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Energy Task Force gets SB 138 briefing Fauske, Pawlowski address concerns about expansion for Alaska LNG Project, potential impacts of oil, gas production tax changes Kristen Nelson Petroleum News
The Mayor’s Energy Task Force got an update April 30 on Gov. Sean Parnell’s plan for state equity participation in a project to take Alaska North Slope natural gas to the Far East as liquefied natural gas.
Dan Fauske, president of the Alaska Gasline Development Corp., and Deputy Commissioner of Revenue Mike Pawlowski gave an overview of Senate Bill 138, the enabling legislation for state participation, and fielded questions from task force members.
Fauske heads up the in-state gas pipeline project, ASAP (the Alaska Stand Alone Pipeline), and will now also head up the state’s participation in the LNG portion of the Alaska LNG Project.
Pawlowski noted that legislators voted 52-8 in favor of SB 138 and said there was “a lot of cautious optimism” about the project at the end.
Fauske said he’s hopeful about the process set up by the bill, but said work also continues on ASAP. He said the large project is the way to go if it can be pulled off, but stressed the importance of keeping both projects going because things outside of the control of the state could change.
Fauske also said it’s important for the state to do both projects because it doesn’t yet know enough to make an either-or decision. While it’s expensive to work both projects, the cost of doing nothing is higher, he said.
Expansion issue Asked about natural gas from producers other than the partners in the project — BP, ConocoPhillips and ExxonMobil — Pawlowski said new gas would be handled with expansions, rather than by diluting original shipping rights.
Fauske said there was no way partners could finance the project if their share could be diluted.
Pawlowski said while scope and size will be developed at this stage of the project, pre-FEED (front-end engineering and design), what’s under discussion now would allow space for an additional 800 million to 1 billion cubic feet per day, which would allow for in-state growth.
No other potential natural gas producers testified on the expansion provisions, and commercial terms are what will provide that opportunity, Pawlowski said.
Expansion will also depend on worldwide market conditions, Fauske said, adding that it’s almost impossible to design something that takes everything into consideration. While no one is opposed to expansion, a producer putting billions into a project isn’t particularly concerned about someone else getting to use it, so it will be the state’s responsibility to ensure there is opportunity for new gas, he said.
Pawlowski noted that one of the amendments to SB 138 was a direction to the state to evaluate a bigger pipeline, to understand the benefits and cost to allow for maximum expansion.
Tax changes and the repeal issue On the issue of what would happen if a future Legislature changed the tax on natural gas, Fauske said the state is now an equity partner and asked why we would harm ourselves?
Pawlowski said the administration took a very hard position and said it was not willing to talk about issues like durability. Long-term contracts will underpin the project, there will be massive financing commitments and the state will need stability and durability to be able to meet those commitments, he said.
Fauske said that from his experience selling debt it would be a “horror story” if the state issued debt and then the state changed the project. Lenders would want their money back, he said. While you can do stupid things, he said, you pay the price.
Asked what would happen if SB 21, the current production tax, is repealed in the August primary, Fauske said he’s been quoted in speeches, from a nonpartisan position, just stating the facts: If there is a repeal, you can put both the Alaska LNG Project and ASAP on the back burner.
Oil is king, he said, it’s what runs Prudhoe Bay, and the state would have a very difficult time talking to people about natural gas if taxes on oil are altered.
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