Seeking to overcome continuing obstacles to private financing for the $14 billion Alaskan gas pipeline, project backers yesterday called on federal regulators to relax limits on profits to potential investors.
To date, American and Canadian entrepreneurs and oilmen pressing construction of the 4,000-mile pipeline have attracted only small amounts of money from the gas pipeline companies that would buy the gas, and none from the major oil companies who would sell the gas, or from major institutional investors who finance massive industrial projects.
These difficulties, along with the President Carter's explicit refusal last year to allow federal backing to finance the project, has touched off speculation that the project might ba delayed for years or perhaps not be built at all.
However John G McMillian, president of Northwest Energy Co which heads of the six-firm American consortitum backing the project, opened a press conference yesterday saying, "Some of the rumors about our demise have been grossly exaggerated."
McMillian and other backers, including Alaskan Gas Trunkline Co. President S. Robert Blair, the line's major Canadian supporter, sought to allay questions about whether the pipeline can be financed by private investors.
What is required, McMilliam said, is for the Federal Energy Regulatory Commission (FERC) to relax restriction on pipeline investors' profits if there are major cost overruns. He also said that Congress will have to pass a measure, defeated earlier this year to allow Alaska to sell $1 billion worth of industrial revenue bonds for the financing of the state's leg of the project.
McMilliam said he has met with Energy Secretary James R. Schlesinger Jr. and President Carter and that both are committed to trying to make the pipeline viable. He and other pipeline supporters say they expect that the FERC will relax a ruling issued Sept. 15.
The FERC ruling on the so-called "incentive rate of return" argued that the currently proposed schedule "is designed so that investors will rejected the project only if they anticipated overruns" that would make the pipeline a poor investment risk.
The profit formulatied to the overruns was stiched into the White House pipeline package-and approved by Congress-in response to the overruns that plagued the 800-mile trans-Alaska oil pipeline. Its costs rose from about $1 billion in the mid-1960s to $10 billion by the time it was completed last year.
Even if FERC loosens the cost-over-run-profit formula, which McMillian says he expects, there will still be continuing questions about the ability of project backers to win private investors.
Because of uncertainty about the project's final cost, and the extremely high cost of the gas once it would be delivered to the United States, McMillian has been able to attract only five U.S. gas pipeline companies to invest in the project. The expected $4.50 to $5 or higher price per 1,000 cubic feet of gas delivered is more than twice the price of gas allowed under the recently enacted gas deregulation bill.
One major Midwestern pipeline that would be a natural customer that has passed up investing is Peoples Gas Co., based in Chicago.
"We have serious questions as to the financing of the pipeline, and until we have a firm fix on that we don't think we should make an investment," said Joe Wells, Peoples' vice president.
The major oil companies, such as Exxon and Atlantic Richfield, have also refused to invest in the pipeline despite the enormous profits they stand to make from selling the North Slope gas. The recently enacted natural gas bill, which they vigorously supported, would allow them to charge up to $1.47 per 1,000 cubic feet for gas they produce and sell. According to a 1975 Interior Department study, the cost of producing the gas and handling it would be 47 cents per 1,000 cubic feet.
Another factor is the natural gas glut, which has swelled domestic pipelines, and which, along with potential imports from Mexico and Canada, make the higher-cost Alaskan gas less attractive.
Jack Angell, vice president of United Gas Pipe Line Co., one of the consortium members, says, "If we experience insurmountable problems financing it as it is now structured, then it [federally backed loans] should be considered."
Asked about loan guarantees, however, one senior Energy Department official says. "How can you ask for loan guarantees when there is a gas glut?"