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Top 10 Stories of 2007: AGIA, Alaska’s pipe dream

by Bill McAllister
Wednesday, Dec. 27, 2007

ANCHORAGE, Alaska -- Former Gov. Frank Murkowski's plan for a gas pipeline contract crashed and burned last year.

This year Gov. Sarah Palin tried a new approach, AGIA.

In her first State of the State Address on Jan. 17, Gov. Palin gave state politics a new acronym, AGIA, standing for the Alaska Gasline Inducement Act.

"This law allows transparent and competitive processes," Palin said. "It jump-starts progress with incentives and it strikes the right balance on a project for the state, the nation, the project proponents and the producers."

Palin did not want to negotiate directly with the three main producers on the North Slope, which had been the failed strategy of her predecessor, Frank Murkowski.

Instead, the new governor called for laying out terms under which prospective pipeline builders could bid for the $30 billion project to commercialize Alaska's abundant natural gas.

The state would offer a $500 million subsidy to the winning bidder. That bidder would have to agree to pay part of the pipeline expansion when explorers found new gas.

AGIA dictated the project licensee would have to continue with efforts toward federal certification even if the producers did not give timely commitments to ship the gas they have under lease from the state.

Producers hated the bill.

"We cannot move the project forward if it is not commercially viable. AGIA as written does not provide for a commercially viable project," Exxon Mobil U.S. Joint Interest Manager Marty Massey said.

And initially there was some skepticism in the Legislature.

"I'm not sure that the AGIA as written is going to attract anyone," Senate President Lyda Green said.

But Palin refused to budge on her approach.

Then, typically for her political career, she benefited from timing.

On May 4, within two weeks of the end of the legislative session, three lawmakers were arrested on bribery and conspiracy charges associated with passage in 2006 of a new oil production tax.

Suddenly the oil industry as a whole had to go on the defensive. And a week later, AGIA won approval in both houses of the Legislature.

"I want in the worst way for the governor to get a bill that she can take out of here and go make a pipeline happen," said Rep. Mike Kelly, R-Fairbanks.

"You can't say for a certainty that we're going to wind up with a gas pipeline at the end of this path," said Sen. Hollis French, D-Anchorage. "I do know that we have to take this path, that with the path we had a year ago, which was the wrong way, this one today looks like the right way."

The governor held a mock bill-signing ceremony in June alongside the oil pipeline outside of Fairbanks, reminding Alaskans of the previous petroleum boom.

"This legislation is open to all comers, all viable, responsible, reasonable entities wishing to compete for the right to tap Alaska's resources," Palin said. "AGIA excludes no one. It's open, transparent, competitive."

But the three producers said they would not bid. And into the fall there was speculation about who would show up by the deadline, which was postponed by two months, to Nov. 30.

When the bids were opened, there were two Alaska government organizations with applications, as well as an unknown energy partnership that was recently formed, a Chinese-government backed conglomerate with ties to the murderous regime in the Sudan, and TransCanada, the pre-eminent Canadian pipeline company.

One surprise in the bidding process was the no-show by Mid-American Energy Holdings, a subsidiary of billionaire Warren Buffet's Berkshire Hathaway. Company officials said they were put off by the public corruption probe in Alaska.

"We are thrilled with this list. It shows it's a viable and economic project,

and it's attracted great attention and great applicants," Palin said.

Still, some were skeptical of the applicants' abilities to complete the project.

"What you have with the five applicants under the AGIA process are five companies that cannot build the project on their own," former gubernatorial candidate Andrew Halcro said.

Applicants remained confident.

"It's been our longstanding position that there should be an alignment between the resource owner, the state of Alaska, and those three major producers, as well as TransCanada, to advance the project," TransCanada Vice President for Alaska Development Tony Palmer said.

Conoco Phillips submitted a proposal that did not conform to the terms of AGIA, but called on the administration for negotiations.

"We believe very strongly that we need to address gas fiscal terms so that all future shippers that will go into this line know what the terms are they'll be operating under," Conoco Phillips Alaska President Jim Bowles said.

To date, Palin administration officials say they have not completed their review of the applications under AGIA, which have not been released to the public.

So lawmakers, who would have to approve any AGIA licensee proposed by the administration, do not yet know what the choices are.

At year's end, AGIA is an approach that has not yet succeeded or failed.

Contact Bill McAllister at bmcallister@ktuu.com