CALGARY, Alberta (Reuters) - TransCanada Corp said on Thursday it did not expect a potential $9 billion liability for an Alaska gas pipeline that was never built to come back to haunt its latest attempt to revive the project.
TransCanada was the only bidder to clear hurdles set by the Alaskan government over who could qualify to build a $26 billion pipe to carry the prodigious natural gas reserves under the state’s North Slope to southern markets.
It said the state administration has asked it about concerns that a previous attempt to build the line -- a plan dating back to the 1970s -- may saddle the new conduit with the massive and unexpected bill, threatening the economics of the proposal and worrying potential customers.
Brian Wenzel, a vice-president at ConocoPhillips -- one of the firms sitting on 35 trillion cubic feet of gas reserves under Alaska’s North Slope -- told state lawmakers at a hearing on Wednesday that the liability could force shippers to avoid committing volumes to the line.
“We’re very concerned about that. It’s definitely a stumbling block for us as we look out there,” he said. “We don’t understand how we, as a potential partner of TransCanada...could be protected from ending up sharing some portion of that liability.”
But no one should worry, said Tony Palmer, vice-president of Alaska development for Calgary-based TransCanada. He said the potential $9 billion tab doesn’t apply to the new proposal and even if it does come due, the company won’t add it to tolls shippers pay on the pipeline.
“We will not charge those in the rates to customers,” Palmer said. “That tells you how confident TransCanada is in its legal position and how low probability, we believe, this has in terms of any potential liability.”
Palmer said the issues stems from work done by an 11-member consortium of pipeline companies, including a TransCanada unit, that was formed three decades ago to backstop the last attempt to build an Alaska gas line.
The consortium, called Alaskan Northwest Natural Gas Transmission Co., never built the line. But Palmer said it still has assets that include a federal right-of-way and engineering and geotechnical data.
All the partners other than TransCanada have left ANNGTC. But they left behind an agreement that they would be compensated for their original contributions, plus interest, if ANNGTC completed the project.
Palmer said that liability was worth about $250 million when the other partners withdrew. But it has been compounding in the years since at a 14 percent interest rate, pushing the tab up to nearly $9 billion.
TransCanada said it walked away from ANNGTC’s assets when it submitted its winning proposal.
“We said that ANNGTC is not viable. We’re not going to use those old assets,” Palmer said. “We’re not using the old right-of-way, we’re not using any of those existing assets. We did not use them in our application, we will not use them going forward.”
He also said the agreement with the ANNGTC partners specifies that the money would only need to be repaid if it doesn’t cause undue hardship.
“I don’t know how you pay $9 billion without undue hardship,” Palmer said.
Additional reporting by Yereth Rosen in Anchorage. Editing by Peter Galloway