Huggins relieved at Shell’s permitting

Wasilla Republican, former Senate Resources chair says progress being made on the oil and gas front, awaits call for special session

STEVE QUINN

For Petroleum News

Senate Rules Chair Charlie Huggins may not have seat on the Senate Resources Committee this year, but the one-time committee chair still keeps a watchful eye on resource development.

The Wasilla Republican remains engaged and hopeful that Alaska will continue to advance a natural gas pipeline that delivers gas to an export facility in Nikiski. But he understands there remains plenty of heavy lifting.

Huggins addressed this issue, plus the pending visit from President Obama and tax credits with Petroleum News.

Petroleum News: Let’s start with some recent news. Shell got its final permits to drill in the Arctic. Were you surprised given that it comes just a few weeks before the president brings a climate change agenda to Alaska?

Huggins: In my mind, from the Alaskan perspective, everything we are doing right now is to bridge our economics until Shell and other oil and gas companies can bring offshore oil and gas production into play, and you have to make the assumption that we will get some revenue sharing out of it. So it was wonderful news. I was pleasantly surprised. It would be an understatement that Shell, thus far, has been snake bit with bad luck, so maybe they burned up all of their bad luck right now.

The other part of Shell’s story that I would be remiss if I didn’t mention is that what happened down in the West Coast in the Washington and Oregon area is a travesty. We supposedly are a nation of laws and there you had people breaking the law and in fact impeding the economic activity of the state of Alaska and/or Shell.

Petroleum News: It wasn’t just environmentalists protesting. Protests came from your elected peers, city and state leaders including the governor (Jay Inslee). What are your thoughts on that? Were they meddling in Alaska’s business or standing up for their constituents?

Huggins: Well, I mean number one, what they were doing had to do with Alaska and not about them other than it was a port, which is open to all. It’s a sad commentary when you think about, even if they were emotional and dedicated to what they are doing, they were breaking what I call quote-unquote the rules. Were there state and local officials cooperating on that effort? I think the answer to that is yes, and shame on them. The other part, as I recall, Shell as a company cleared up a whole bunch of mess that those protesters made in the area. Mess, as in debris and the aftermath of what they brought there and didn’t take away: trash and junk.

Petroleum News: Some believed it was hypocritical for the protesters to arrive on flotation devices made from petroleum products, particularly the kayaks. Were you seeing that, too?

Huggins: Exactly. I’m sure their kayaks were derivative of some petroleum products somewhere, maybe even China. The production may have been powered by a coal-fired plant.

Petroleum News: Looking ahead, you’ve got President Obama coming to the state in a few days. You’ve said before that the military has taught you that there are times when it’s important to respect the position held even if you don’t agree with the person holding that position. Is this a time for that kind of approach?

Huggins: Exactly. We can’t prejudge what we think his actions are going to be. We have to realize he occupies the office that’s important to our country, the number one position.

Now, in the aftermath, if there is something he does and he takes credit for it or takes responsibility for it and should be held accountable, then if there is a difference opinion in what he did, then the time to bring it forward is afterward not as a prelude to his visit.

I’ll be the eternal optimist. We have to assume the president is going to come up here. It’s an important visit. It’s precedent-setting, his visit. Assuming he has good intentions, we’ll see how it works out for us.

Petroleum News: What would you like for the president’s takeaway to be from his visit?

Huggins: Number one I hope he gets out into the Bush area and realizes the living conditions and the challenges, and the logistical difficulties based on distance, weather and other factors. Number two, I would certainly hope he would fly over a place like ANWR, maybe land on the North Slope and recognize what the challenges are. Look out to where Shell is operating and see what the challenges are because the federal government under his leadership is one of the obstacles of getting things done, because they burn up a lot of time in permitting in the prelude before Shell and other companies can do something.

This is particularly important to Alaska. To say that there are ambiguities about what the state controls and what the federal government controls would be an understatement. No matter what, sorting through that, the EPA, the FERC or other permitting agencies, the more we can streamline that process while being safe and respectful of the environment and feel comfortable with what we are doing, the better off we are.

But it can’t be just a process that’s endless. The endless one that I can think of right now is the Keystone XL pipeline. It will probably exceed his term. I can pretty much assume it will be unanswered - the status of the pipeline - when he leaves office.

People who are producing oil and gas in Canada are putting it on rail.

