Major Palin Victory on the Way

Last week I told you all that AGIA lives. Well, here is some proof of it: even Dan Fagan admits that rumor has it that a major Palin victory is in store:

The ever-elusive Alaska gas pipeline is making headlines once again. Former Gov. Frank Murkowski and Sens. Lisa Murkowski and Mark Begich have all expressed frustration over the lack of progress regarding the pipeline.

But the truth of the matter is things are progressing nicely. Denali Pipeline Company and TransCanada are both working toward an open season in 2010.

And credible sources confirm for me that Exxon and TransCanada are currently negotiating a deal to work together. If the deal does emerge, it would be perceived as a major political victory for Gov. Sarah Palin.

Check the trees for pork!

Let’s just gloat for a few minutes, shall we.

There. Done. The governor alluded to a major breakthrough in the progress of the pipeline. Perhaps this is it. She is also rumored to be heading to Texas later this week. We can only speculate why. You may recall that last March Bill McAllister let slip the fact that Palin met with Exxon.

Dan goes on to mention the crucial aspect of providing the producers with fiscal certainty vis-à-vis the state’s tax structure. (Of course, he takes a few ignorant pot shots at ACES. This is still Fagan, after all). He seems certain that Gov. Palin will do the right thing in negotiating the tax structure with the producers. His reason for believing this? Because she needs it for her national profile. And here we see Dan’s Palin Derangement Syndrome surface. As I once noted, a clear symptom of PDS is the tendency to ascribe base political motives to even good decisions that Gov. Palin makes.

Palin is getting the job done and fulfilling her promise and her dream of building a natural gas pipeline to bring Alaska’s gas to market. So, in Dan’s mind, it all has to do with her national ambitions. Hey, Dan, maybe it has to do with her promise to Alaska. Maybe it has to do with her own dreams for her state. Maybe it has to do with her desire for an energy independent America. Maybe it has to do with her firstborn son who is serving overseas in a war that many people believe was, in part at least, about energy resources.

In other news, Lisa Murkowski is proving herself to be as much the statesman (statesperson?) that Ted Stevens was when it comes to pipelines for Alaska. Rena Delbridge reports in the Fairbanks News-Miner:

The potential of super-low-interest federal loans and increased guarantees might lend greater appeal to proposals to build a large-diameter natural gas pipeline linking Alaska’s North Slope resources and markets in Canada and the Lower 48.
U.S. Sen. Lisa Murkowski announced several provisions benefiting an Alaska gas pipeline that she’s secured in a comprehensive energy bill in Washington, D.C. She’s the ranking Republican on the Energy and Natural Resources Committee, chaired by Sen. Jeff Bingaman, D-N.M.

If approved by Congress, the bill would increase a federal loan guarantee for an Alaska gas pipeline project from $18 billion, set in 2004, to $30 billion plus inflation from 2004 values.

In addition, a project could tap into super-low-interest loans from the Federal Financing Bank, a federal corporation, and clarifies 2004 language to specify that the federal loan guarantee will cover a full 80 percent of the total project costs.

And here’s the best part – Alaska’s gas will be even more competitive in the markets in the Lower 48 (Take that, Larry Wood!):

Producers after maximum returns on their resource might be enticed by the prospect of lower project costs, which in turn could up the state’s take on gas sold.

TransCanada Alaska Vice President Tony Palmer said the 2004 guarantee was a positive action and any increases are good news.

“If Congress decides to supplement that federal loan guarantee ... certainly, TransCanada would view that as positive, also,” he said. “If low-interest loans are available at a low interest rate, that would be very positive for the rates charged to customers.”

Low interest rates could keep project costs down, a key factor in the $40 billion estimated total. Lower costs translate to lower transportation costs, which could make Alaska gas more competitive in markets Outside.

Palmer said not only would Alaska gas be more competitive at market with lower project costs, but the “net back” to the state also would likely increase. Lower rates for shipping gas in the line leave producers with greater profits. The state takes its share of producer profits through taxes and royalties.

Alaska gas’s ability to compete has been a real concern among some who question the financial viability of a large-diameter line. Over-supply and decreased demand are keeping natural gas prices low in the Lower 48, as producers consider tapping into massive shale gas plays. Any domestic supplies in the Lower 48 would likely cost far less in U.S. markets than Alaska’s gas, considering the transportation costs over several thousand miles.

And, as I said all along, the Palin administration had been working out the “fiscal certainty” aspect:

Meanwhile, the state’s Legislative Budget and Audit Committee on Friday authorized hiring contractors to study ways to break apart Alaska’s oil and gas tax structures. Some say doing so would bring down the taxes due on natural gas, and would extend greater fiscal certainty to producers debating whether to commit gas to a pipeline project.

Legislative Budget and Audit Committee chairman Sen. Kevin Meyer, R-Anchorage, said a Request for Proposals for economic analysis will go out soon and said he hopes to have a consultant on-board by fall.

Exxon is, of course, the key:

With ConocoPhillips and BP partnering on their own pipeline, some energy experts say Exxon’s involvement will be the blow that pushes one project above the other. Exxon controls about a third of the gas leases on the North Slope and operates the Point Thomson unit where exploration is under way.

Palmer wouldn’t specify whether he’s engaged in discussions with Exxon. He said TransCanada has been talking with various producers for several years and is prepared to offer equity in the pipeline to producers who commit gas during an initial open season. Likely producers with gas leases on the North Slope are BP, ConocoPhillips and Exxon Mobil.

“I could never advise you of where we are ... until we’ve struck a deal with them,” Palmer said.

With Exxon on board and with a clear tax structure in place, we might not have to wait for the 2010 open season to see which pipeline project goes forward.

AGIA lives!