of big projects much harder to put together. He said he is hopeful that Congress will boost the federal loan guarantee for the gas line, a measure that is pending, to help ease financing considerations.
And North Slope gas producers have not openly signaled a willingness to sell the gas, which is needed to keep the pressure up in the reservoirs for oil production. Palmer said that is a separate issue from building the gas line and finding customers who want to ship gas.
TransCanada, which is partnering with Exxon Mobil in the project known as AGIA under the Alaska Gasline Inducement Act, solicited bids from possible gas line customers last summer. The open season resulted in significant interest, Palmer said at the time, but finalizing agreements has been elusive.
"We did not expect it would take a year but here we are a year later and we do not have precedent agreements with customers today," Palmer told the Senate Resources Committee in Anchorage.
For months, TransCanada officials have been reluctant to talk about the status of the agreements. And even Tuesday Palmer refused to reveal details of the problem with lining up customers despite urging from some lawmakers who even requested confidential briefings.
Sen. Bill Wielechowski was the most pointed, reiterating several times that the state is at a point where it must make decisions on continuing with the "big" TransCanada gas line or focusing on a smaller in-state bullet line.
"I just think it's critical that we have more information about where you are" on the project, he said.
Palmer said revealing details of the negotiations even in confidence to lawmakers is "highly unusual" and just not done in the gas pipeline business.
Wielechowski countered that the AGIA project is highly unusual and the state is a partner in the project yet knows very little about what is going on.
Under AGIA, the state agreed to reimburse TransCanada and Exxon up to $500 million in field work and pre-construction costs necessary to file an application with the Federal Energy Regulatory Commission. That application is on track to be filed in October 2012 even without customers lined up, Palmer said.
Palmer told lawmakers the state has paid the pipeline venture $94 million but TransCanada has spent $194 million. However, he said, once the FERC application is filed and all the reimbursements made, the process is estimated to cost about $700 million with most of that -- $500 million -- coming from the state.
Sen. Bert Stedman pointed out that lawmakers should consider the $500 million a "sunk cost" -- it's going to get spent no matter what. Earlier this year, some House GOP leaders pushed legislation that would provide a way for the state to quit spending money on the project if it was considered economically unfeasible.
But Stedman and others said Tuesday the only way that would happen is if both TransCanada and the state agreed to abandon the project.
Palmer said his company is working dutifully on field studies and other things necessary to get the application filed. He did tell lawmakers that TransCanada would be discussing "options" with state officials in light of the inability to get signed agreements.
In a brief interview after the hearing, Palmer declined to say what those options were. He said the discussions would take place "over the course of the next few months" and that he was especially interested in seeing if the Point Thomson litigation is resolved soon, as Department of Natural Resources Commissioner Dan Sullivan told the committee on Monday.
But Palmer wouldn't say whether one option might be finding a way to end the project before too many more millions of dollars - both public and private -- are spent on it.
"I'm not going to speculate on that," he said.
Contact Patti Epler at patti(at)alaskadispatch.com