That’s no secret. Same thing for the people in North Dakota and some of those areas. That is not the least safe, but it leans right up against the least safe with pipelines being the safest ways to transport petroleum products. What we’ve done in the name of I’m not sure what - maybe carbon footprint - we’ve put in peril and raised the costs of doing business for maybe some unknown reasons, at least to me.

Petroleum News: Now the president comes here with a climate change agenda. That’s very clear. Most of Alaska wants the agenda to be that of economic development. Can that be reconciled?

Huggins: That’s the important part. The Supreme Court ruled in the case of the EPA, that the economic impact of what they were declaring had to be taken into account. We don’t live in a utopia. Just because we unilaterally do something, it’s not going to change the earth per se. Leading by example may be a good technique but we’ve come out on record and said we’re leading from behind.

Simply said, there has to be a balance and there has to be responsible acts when it comes to the environment, but there can’t be just a showstopper when it comes to making things happen.

Quite frankly if you look at some of the economic activity that the state has suffered through, look at the forestry industry.

It’s not defunct. It’s only one example. Go to Usibelli and ask them how much coal they are going to export this year. They are almost out of business. I say that lightly because I hope they aren’t. Their two main recipients are Japan and Korea. As I recall Chile was one of the recipients and that’s been reduced dramatically.

Petroleum News: Will you get to see the president at all, not necessarily to shake his hand, but perhaps at some event or venue?

Huggins: I’d be surprised if that were to happen. To be quite frank, I think the president’s time could be better spent on getting an appreciation and letting him hear directly from people who are affected be it a villager or be it from someone in the industry. Intermediaries like myself might have a little bit of insight but quite frankly can’t articulate near what people who are directly affected - either good, bad or indifferent - on the dynamics on Alaska.

Petroleum News: With that kind of engagement in mind, can you think of a trip to the rural communities that helped you better understand their situation?

Huggins: The best example of the benefits of economic success is the North Slope Borough. Historically in the last few years they have had by far the lowest unemployment rate in the state. Good for them. You say, “Well why is that?” It’s because those people who work in oil and gas are doing very well and the North Slope Borough is supporting that activity, and they are doing very, very well. It’s a thriving place. It has its challenges. It’s cold. It’s dark. But they are good people who are optimistic because they have good experiences based on the economics and the benefits that come to the local community and the people. Over the last three or four years, I’ve been there a half dozen times. What you see is what’s centerpiece to the culture: whaling. Talking to people like the Deputy Mayor Adams, it’s something to see their eyes twinkle when they talk about going out whaling and being successful while leading younger people in their culture and passing that tradition.

Petroleum News: The president will come and go next week, but for the better part of the next two years, the U.S. will be chair of Arctic Council, which places Alaska on the forefront of Arctic policy questions. How do you think this can help Alaska, the U.S. being chair of Arctic Council?

Huggins: Number one, it allows the leadership of the Arctic Commission and the state of Alaska (Craig Fleener, Gov. Walker’s Arctic advisor) to hopefully steer the conversation so we get at least our fair share in hearing what our challenges are and what our expectations are. On the other hand, that’s a broad based body but nobody can tell the story better than somebody is going to have the experience and acknowledge the challenges, so having an Alaskan in this kind of leadership certainly is a benefit. I’m optimistic of the results of that.

Petroleum News: With that in mind, have you met with Craig Fleener since his appointment to Walker’s cabinet?

Huggins: I’ve met with Craig, but I haven’t talked with him in depth and heard what his insights are so far. I won’t say he’s overwhelmed but he recognizes the enormity of his task at hand. To say he’s been doing shuttle diplomacy between here and Washington, D.C., would be an understatement. He’s a good man and working hard for us. I think we will see the benefits of that in the long run.

Petroleum News: Looking ahead at the prospects of a special session in the fall, we don’t know what specifically is on the call. What would you like to see happen in the fall as far as a special session?

Huggins: Number one, I’ve encouraged leadership in the House and the Senate to meet with the governor and his different operatives to recognize the critical events to be included on the call and not have a variety of things that could get it bogged down based on time, energy and people’s availability. Furthermore, I’ve encouraged the governor to pull the session forward so we don’t bump against either Thanksgiving or Santa Claus coming. I think the best-known item that will be on the call will be our potential severing of a relationship with TransCanada when it comes to AKLNG. I think it will cost us about $108 million. I think the governor has to talk to us about where that $108 million will come from.

