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Parnell backs Alaska OCS development Governor tells RDC state must fight for Alaska’s outer continental shelf; says he continues to reach out to North Slope leaders Kristen Nelson Petroleum News
Alaska Gov. Sean Parnell focused on development of Alaska’s outer continental shelf in a Sept. 3 address to the Resource Development Council, calling it “one opportunity that we must fight for.”
The meeting was the first at RDC’s new meeting venue, the Dena’ina Civic and Convention Center, much larger than its previous location, allowing some 250 attendees to hear the governor pledge “a stable tax regime … a responsible budget” and “a consistent, clear regulatory regime.”
“People and companies deserve to know — and have a right to know — the rules of the road, before they invest their money,” he said.
The governor didn’t exactly contrast the state’s approach with that of the federal government, but he did say that while he has faith that Secretary of the Interior Ken Salazar will do the right thing and move ahead with OCS leasing, he remains concerned that “companies that have spent billions of dollars in the OCS really have nothing to show for it at this point and are stalled.”
In a Sept. 3 letter to Salazar, containing the state’s comments on Interior’s proposed OCS 2010-15 five-year oil and gas leasing program, Parnell urged “a responsible OCS leasing program that makes available leases in Alaska’s OCS for the exploration, development and production of oil and gas vitally important to Alaska and the nation.”
Parnell told the secretary that the Joint Pipeline Office has said the trans-Alaska oil pipeline will have to begin addressing operational issues of low flow in the line between 2012 and 2018.
“We are quickly approaching the minimum throughput rate, beyond which the flow of oil cannot be maintained,” he said, projecting that without new sources of oil the pipeline “could shut down within the next decade.”
Alaska’s OCS has the potential for 27 billion barrels of oil and 130 trillion cubic feet of natural gas, Parnell said, and for the oil pipeline to be maintained new sources of oil must be discovered now so that production can begin in time to sustain pipeline operations.
Parnell told RDC that he plans to meet with the secretary and has also requested meetings with the White House.
Culture, subsistence respected He acknowledged the concern North Slope residents have about offshore oil and gas development.
“We have begun and will continue reaching out to North Slope community leaders as well to discuss OCS development concerns,” Parnell said.
He said he has “spoken with whaling captains, coastal community leaders and other Alaskans who could be impacted by offshore exploration and development: I hear their frustration and I feel their very real fear.”
Parnell said the state and its Native people “can work together to assure whale harvests and other subsistence activities will continue while offshore exploration and development is conducted safely.”
“I will never trade one resource for another,” the governor said.
He added that companies that want to work with Alaska to develop the state’s resources “must respect and consult with our rural communities.”
Whale migration can be protected by exempting certain areas from leasing and by seasonal drilling restrictions, he said.
“Cultural and traditional subsistence activities will be preserved and they can safely co-exist with the jobs and revenues from OCS exploration and development,” Parnell said.
Revenue sharing The governor said he supports federal legislation extending revenue sharing to Alaska communities, and called for a “comprehensive program for federal revenue sharing.”
He called for Alaskans to be treated fairly in federal revenue sharing, and noted that the state’s congressional delegation has long supported such legislation.
Asked at a Sept. 3 press availability why Alaskans should care about OCS development without revenue sharing, Parnell stressed the importance of keeping oil flowing through the trans-Alaska oil pipeline.
With more oil flowing through the line, he said, the tariff is lowered for all oil being shipped, “which means that more fields in Alaska get explored that can then access that pipeline.”
“It means more jobs for residents of Alaska: that’s what I’m focused on,” the governor said.
OCS and gas line OCS natural gas is also important, the governor said at the press availability, because it would add to the life of a gas pipeline.
Parnell said he thinks the gas line would be economic with known gas from Point Thomson, Prudhoe and Kuparuk, but with OCS gas the economic viability of a natural gas pipeline is extended.
“Having OCS natural gas available to plug into a natural gas pipeline means that instead of having a 30- or 40-year gas pipeline you can have a 40- to 60- or 80-year gas line.”
The governor told the RDC audience that he believes the biggest obstacle to a gas line is “probably commercial negotiations between private parties.” He said he was “heartened by the progress” so far as BP and ConocoPhillips came together to form Denali and ExxonMobil aligned with TransCanada.
What about tax changes, the governor was asked.
He said that having been a participant on the state side in the Murkowski-administration gas line negotiations, he had an opportunity to see what happens in those negotiations.
“And what I heard and what I saw demonstrated that the state cannot be in a position of negotiating with individual companies on a project.”
The companies need to negotiate a project, he said, and once the companies have come together on a project, if they believe they need fiscal certainty then they should come to the state.
“I want the state to have a project telling the state what they need for fiscal certainty; that’s what I’m looking for,” Parnell said.
The road to fiscal certainty The governor elaborated in response to gas line questions at the press availability.
“To me the road to fiscal certainty runs right through AGIA,” the Alaska Gasline Inducement Act, he said.
In negotiations under the Murkowski administration, with the state talking to the proponents company by company, the state got “in the position of giving away value — company, by company, by company,” he said.
While a request from one company for so many years of fiscal certainty sounded reasonable and constitutional, the next company wanted more years of certainty, and also tax changes.
“And any smart commercial negotiator knows that you negotiate with a partnership — you negotiate with a project — you don’t negotiate with individual partners all the way along,” he said.
This isn’t the time for the state to talk, he said, because “nobody has a project yet.”
Parnell said he is aware of where the companies are: The “Denali team wants to have their cost estimates done by the end of the year; the TransCanada-Exxon team wants to have their estimates done by the first quarter.”
That is the setup for open seasons next year, because when they know the costs, they’ll know the tariffs, he said.
AGIA is the state’s framework for participating in the line: It establishes that the state is in for $500 million in exchange for terms that protect the state, he said.
Once the parties have “come together around and through that AGIA framework that they’ve already begun moving under then we can talk.”
As for what the state will talk about, “I’ve already said I will consider anything that they can demonstrate is an economically valid argument, in other words anything that they can demonstrate is economically needed, I’ll consider.”
“… I’m in this to protect Alaskans’ interests and for the jobs and revenue a pipeline can produce,” Parnell said.
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