Canadian pipeline builder TransCanada supports a proposal to buy out its stake in the proposed trans-Alaska natural gas pipeline, deputy natural resources director Marty Rutherford told the Alaska House Finance Committee on Sunday afternoon.
“They are supportive of the administration buying out their position,” Rutherford said after a question from Rep. Cathy Muñoz, R-Juneau.
“I’m still a little shocked at this,” said Rep. Scott Kawasaki, D-Fairbanks, in response to the assertion that TransCanada wants to be bought out. “I figured it was kind of a divorce.”
“We were just dating,” Rutherford replied.
The announcement came in the second day of a special Alaska Legislature session devoted to considering the buyout. Lawmakers are being asked to immediately allocate $157.6 million to complete the buyout and pay for the state’s share of the first phase of the AKLNG project.
That project envisions an 800-mile natural gas pipeline from the North Slope to Cook Inlet, where a plant to create liquefied natural gas (the LNG in AKLNG) will be built to ship gas around the world.
The state has partnered with energy giants BP, ConocoPhillips and ExxonMobil to split the cost of the $45 billion to $65 billion effort. With the state facing a multibillion-dollar gap between revenue and expenses, the state has partnered with TransCanada to pay Alaska’s upfront costs.
In exchange, TransCanada is guaranteed repayment at 7.1 percent interest even if the project fails and the pipeline is never built. If it is built, TransCanada gets a share of the state’s revenue from the pipeline.
Now, the Alaska Legislature is being asked to consider whether it is cheaper for the state to raise the money on the open market — through bonds or some other kind of financing — and pay for the project on its own.
Deepa Poduval, a director with Black and Veatch, which the state has hired to advise it on gas pipeline issues, said the state’s partners in AKLNG — BP, ConocoPhillips and ExxonMobil — “have essentially said it’s the state’s decision; they’re relatively neutral.”
Rutherford said TransCanada has 15 employees working on AKLNG on behalf of the state, and their work would be replaced by the Alaska Gasline Development Corporation, said Department of Natural Resources commissioner Mark Meyers.
What expertise TransCanada brings to the project is a question best asked of TransCanada, Meyers said.
Representatives from TransCanada were not present in the capitol on Sunday, but they are scheduled to speak to the Legislature on Wednesday, according to legislative calendars.
Rep. Mark Neuman, R-Big Lake and chairman of the House Finance Committee, raised questions about whether the AGDC has the authority to replace TransCanada. Rutherford responded that the Department of Law interpretation allowing that action would be provided to lawmakers.
Though Meyers, has the ability to end the state’s deal with TransCanada “with the stroke of a pen,” Rutherford told lawmakers, the Legislature is the body that makes financial decisions in the state.
Rutherford told the House Finance Committee that unless lawmakers agree to pay for the buyout, the state will continue to work with TransCanada.
It doesn’t have enough money to do anything else: the Alaska Legislature didn’t even fully fund ordinary work on the gas pipeline in its budget earlier this year.
“We had requested I think $13 million,” Rutherford said. “We were funded slightly under $9 million … with the note that should we need the additional money to come back in a supplemental request. That is in fact what we’re doing.”
The $157.6 million funding request being considered by lawmakers includes $68.5 million to buy out TransCanada, $75 million to pay for direct pipeline work through the end of 2016, and almost $14 million to pay for pipeline work performed by state agencies.
Current forecasts also indicate the state would be required to pay $875 million for work between 2017 and 2019, then another $12 billion to $16 billion once construction begins in or about 2019. Those amounts would be spread over several years.