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Palin steps up North Slope rhetoric



By Upstream staff 

Alaska could revoke leases for oilfields like Prudhoe Bay if major companies refuse to take part in a government-sponsored natural gas pipeline plan, the state's Governor Sarah Palin has said.

Supermajors ExxonMobil, BP and ConocoPhillips together control more than 35 trillion cubic feet of known gas reserves on the Alaska North Slope.

But the companies declined to participate in a process backed by Palin to jump-start a long-delayed gas pipeline, arguing they needed a long-term tax deal from the state first.

ExxonMobil has also argued that it cannot fully develop its North Slope gas leases until a gas pipeline is built.

Palin called the refusal "unconstitutional".

"When the conditions of these leases are not met, especially after decades, it is time to open them up and allow other companies to come in here and compete for the right to tap the resources," the Republican governor told Reuters this week in an interview.

The companies have said they are interested in developing the North Slope reserves, with ConocoPhillips studying a separate plan that falls outside the state’s agreed pipeline development framework.

Palin's tough talk has the backing Democrats in the state legislature.

But cancelling the leases at Prudhoe Bay and other aging North Slope fields would provoke a legal firestorm, Democratic state Senator Hollis French acknowledged.

"If it's a court fight, or no gas line, I'll take the court fight," said French.

However, many members of her own party worry Palin's aggressive approach is alienating the producers, who will have to agree to long-term pipeline shipping deals if the $30 billion to $40 billion project is to secure financing.

Declining oil output is putting increasing pressure on Alaska to get its gas reserves into production to stave off a looming fiscal crisis.

Officials believe the state budget could fall into a significant deficit by 2012, even if oil prices remain near current high levels. The most optimistic scenarios for the gas pipeline put it in service by late 2018.

Alaska has already moved to cancel the lease of the undeveloped North Slope gas and condensate field at Point Thomson, operated by ExxonMobil, in December 2006 and Palin believes the move should act as a wake-up call to the state's major players.

"We are saying, if you don't want to develop, if it is not economic according to your parameters, if Alaska's gas reserves are going to compete with your other projects around the world, if you can't abide by the provisions in the lease you signed up to 30 years ago, its time to let the lease go and bring in some competition," Palin said.

State courts have backed Alaska's move to cancel the Point Thomson leases and a 6 March deadline has been set for ExxonMobil and the state to work out a compromise.

ExxonMobil earlier this week announced a new $1.3 billion development plan for Point Thomson that would have early condensate production begin by 2014, meeting a key state demand.

ConocoPhillips spokesman Charlie Rowton stressed that his company was still advancing its own pipeline proposal. He said it has started planning and contracting efforts in preparation for route reconnaissance and environmental studies this summer.

No one from BP was available to comment.


Thursday, 21 February, 2008, 04:55 GMT  | last updated: Thursday, 21 February, 2008, 09:16 GMT

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