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Moving on or starting over? Members of Commonwealth North, including gas contract study group members, aren’t in agreement on what should happen next Kristen Nelson Petroleum News
Commonwealth North discussed its study report on the proposed gas fiscal contract at a meeting Sept. 8 (see story in Sept. 17 issue of Petroleum News).
The discussion didn’t cover all of the points in the public policy group’s report, available on its Web site at www.commonwealthnorth.org/study.html, but reflected introductory comments by study co-chair Jeff Staser of The Staser Group who said the study group wasn’t unanimous on the report “by any means. We had consensus of the study group — we actually lost a few study group members over some of the issues.” Staser said when the Commonwealth North Board voted on the report, “we also had some contentious issues to further resolve, but we did reach a consensus on the statements that are in the book.”
The administration of Gov. Frank Murkowski reached an agreement with North Slope producers BP, ConocoPhillips and ExxonMobil and released the proposed contract for public comment in May. The Legislature must approve changes to the Stranded Gas Development Act, the authority for the contract, and then approve the contract itself; neither has yet occurred.
The Commonwealth North report calls the proposed contract “an important step” in getting a gas pipeline built, but said while the contract “settles many issues necessary for the project to go forward … it is incomplete and has provisions that raise a number of serious public policy issues.” The report recommends that “these issues be re-examined and re-negotiated.”
A lot of the discussion at the Sept. 8 meeting was focused on whether and how it would be possible to move forward working from the proposed contract, or if a new governor would do better to start from scratch. Since Murkowski lost his bid for the Republican nomination in the state’s August primary, those decisions are expected be made by the governor elected in November.
Fix this deal and move ahead on the project David Wight said the state needs to fix this deal, not start over. Formerly president of Alyeska Pipeline Service Co., Wight came to Alaska from BP’s liquefied natural gas operation in Trinidad and Tobago, and he compared natural gas development there with that in Venezuela. Both countries were working on gas projects at about the same time, Trinidad with 2 trillion cubic feet of proved reserves and a lot of potential, Venezuela with some 150-200 tcf, he said.
Trinidad and Tobago now has four LNG plants in operation with a fifth under way and additional discovered resources of 30-40 tcf. Venezuela never cut a development deal and still has no gas export.
“I think the easiest thing in the world to do is not make a deal; the hardest thing is to build something,” Wight said. “… When you take leadership between the government, companies and markets and put them together and create something then you have progress — that’s Trinidad. When you can’t get that kind of alignment, (and) everybody wants something extra … you really haven’t built anything.”
Wight said he believes “there’s been a lot of good work, there’s some challenges,” but we need to get everyone back in the room and “make a deal that works for everybody.”
Brian Davies, a retired BP executive, agreed, saying a light switch went on for him when Wight told him about Trinidad and Tobago and Venezuela: “It’s a story of trying to get the last bit out of the deal and never getting a deal vs. (being) willing to make a deal that then proved to be incredibly prosperous.” Davies said he sees some problems in the contract, but some positives. He said he hopes the state won’t start all over with the contract “and 10 years down the road look back and say, boy, we could have had the gas flowing.”
LNG and long-term jobs Former Gov. Walter Hickel, who favors an LNG alternative and has been working toward that end for a number of years, said Alaska doesn’t have to follow Trinidad. “We can follow Alaska. We had 100 percent of the Japanese market of LNG … in the ‘60s,” he said, referring to the ConocoPhillips-Marathon liquefied natural gas facility on the Kenai Peninsula which began exporting LNG in the late 1960s. “And so it isn’t a case of saying will LNG work, it’s a case of having the guts to say we’re going to do it,” Hickel said.
Malcolm Roberts argued for starting over: “I agree with both of our major candidates (for governor) — it’s time to start afresh.”
He argued against picking a few points in the contract to “straighten out when we don’t really understand the rest of it. … To me, it’s driving off a cliff. It’s time to start fresh,” not just with the producers, “but with any major company or group of companies who are ready — not just to study it — but to build the pipeline and take it to market.”
Roberts said he resigned from the study group because it focused on money to the government, and “where we’re coming from is the private sector” which would “create jobs like we have on the Kenai that may last for a long, long time.”
State has time, Legislature and public have knowledge Alaska Sen. Gene Therriault, R-North Pole, chair of the Legislative Budget and Audit Committee, said he didn’t expect legislative membership to change dramatically in the upcoming election and said legislators are “far along the learning curve on how to evaluate the components of any deal, whether it be this deal or a different one.”
He said Pedro van Meurs, the administration’s main consultant for the proposed contract, told him in August that based on changes van Meurs sees coming in world economics, changes in price and cost of delivering LNG, “it’s his estimation that the state has two, maybe three years to get a deal done, before those economics change (and) perhaps close that market window” for Alaska gas into the U.S. Midwest. Because both members of the administration and legislators “are well along the learning curve of how to evaluate any proposed contract and what has to be at least re-looked at … I think we can get things done well within the two to three years,” Therriault said.
Judy Brady, executive director of the Alaska Oil and Gas Association, agreed with Therriault about the Legislature: “We have a Legislature now that … is more knowledgeable about oil and gas than any Legislature that we have ever had in this state.” It’s a real difference, she said, from when discussions began early in the year.
The Legislature began working on a change in oil taxes, which would have been rolled into the proposed contract, in February, and passed a new petroleum profits tax in August at the end of the second special session of the summer.
“We were not particularly prepared for the first round because we didn’t know — we had a Legislature and a public that didn’t know enough; we know enough now to be successful in the second round,” Brady said.
As for how hard it will be to resolve differences, “we have a lot of people, with a lot of money at stake right now, trying to make sure that their pipeline is involved,” Brady said. “And a lot of the contract issues have to do with competitive advantage; it’s going to be very hard to resolve those.”
What do we want in a contract? Staser said when the people of the state ask the governor to negotiate a contract, they need to provide “clarity — what is it we’re after? Are we going to go ahead and subsidize future infrastructure on the idea that we’ll build an economy based on that?”
If that’s the case, he said, “let’s recognize that and call it that. Or are we going to go just strictly for wellhead value?”
And, he said, when social values are included the “policy gets very complicated, because social values are difficult to put a dollar price tag on.”
Harold Heinze, CEO of the Alaska Natural Gas Development Authority, said the view he was hearing expressed is that the report would be used as a guideline for fixing the contract. “And that’s only meaningful if you believe where we are at this moment is that there is an ongoing negotiation.” Heinze said from what he’s heard a recent meeting between legislators and representatives of the producers “was extraordinarily discouraging. And it may be that we are at the end of that negotiation.”
If that is the case, he said, the report may help define what the state wants to ask for as it enters negotiations which may include the three producers, but may also include other companies.
Heinze said he didn’t mean to sound pessimistic. “We desperately need a project; I’d love to see something happen — I’m interested in what’s the best way to get there.”
ANGDA is working on proposals for a spur line to bring North Slope natural gas to Southcentral Alaska off of the main gas pipeline.
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