So that’s one part. The other part is the PILT, in other words, property tax. I assume that will be one part of it. Hopefully gas balancing will be brought forward. The one that makes me the most nervous because of the timeframe involved, and maybe not a fallback, is if the governor brings forward a constitutional amendment to allow the extension of a commitment from the state for any kind of tax structure, my concern is do I think the Alaskans will pass it - I think, alright - but if they don’t what’s the alternative?

That makes me a bit nervous because it’s high risk if you will. You always have to look at the worst case scenario. If the voters say no, what’s the alternative for the state?

That couldn’t happen until the following November, and in the meantime we burn through a year. There is a limbo factor. We would ask the industry to make commitments in an unknown world.

This could be done in the regular session. I don’t see the criticality of doing it in special session if there are other things more critical. Or do it in a special session attached to the regular session. I learned a long time ago from my time in the military, you never bring forth an answer, you bring forth answers. Then you look at the merits of each of those and you look at the risk factors involved with each of those. The constitutional amendment concerns me if it doesn’t pass what’s your alternative. Have you done harm to the confidence of pulling off the AKLNG project?

Petroleum News: Let’s get back to TransCanada. I know you didn’t vote for the license under AGIA, but you’ve long said it was nothing against the state, but what are your thoughts on severing from them now?

Huggins: Well to be quite frank in crass terms, AGIA hung TransCanada around our neck to the tune of $500 million ultimately, and oh by the way, we have a contract with them.

And so in phase two of that, when we started AKLNG, TransCanada was still an albatross around our neck. Now is an opportunity to sever that. Nothing against TransCanada. When I voted against TransCanada, it was my second bite at AGIA and I lost confidence that it was going to work.

When you only had one competitor to build a pipeline. There is some reason others didn’t want to compete. That concerned me. I voted against the only organization that put forth a competitive bid and that was TransCanada. Not because they weren’t a good company but because they were the only ones wanting to compete.

I was concerned about why they were the only ones who wanted to complete. You remember there was great expectation that Warren Buffett’s company (Mid-American) was going to compete. Low and behold Mid-American said they weren’t going to compete.

In talking to some FERC representatives in an informal setting, walking down 4th Street in Anchorage, I asked what do you think is the likelihood of getting a project under AGIA. You know what the answer was? Zero. Zero. Not going to happen.

Petroleum News: The governor has spoken of the state owning up to 51 percent of the project. Is that realistic?

Huggins: The governor has been involved in pipelines for something like 30 years and we know we haven’t built any gas pipelines in those 30 or so years. And I’ve been involved in three or four scenarios for gas pipelines. My point is I don’t think any one of us has a super formula. As far as the state owning 51 percent, it makes me nervous to think that the state is going to be in the driver’s seat in building and operating a pipeline when the state has not been very successful in building pipelines over time. If we draw too many lines in the sand, my concern is the one before us - AKLNG - appears to have the most alignment, the most cooperation and oh by the way has made the most progress thus far. That doesn’t even address the issue of where does the state of Alaska come up 51 percent of the money to be able to finance a project. It’s easy to come up a plan of how you are going to finance it, but, oh by the way, you’ve got to pay it back.

Petroleum News: OK, looking just a little further ahead, next session, there is an expectation that tax credits will be revisited after the governor vetoed $200 million worth of payments, putting them off until next year. What are your thoughts on the governor’s actions?

Huggins: I’m disappointed and that’s not an accurate description of the dilemma it places on us, with the governor having vetoed the tax credits. It presents an unknown destabilizing factor for people who are looking for financing for these projects. It now becomes an unknown either in Cook Inlet or on the North Slope. I haven’t talked to the governor about what his rationale was. I read about it. I assume that the governor, having another opportunity, will figure out another way to shine a bright light on tax credits, if you will.

Petroleum News: OK, so should tax credits be revisited next year?

Huggins: We have to remember that ACES is part of this as well. In SB 21, we did away with a whole bunch of provisions that were involved in ACES, one of which was the amount of money we would have to pay Exxon to develop Point Thomson. At any event, as you know legislation is never perfect. You have to look at the cause and effect. Is there tweaking that should be done, I think so. But there are never simple tweaks so we’ve got to look at the implications and time involved, plus the stability involved.