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Department of Natural Resources commissioner Tom Irwin, front, answers questions at a news conference Friday, Jan. 4, 2008, after Gov. Sarah Palin announced that the TransCanada application submitted under the Alaska Gasline Inducement Act met all the requirements.

AL GRILLO / The Associated Press

Department of Natural Resources commissioner Tom Irwin, front, answers questions at a news conference Friday, Jan. 4, 2008, after Gov. Sarah Palin announced that the TransCanada application submitted under the Alaska Gasline Inducement Act met all the requirements.

Palin picks Canadian company for gas line

AGIA: TransCanada is experienced in running lines in North America.

Gov. Sarah Palin on Friday winnowed down a stable of five contenders for a state natural gas pipeline license to one company -- TransCanada Corp.

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The Calgary-based pipeline giant was the only applicant to meet the state's minimum bid requirements, Palin said.

"We've long stated that it would only take one good application," she said. "We believe today we have that application."

Friday's decision energized TransCanada executives, but losing bidders had emotions ranging from hope to bitterness.

"The whole thing is not fair," said Dominic S.F. Lee, president of Little Susitna Construction Co., an Anchorage company whose rejected bid had the backing of Chinese energy giant Sinopec.

TransCanada, like a succession of Alaska governors, has for decades pursued a natural gas pipeline to carry the North Slope's enormous gas reserves. Those reserves so far have stayed stuck in the ground due to the enormous cost of a pipeline.

On Friday, TransCanada's proposal for a 1,715-mile, $26 billion pipeline running from the Slope to Alberta became public for the first time.

Its application also contained a surprise -- the suggestion the U.S. government might need to take on some of the huge risk of the pipeline by signing on as a "bridge shipper."

This means the government would agree to pay some of the pipeline transportation fees -- potentially billions of dollars -- should gas producers not commit enough gas initially to operate the line at full capacity.

The Palin administration downplayed the bridge shipper concept, calling it just an idea that didn't disqualify TransCanada from winning an exclusive state license under AGIA, the Alaska Gasline Inducement Act.

Congress in 2004 passed incentives for a gas pipeline, including $18 billion in construction loan guarantees.

Spokesmen for Alaska's two U.S. senators, Ted Stevens and Lisa Murkowski, said late Friday they wouldn't have any immediate comment on the idea of the federal government shouldering additional pipeline risk.

TransCanada's application now will undergo a 60-day public review ending March 6. After that, state lawmakers will decide whether the company wins the license plus a package of state incentives including $500 million in seed money.

CONSTRUCTION NOT CERTAIN

The license is not a contract for actual construction.

Rather, it would only provide preferred state treatment toward the company's effort to mount the complex financial and technical effort necessary to achieve so daunting a project.

TransCanada's application emerged from a stable of five bids submitted by the state's Nov. 30 deadline. All the contenders learned their fate Friday morning, just before Palin held a crowded news conference at her downtown Anchorage office.

One bidder, a small state agency called the Alaska Natural Gas Development Authority, was one of the rejects. It proposed not a major pipeline off the Slope, but a spur line to bring gas to Anchorage.

The authority's executive director, Harold Heinze, said he was thrilled to see TransCanada's application pass muster, saying it offers a chance for a big pipe his spur line could tap into.

Beyond that, Heinze said the TransCanada proposal could spark a competition with Conoco Phillips, a major North Slope gas owner.

Conoco in November offered Palin an "alternative" pipeline proposal, rather than formally apply under AGIA. Conoco's proposal also specifies a pipeline down the Alaska Highway into Canada, but estimates a cost of $32 billion with a startup date of 2018, a year later than TransCanada proposes.

TransCanada also says it's "willing to consider" a pipeline to supply an Alaska port for shipping out LNG or liquefied natural gas -- an idea Conoco and other major oil companies have long said doesn't make financial sense.

LACK OF GAS

Even if TransCanada does win the state license, it has a huge handicap -- it doesn't control any of the North Slope's prodigious 35 trillion cubic feet of gas. It would have to persuade the companies that control most of the reserves -- Conoco, Exxon Mobil and BP -- to commit to shipping their gas through the new pipeline.

Without such pre-construction contracts, no pipeline can be built, experts say.

If the gas producers decline, or pledge an insufficient quantity of gas, that's where the U.S. government might play a "backstop" role as a bridge shipper until more gas contracts could be secured, TransCanada's AGIA application says.

Tony Palmer, the company's vice president for Alaska business development, said Friday the company is used to attracting gas supplies it doesn't own.

"We're primarily a pipeline company," he said. "We do not control any gas reserves on our system across North America. So this is a traditional role for us."

CHINA CONNECTION

State Rep. Ralph Samuels, R-Anchorage, said Friday he doubts the Legislature will have time to consider awarding an AGIA license before its regular session ends April 13.

He also said he's wary of Palin's AGIA process, saying TransCanada and other pipeline company representatives have said repeatedly no pipeline is likely until the state negotiates a long-term gas-tax deal with Conoco, Exxon and BP.

Until that's done, a license for TransCanada could result only in more years of futility as the state's lifeblood -- North Slope crude oil -- continues draining, he said.

Lee, the Little Susitna president, said Sinopec was prepared to buy billions of dollars worth of Alaska LNG, providing great benefit to Alaskans. He said he was dismayed that some Alaska politicians had so readily ruled out the idea of Alaska gas export to China, and said Palin's people refused to negotiate terms.

But members of Palin's gas pipeline team said Little Susitna's application was rejected in part because it said an AGIA license needed final approval by the People's Republic of China, a Sinopec owner.


Find Wesley Loy online at adn.com/contact/wloy or call 257-4590.


Details of TransCanada proposal

• Project: 1,715-mile natural gas pipeline from North Slope down Alaska Highway to Alberta.

• Estimated cost: $26 billion

• Timeline: Pipeline starts operating late 2017.


TransCanada at a glance

• The business: A top Canadian pipeline and power company with 36,500 miles of natural gas pipelines across Canada, the U.S. and Mexico.

• Headquarters: Calgary

• Work force: 3,550 employees

• Chief executive: Hal Kvisle

• 2006 financials: $1.1 billion profit on $7.5 billion in revenue

• Web site: www.transcanada.com

Source: TransCanada Corp.


The rejected applications

Little Susitna Construction Co.

An Anchorage engineering firm. Its application listed Sinopec, a giant Chinese energy company, as a project backer.

Rejected because: Bid imposed unauthorized terms and conditions on state taxes and fees, lacked certainty of Sinopec's commitment to the project, and required Chinese government approval of a contract with the state.

AEnergia LLC

A new company formed by project consultants who had worked on an Alaska gas pipeline idea in the past.

Rejected because: Pipeline would go only to Canada border, and company failed to show it has the money and skills to undertake the project.

Alaska Gasline Port Authority

A consortium of three local governments in Alaska -- the Fairbanks North Star Borough, the city of Valdez and the North Slope Borough -- that proposed a pipeline to Valdez.

Rejected because: The authority missed the deadline for supplying key information in its bid.

Alaska Natural Gas Development Authority

A state agency that proposes a pipeline to deliver North Slope gas to the Anchorage region. This pipeline would split off from a big North Slope pipeline that someone else would build.

Rejected because: The application is for a side project, not the main pipeline called for.

OnLINE: To view the applications and rejection letters, go to adn.com.

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