House Speaker pushes against AGIA, ACES

Chenault concerned about state wasting money on TransCanada project; wants recognition Alaska not competitive environment

Steven Quinn

For Petroleum News

House Speaker Mike Chenault wants some answers.

The Nikiski Republican wants to know whether a large-diameter natural gas pipeline is economical and whether it’s time to put a on the shelf.

He wants to know whether the state is wasting money backing a project by TransCanada, supported under the Alaska Gasline Inducement Act.

He’s hoping House Bill 142, which sets a midsummer deadline for about the projects economic viability, will produce some guidance.

Chenault also wants to know when enough people will realize that Alaska has not provided a competitive environment for the oil industry.

He’s looking to his colleagues, industry executives even former executives during a recent trip to Washington, D.C., for answers.

A few days after returning, Chenault sat down with Petroleum News to discuss concerns ranging from oil taxes, the gas pipeline and declining throughput in the trans-Alaska oil pipeline.

Petroleum News: What can you really learn about the project that doesn’t infringe on federal laws outlined by FERC?

Chenault: We don’t know. We think the DOR and the DNR commissioners should serve as a conduit for the project and give us some kind of status information update. We realize there is information that we can’t get. But the governor is asking us for $160 million for this year. All the indications we are receiving from sources not only internally but all over the U.S. is that we are awash in natural gas. The price is in the $3.80 range. Certainly that could change if the Feds, the EPA or states stepped in and said we are not going to allow fracking in these big coal seams.

We don’t know that. We would like to get some information where we can make a rational decision based on facts not what we think might happen.

I think it’s imperative that we as a state Legislature know some information so we can decide what the future of Alaska is going to be.

According to the AGIA contract, even if they have a failed open season, TransCanada, they have to move forward toward a FERC certificate.

With the Legislature being the appropriating body, we have some concerns, is that a good expenditure of state funds?

Petroleum News: If TransCanada had not failed to meet its self-imposed deadline to release certain details from open season, would you still feel this way?

Chenault: I’ve looked back at some other big projects and the timelines on how long it took for them from the time they went to an open season till the time open season closed to the time they actually went into construction. Some of those timelines are relatively short.

There are a lot of moving pieces out there. One of the bigger pieces I believe is gas tax certainty. But gas tax certainty is not an issue TransCanada can negotiate for the State of Alaska. The Legislature and the governor will have to negotiate with any of the producers if and when any project is put forward.

They promised a date certain, but you can’t hold them to that. Six months on an open season, from my look at a couple of other projects along the U.S. is quite a bit longer. We all understand this is a big project — a mega project, whatever term they want to use this week. Take The Rockies Express (Wyoming to Ohio). It was bid in three different sections, three different bids, which is why the timeframe from open season to construction was four and a half years.

Petroleum News: So will you bring this to the table when House Finance hears your bill?

Chenault: As I said before, HB 142 is not intended to kill the AGIA process. It’s intended to gather information for the Legislature to makes sure we are spending the dollars we have wisely.

Petroleum News: TransCanada told Wall Street analysts they believe there is still a market for Alaska’s natural gas in addition to shale and Mackenzie gas. Do you believe there is a market outside of the state for North Slope gas?

Chenault: I don’t know if it’s a profitable market or not. It’s going to depend on tariffs, on contracts that are signed, on cost of the gas at the wellhead. If you want to sell your gas at a breakeven point or just a little more then there is probably a market. If you want to give it away there is always a market for it. In the U.S. there are a number of areas actively looking to export their gas versus two years ago when we were building LNG receiving facilities to take natural gas from the other parts world. That’s just how drastic the world changes.

Petroleum News: Have you had a chance to review a report by Roger Marks who concluded money for an in-state line could be better spent on a large-diameter line?

Chenault: It’s not surprising what Roger Marks had to say. I look at that issue is that if you’re not going to build the line for 20 years, what does Alaska do? What does Alaska do for energy in the state? What do you do for jobs? How do you grow the economy for the state of Alaska? You can’t do it waiting 20 years on a natural gas pipeline that may or may not happen. I look at the LNG export facility that shut down and I look at the Agrium facility shut down (both in Cook Inlet). Could we have made any difference? I can’t tell you that we could have. But what I can tell you is that if we continue to not make decisions while waiting on a big project to come that may never come, then we are doing a disservice to Alaskans.

Petroleum News: Did you meet with any energy officials while you were in Washington?

Chenault: We had a speaker, John Hofmeister (former Shell President). He gave a good talk, an analysis of energy issues across the U.S. and world distribution of oil and gas. He talked about how under the current administration we aren’t making any investment in the U.S. We shut down the Gulf of Mexico; we shut down all offshore drilling anywhere; we are systematically depriving ourselves of oil exploration and gas in our own country. He felt in the near future we will hit $5 a gallon gas. He’s trying to tell us that unless we start developing our own resources. We are going to be left behind, and not only are we not going be able to get those resources from other areas.

Petroleum News: Why is there no sense of urgency?

Chenault: I think it’s the environmentalists. It takes 20 years to permit Kensington mine (in Juneau). Everywhere we turn, we are being shut down by the EPA, the Corps of Engineers or some environmental group on developing resources in the state or the U.S. Their concern is global warming or whatever their concern is for the week. What they are doing is driving business and resource development to Third World countries that don’t have the constraints and controls that we put on the oil industry here or the mining industry. In my opinion they are contributing more to the problem than what they are saving. When we concern ourselves with a $14 trillion national debt, if you look at how much oil we import because we won’t develop our own resources.

Petroleum News: What are your concerns with the trans-Alaska oil pipeline?

Chenault: I don’t think people understand the urgency of keeping that pipeline full. Right now we are at about 630,000 barrels (a day). When we talk about when are they going to shut down that pipeline, I think there are people out there who think we don’t have a problem until we get to 300,000 barrels. We need to do what we can in order to keep that pipeline full — now. If we don’t, it’s going to be shame on us whenever we have a problem because 85 percent of Alaska’s budget is based on oil flowing through that pipeline. Yeah, we’ve got money in the bank and we’ll but OK, but how long does that last?

Petroleum News: Cobbling all this together — tax credits, base rate, progressivity — is that a 90-day project or is it a two-year legislative term project.

Chenault: I don’t know. Whatever timeframe it takes to put a program together that moves Alaska forward, gets investment into the state of Alaska, that puts more oil into the pipeline, that’s how long it will be. I want it to be done right, but I don’t think we can afford to spend two, three or four years to make it perfect as some want or to wait for more information. I’m not different than anyone else. I want to see guarantees in return, but there are no guarantees in life. We tripled our tax four years ago. What I’ve seen is less investment and less exploration. Now some of the exploration hasn’t happened because of the federal government, but when we look at projected oil production, we’ve seen projects that aren’t coming online and they probably won’t under the current tax regime that we have. We’ve got companies actually leaving the state for North Dakota. What does that tell me? It tells me something is wrong. If we don’t fix it, we may not have any of that industry.

Petroleum News: Oil prices just hit $100 a barrel. Do you think high oil prices are …

Chenault: They are masking the problem. They are masking the problem. If oil prices were $50 today, we would be hemorrhaging money out of the state budget, but high oil prices are masking the problem.