Negotiations between the state of Alaska and two applicants under the state’s Stranded Gas Development Act are confidential, but the governor and House Republican leaders recently provided some insight into the process.
Alaska Gov. Frank Murkowski met March 17 in Anchorage with senior managers of BP, ConocoPhillips and ExxonMobil to discuss the status of negotiations on the producers’ application for fiscal certainty under the stranded gas act.
The governor’s office said the governor and members of his gas team spent most of the day in these negotiations.
“We have made enormous progress over the past months,” Murkowski said in a statement, “and we are now at a critical juncture. There are a number of significant issues remaining, the resolution of which are necessary to finalize a deal.”
The governor’s office said representatives of the producers’ group emphasized to the governor that they remain fully committed to successfully concluding the negotiations, and assured the governor they will continue working diligently and in good faith with his team on this effort.
The governor told the producers’ group that rapid completion of the negotiations is the highest priority of his administration and said he will personally oversee the final phases of the negotiations.
The other application the state is negotiating is from pipeline company TransCanada and Murkowski also said significant progress is occurring in those negotiations on an independent pipeline, and with the Port Authority on their liquefied natural gas project.
The governor also met March 17 with legislators who have signed confidentiality agreements under the Stranded Gas Development Act; the legislators were briefed by the governor’s gas team on the status of both sets of negotiations.
Port authority working Jones Act issue
John Coghill, R-North Pole, the House majority leader, and House Speaker John Harris, R-Valdez, said at a press briefing March 21 that they were bound by the confidentiality agreement and couldn’t say much about the negotiations.
But, Coghill said, the Alaska Gasline Port Authority “is working like crazy” on their project. When legislators were in Washington, D.C., for a meeting of the Energy Council, the port authority “came to us with the heads of the marine pilots union,” who suggested they could get shipbuilder support to move a Jones Act modification.
They haven’t done it yet, Coghill said, but it “would be a huge thing if they could do it.”
The port authority and Sempra LNG, which believes the West Coast market can absorb Alaska gas coming in as liquefied natural gas, told the Legislative Budget and Audit Committee in January that it should be possible to get an exemption from the Jones Act requirement that ships moving between U.S. ports be U.S.-built, U.S.-owned and U.S.-crewed. Darcel Hulse, president of Sempra LNG, told the committee. The United States doesn’t have the capability to compete in LNG shipping, Hulse said. Hawaii faced the same problems with luxury cruise liners to operate between the islands — the United States wasn’t a competitive shipbuilder for these vessels — “and they’ve got an exemption from the Jones Act” allowing them to use vessels built in foreign shipyards, Hulse said.
Producers hold all the cards
Speaker Harris said the governor has been trying to work out a solution with the producers, who “at this point in time hold all the cards, simply because they hold the leases.” That means, he said, that “whoever is going to try to develop the natural gas off the North Slope is going to have to deal with the producers in some way, shape or form.”
Whether the producers build a line or somebody else does, he said, the producers will be involved.
So far, he said, nobody has “come forward with a proposal to the producers that makes economic sense to buy the gas, nobody’s made an offer … and the producers have said they’re not really ready to build a line yet — they’re still working on the economics and a number of other things.”
If, he said, there is a proposal made to the producers and they won’t sell the gas — either the price isn’t right, or the project doesn’t make economic sense to them or they just won’t sell the gas — “then the state has to make a decision: Does the state want to take on the producers?”
At that point, Harris said, “all those ideas that have been talked about by other people — condemnation, reserves tax, other types of things — would then have to be, in my opinion, would then have to be looked at.”
Now is not the time because there isn’t a viable project — from the producers or anyone else.
By next January, he said, if there is no deal with the producers for a project, the state might have to deal with some of those ideas. But first, he said, “you need to have a project that, number one, makes economic sense, and works.”
