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Fauske optimistic on in-state gas line Says project faces solvable economic challenges and that he has an open mind on finding solutions; state will likely need to help Alan Bailey Petroleum News
Financing will be the key to success when it comes to building an in-state pipeline for bringing North Slope gas to Southcentral Alaska, Dan Fauske, CEO of the Alaska Housing Finance Corp., told the Alaska Natural Gas Development Authority board on May 5.
“I view this project as one where everything comes down to money,” Fauske said.
Perceptible buzz There was a perceptible buzz of excitement in the air at the ANGDA board meeting, as board members reflected on the ramifications of House Bill 369, passed by the Alaska Legislature and signed by the governor in April. HB 369, designed to add impetus to the development of an in-state gas line, has established the Joint In-State Gasline Development Team, chaired by Fauske. The bill also requires AHFC to form a subsidiary corporation to move the gas line project forward.
Although many people view some form of in-state gas line as a critical component of solving the long-term problems relating to energy supplies in Southcentral Alaska, as utility gas supplies from the aging gas fields of the Cook Inlet basin become ever tighter, efforts to move forward on a gas line project have suffered from fragmentation, with different entities proceeding in different directions with different project concepts. HB 369 has consolidated all state initiatives under a single roof.
The development team, in addition to Fauske, includes Bob Swenson, the in-state gas coordinator; John Binkley, the chairman of the board of the Alaska Railroad; Harold Heinze, the ANGDA CEO; and the commissioner of the Department of Transportation and Public Facilities or a designee.
Doesn’t pencil The fundamental issue that people need to face is that there isn’t a large enough population in Alaska to carry the entire cost of the pipeline project, Fauske said.
“I don’t know how this ever pencils,” Fauske said. “I don’t say that with skepticism. I say that from a position of realism. There simply aren’t enough Alaskans. Unless you have some huge anchor tenants or you’ve got some huge … export business … there simply aren’t enough people.”
However, Fauske said that he does not view this economic reality as a barrier to achieving project success. Comparing possible ways of financing an in-state line with proven ways of financing initiatives such as the provision of teachers’ housing in Alaska, Fauske said that public funding can meet the gap between project costs and viable project income. That would open up the possibility of obtaining bond funding through Wall Street for a substantial piece of the pipeline financing, while also recognizing that private developers are not going to subsidize Alaska with free gas by funding an uneconomic project.
“I don’t mean to be simplistic or scare anyone, but if you’ve got a project that costs $8 billion and pencils at $6 billion, somebody’s going to have to write a check for $2 billion. That’s probably going to be the state,” Fauske said.
Cost of doing nothing And, although this will be an expensive project, there is a cost in doing nothing, he said. For example, without energy supplies, the value of mortgages in the region will decline toward zero.
“There are ways to accomplish something and that’s what we’re going to figure out,” Fauske said. “… By doing nothing we’ve really failed.”
Fauske emphasized that he sees his role as working with people to obtain the relevant data for appropriate decision making, and that he has an open mind on issues such as the pipeline route.
“I have no agenda. I’m going to listen and learn,” Fauske said. “… Our job with this bill is to come back with a business plan … and to proceed with construction by the year 2015.”
However, it will be critical to meet with North Slope producers to establish gas supplies beyond just state royalty gas, he said.
“You’ve got to have someone to put gas into the line,” Fauske said.
Team and board meetings Meantime, the Joint In-State Gasline Development Team will meet soon and AHFC is holding a special board meeting within the next two weeks to form the sub-corporation that HB 369 requires. And the development of a prioritized plan, with deadlines, sits high on the priority list — it will be crucial to meet a deadline of Dec. 15 to notify the governor and legislators of any legislation that might be required to make the project work, Fauske said.
Gene Therriault, senior energy policy adviser to Gov. Sean Parnell, told the ANGDA board that he will give the new pipeline entity some pipeline cost and tariff estimates that the state has already been developing.
Alaskans are used to dealing with the huge logistical issues associated with major construction projects, and the state has the financial capacity to make “an awful lot happen in a variety of different ways,” Fauske said.
“I’m excited about this. We have a solvable problem,” he said.
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