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Vol 21, No. 30 Week of July 24, 2016
Providing coverage of Alaska and northern Canada's oil and gas industry

Taking the lead

From process to project: Walker wants to see market decision on Alaska LNG

KRISTEN NELSON

Petroleum News

Short on details, Gov. Bill Walker’s July 18 update on the state’s Alaska LNG plans to the Anchorage Chamber of Commerce was long on vision, beginning with a reminder that moving forward with Alaska liquefied natural gas was one of the driving forces in his decision to run for governor in 2014. Getting Alaska North Slope natural gas to market has been on Walker’s agenda since completion of the trans-Alaska oil pipeline in 1977.

In reviewing past efforts to commercialize ANS natural gas Walker said the state has a long history of processes, but none of them turned into projects. He said the state is in a process now, one that he inherited and is happy to continue with, referring to AKLNG, a joint venture of the state, BP, ConocoPhillips and ExxonMobil, with the state’s 25 percent share based on taking its royalty share and production tax as gas molecules.

What past processes have in common, Walker said, is that they didn’t result in a project, just a failed process that didn’t get the Alaska project onto the marquee for the market to look at.

The governor said that’s why, given the opportunity by its partners in AKLNG to take a different role, the state is now looking at a scenario in which it would take the lead. Moving from a process to a project, requires the most motivated party be in the appropriate role, he aid.

Walker said the state’s partners in the project have developed LNG projects elsewhere and said he was glad to have experienced partners.

“I absolutely want the producers involved,” Walker said, noting that an earlier proposal, AGIA, the Alaska Gasline Inducement Act, was designed to keep producers out. That process failed, he said, adding that Yukon Pacific had already proved you could get permits but couldn’t do a project without the gas.

Illustrating his desire to keep the state’s producer partners in the process, Walker related a conversation with a producer.

“I recently had one of the producers ask me,” he said, “would I be OK with the producers designing the project?”

“I said absolutely.

“Would I be happy with the producers building the project?

“I said absolutely.

“Would I be happy with the producers operating the project?

“I said absolutely.

“And the response was, I think we ... have an option,” Walker said.

So what does the state uniquely bring to the table?

The goal has been to bring down the cost of the project, the governor said, and the cost of construction has been reduced a lot.

“But the next-to-last piece is the tax-exempt status,” he said, referring to a concept which the Alaska Gasline Port Authority with which Walker was long involved was formed to pursue in 1999.

It’s not a new concept, Walker said, and there already has been one Internal Revenue Service ruling on it.

This is a new opportunity, with the producers but with the state in a different role, with the goal of getting AKLNG up on the marquee, he said: “When we were offered the opportunity to lead, I didn’t shy away from it.”

But, the governor said, “I believe the market is a huge part of this project; without a market there is no project.”

There is no intent, Walker said, to go ahead at all costs.

“We’re going to take it to a point where we’re going to find out is it financeable, does it make sense,” he said. “And then we decide if we go forward or not.

“So it’s not a build it and they will come.”

The goal, he said, is to “go to the market and say the gas is available, here’s what the price is.”

He said Alaska LNG will be a price taker, not a price maker, “so we’ll take the price that’s in the market and we need to make sure that a project works at that price.”

Walker said the state’s partners acknowledge “the significant financial advantage of being tax exempt. That’s a big step in the right direction.”

What he wants, the governor said, is to “just find out if it works. Let’s find out what the market’s going to say on a fully put together project. And that’s all we’re asking for.”

Walker said an Alaska project has never been up on the marquee, in the top tier of potential projects.

“I want to make sure that we ... find out once and for all, is there a project or not. Because, again, we’re in a process, we’re not in a project. A project is when you actually make the final investment decision and you’re ordering pipe. We want to find out if it makes sense to do that.”

Walker stressed the importance of Alaska’s role as a sovereign in the project, telling the chamber audience that worldwide it’s often when the sovereign, the government, gets involved that resources get to market.

He compared AKLNG to infrastructure and said it’s not inappropriate for government to be involved in creating infrastructure. Like highways, this infrastructure is needed to make Alaska’s economy work, Walker said.

While the state will continue to work with its partners, it’s time the state stop following and start leading, he said.



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