Oil Companies Say They Should Operate Alaska Pipeline

JUNEAU Feb.15, 2007 (AP)

Exxon Mobil Corp. (XOM), BP PLC (BP), and ConocoPhillips (COP) told lawmakers the producers should own and operate the state's prospective natural gas pipeline.

The oil companies told the House Resources committee Wednesday that an independent owner would have no incentive to reign in costs, which get passed on to producers.

Critics, however, are concerned that a producer-owned pipeline would create antitrust problems and not enable others fair access.

"The producers are best qualified to undertake this massive endeavor," said David Van Tuyl, BP's gas commercializing manager.

"Producers are also commercially motivated to maximize the value of our gas - the state's gas - and to deliver a low-cost project," he said. "The state has the same motivation."

While the companies touted the value of a producer-owned pipeline, Gov. Sarah Palin separately pledged Wednesday to unveil her gas pipeline plan to lawmakers in about two weeks.

Lawmakers have been awaiting Palin's bill designed to re-establish project criteria which energy companies must meet in exchange for inducement incentives from the state. The big three oil companies were hand selected last year by the former governor to lead the project but the deal was never approved by the legislature.

The stakes are a multibillion project designed to deliver Alaska's 35 trillion cubic feet of proven natural gas reserves to a nation watching reliance on imports grow.

Proponents say the three major producers have the largest stake and will not jeopardize that by letting cost overruns go unchecked.

"It only makes sense that the parties taking the risk need to be able to manage those risks, especially on something the scope of this project," Exxon Mobil's Marty Massey told the Senate committee last week.

But critics are worried that letting the three producers operate the pipeline would not enable the state to maximize all its resources.

"I still believe in the best protections long-term for state and citizens come if we have an independently owned and operated pipeline," said Republican Sen. Gene Therriault of North Pole.

Former Gov. Frank Murkowski reached an agreement with BP, Exxon Mobil and ConocoPhillips to build a $25 billion pipeline from the North Slope through Canada and into the Midwest.

The line would ultimately have delivered about 4.5 billion cubic feet of natural gas a day, which is about 7% of the current U.S. demand.

But lawmakers felt the deal gave too many considerations to the big firms, including locking in tax rates for several decades.

The deal led to bickering among lawmakers, plus unproductive meetings and special sessions last year that left a bitter taste with the current Legislature - and no contract.

"Rhetoric has to really stop in order to move this project forward and start to understand and work with each other," Joe Marushack, ConocoPhillips vice president of gas development, told the Senate Resources committee.

Marushack also said the state is now behind the curve on the project's timeline, which includes 10 years to build the pipeline.

Rep. Carl Gatto, R-Palmer, who co-chairs the House Resources committee, says he believes progress is being made.

"We are not anywhere close to where we need to be, but we are getting there," he said.

Copyright (c) 2007 Dow Jones & Company, Inc.