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Alaska Gas Issues

Ziff EnergyPacific Northwest Gas

StrategiesOctober 2, 2001

Roger MarksState of Alaska

Department of Revenue

Alaska Gas Issues

Ziff EnergyPacific Northwest Gas

StrategiesOctober 2, 2001

Roger MarksState of Alaska

Department of Revenue

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ALASKA

NORTH SLOPE

Kenai

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The Prudhoe Bay Reservoir

Gas Cap

Oil Rim

BP Arco/Exxon

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Intrinsic EconomicsIntrinsic Economics

• Transportation chews up gas value

• Geography generally puts Alaska near back of the line

• Need for big project

• Big project = big risk

• Transportation chews up gas value

• Geography generally puts Alaska near back of the line

• Need for big project

• Big project = big risk

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Options for Stranded North Slope Gas

Options for Stranded North Slope Gas

• LNG to Asia

• Gas-to-Liquids through TAPS

• Long pipeline to the Lower 48

• LNG to Asia

• Gas-to-Liquids through TAPS

• Long pipeline to the Lower 48

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What has ChangedWhat has Changed

• High gas prices in Lower 48

• Reduced oil losses to aging reservoir

• Re-alignment of interests at Prudhoe Bay

• High gas prices in Lower 48

• Reduced oil losses to aging reservoir

• Re-alignment of interests at Prudhoe Bay

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Prudhoe Bay

Mackenzie Delta

Alberta

Chicago

Fairbanks

Over the Top

The Highway

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ANGTAANGTA• 1976 - Authorizes government to

select route and entity to build ANGTS

• Canada - Northern Pipeline Act

• Expedited processes and limited judicial review

• 1977 - Alaska Northwest Partnership proposal selected - ALCAN route - (Now Foothills)

• Exclusivity questioned now

• 1976 - Authorizes government to select route and entity to build ANGTS

• Canada - Northern Pipeline Act

• Expedited processes and limited judicial review

• 1977 - Alaska Northwest Partnership proposal selected - ALCAN route - (Now Foothills)

• Exclusivity questioned now

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The $4 Billion “Meatball”

The $4 Billion “Meatball”

• Preconstruction costs incurred over 20 years ago have been accumulating with interest

• Some portion may be part of tariff

• May be less

• Preconstruction costs incurred over 20 years ago have been accumulating with interest

• Some portion may be part of tariff

• May be less

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Federal LegislationFederal Legislation• Re-affirm ANGTS route

• Expedited processes

• Tax incentives

• Priority for American & Canadian steel

• Alaska Native, Alaskan, and union hire

• Access to gas and pipeline capacity

• Re-affirm ANGTS route

• Expedited processes

• Tax incentives

• Priority for American & Canadian steel

• Alaska Native, Alaskan, and union hire

• Access to gas and pipeline capacity

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Access to CapacityAccess to Capacity

• Parties who may have gas in the future but do not have gas now want assurances of access to capacity

• Similarly, incentives for gas exploration and leasing are reduced

• However, risk of overbuilding

• Parties who may have gas in the future but do not have gas now want assurances of access to capacity

• Similarly, incentives for gas exploration and leasing are reduced

• However, risk of overbuilding

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Fiscal IssuesFiscal Issues

• Fiscal contract

• RIK commitments

• Transparent valuation based on realization

• Common value for taxes and royalties

• Agreement on tariffs

• Binding arbitration

• Fiscal contract

• RIK commitments

• Transparent valuation based on realization

• Common value for taxes and royalties

• Agreement on tariffs

• Binding arbitration

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Policy Council / Joint Legislative

Committee

Policy Council / Joint Legislative

Committee• Fiscal issues

• State ownership

• Environment

• Value-added industries

• In-state demand

• Alaska hire and training

• Fiscal issues

• State ownership

• Environment

• Value-added industries

• In-state demand

• Alaska hire and training

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ConclusionConclusion

• To be continued• To be continued