Chenault bullish on LNG progress, prospects

Mired in budget negotiations dragging nearly five months, Nikiski Republican still maintains eye on AKLNG, Arctic developments

Steve Quinn

For Petroleum News

House Speaker Mike Chenault has been busy dealing over the budget impasse that’s approaching its fifth month. But the Nikiski Republican hasn’t lost sight of recent significant oil and gas developments, be it repairing the Dalton Highway, protests from Washington state and Seattle politicians over Shell’s plans for Arctic exploration or news of the Energy Department’s approval of an export permit.

Chenault, along with other leading lawmakers, found himself at loggerheads with Gov. Bill Walker and his plans to advance a gas line, but the fourth-term speaker says communication lines remain wide open.

Chenault spoke to Petroleum News on how he sees these developments and the directions he’s hoping for.

Petroleum News: Let’s start with the AKLNG export license approval from the Energy Department. How significant is that in your eyes?

Chenault: I think it’s a good sign. Permits are being put into play. They are getting the permits they are going to need to move this project forward. It’s another piece of the puzzle to lay out. They are still trying to get to FEED and finally get a finish product of a gas pipeline we’ve been looking for over the last 35 years.

Petroleum News: During his AOGA speech, the governor noted that he would still like a larger share of the AKLNG project. This kind of speaks to what’s been discussed these last few months - at least more so recently - that perhaps it’s time to buy out TransCanada. What are your thoughts on that?

Chenault: The provision was put in there. We have until Dec. 31 to exercise our option to do that. I know that the governor spoke to me and the Senate president to put some of the money in that budget this year. I don’t think we are quite there yet. I think we need some more information.

I think if the governor can give us that information and why he wants to exercise that option now, that may be something the Legislature would look, I would guess favorably, upon.

It’s one of those things where we have to weigh the benefits for Alaskans if we are to do that. If we can get some comfort with that, then we’ll see. A lot of it is a number of us have been around for a while and know what the parameters are, but there are a number of new people who haven’t been there and we haven’t really dealt with any oil and gas taxes this year.

A number of them are searching for information. I think if the governor can make people comfortable with why he wants to buy out TransCanada and give Alaska a bigger share, I think we will at least entertain the option and look at all the other options there to make a decision.

Petroleum News: Would you want this to be part of a bill or do you consider the option already set in the agreements?

Chenault: I don’t necessarily think it will be a bill, but there are going to have to be some hearings on it so people can understand what’s going on: what affect buying out TransCanada has on the project and what benefit. What information do we get that would help us move forward on the AKLNG project or possibly another project if AKLNG were to go away.

Petroleum News: Do you think some people have heartache over TransCanada’s role because of the way they were brought on board, and by that I mean AGIA?

Chenault: I don’t know as far as the Legislature anymore whether they have heartburn or not. There may be some who do, but TransCanada is a world class pipeline company. They do it all over the U.S. and Canada. They are very good at operating as far as I can tell. They know their end of the business.

At the time that the deal was put together they brought value to the project. We have to determine what that value is and are we willing to pay for information that was collected during the AGIA process, and if we want to take the risk of adding Alaska’s share on to that.

Petroleum News: One of the criticisms of having TransCanada, or any independent pipeline company for that matter, was that the pipeline company does not have any gas to contribute. Is that criteria for you?

Chenault: Like I said, you have to evaluate what they bring to the table. Alaska has the gas, so the gas issue shouldn’t be a problem. Some may look at it that way. Certainly one of the producers may want everyone involved in the project to own gas and control their own gas and this is a way of getting there.

Petroleum News: Do you have any kind of timetable for yourself or your caucus in getting some of this information from the governor?

Chenault: You know I don’t right now. I’m formulating a written response to the governor to his letter when they were looking for the funds. We’ve got some questions. If the administration can answer those, then the Legislature can make a decision if, or when, we would appropriate the money to do that. There would have to be some parameters on what it could be spent on. I think if we can get through this budget issue, we will have some time to sit down with the governor and find out what the path is that he wants to move forward on and be able to respond it.

Petroleum News: One of the issues you had was you and many others holding leadership positions wanted more information from the governor on his plan, especially after he announced his plans to expand the scope of the in-state line.

Chenault: You know, not really. I don’t know where they are at in the 45-day review, if they’ve got their team together, if the team is actively looking at some of the issues that the governor had. We’ll also ask about that and try to find out where he is headed with that aspect of getting more comfortable with AKLNG.

Petroleum News: A little farther south in Seattle, Washington, what are your thoughts on the pushback either from protestors and even the elected officials in Washington. Is this a matter of governor (Jay Inslee) or mayor (Seattle’s Ed Murray) protecting their interest or interfering with Alaska’s interest? Perhaps a little of each?

Chenault: It’s interfering with Alaska’s interest. We did a resolution during session (HJR25) and we talked about global warming and that Alaskans are the best stewards of Alaska’s land. We are the best environmentalists for Alaska’s land. We would prefer that Washington state, the mayor and the governor stay out of Alaska’s business. I’ve never in a letter or I’ve never spoke anywhere if Washington didn’t want drilling off their coast, I would never involve myself in that because I don’t believe it’s in my interest.

I wish they would look at it the same way. Alaska and Seattle are huge trading partners. Almost everything that comes to Alaska by barge comes from Washington. As I said we don’t try to interfere how they run their state and I wish they stay away from doing that to ours.

If the people in Seattle and Washington don’t want Shell rigs parked in their ports, we’ve got a couple of ports up here who would love to have them. We may need to do some infrastructure improvements. We would love to have one up here in Seward whenever they aren’t drilling. It helps the economy. It puts Alaskans to work versus Washington state people and I would just love to have that. The only reason they don’t park it in Dutch Harbor is because the runway is too short. They can’t get big enough planes in and out of there on a steady basis. If we can get the right stuff in Seward, maybe we can dock one. I’d love to have the whole fleet.

Petroleum News: Have you talked to any of your peers in Washington about this?

Chenault: No. I haven’t talked to anyone yet. I’m sure I will. I’ve got a speakers conference coming up. If the speaker from Washington is there, I’m sure he and I will have a conversation.

We’ve got an NCSL (National Council of State Legislatures) meeting in August. It’s the annual summit meeting in August. I thought about boycotting it, but that’s not fair to the actual organization. I’m going to presume that I’m going to go. If I go, then I’m sure sometime during the three or four days that we are there that I’ll run across the mayor or governor at some point and time.

Sen. Giessel did go down last month to testify about the rig. I’m sure they are not happy about our resolution that with CO2 emission and global warming that maybe we should shut down Boeing with all of the planes involved. That was more tongue-in-cheek than anything else. It seems like the longer we go, you get Seattle people more and more into things like Pebble mine because of a bunch of fishermen who fish Bristol Bay, and they are starting to get more and more vocal about ANWR.

It’s just frustrating that not only do you have local politicians but you’ve got the federal politicians who try to get in a shot every chance they get when we aren’t doing that to them. They need to leave us alone and let us develop our resources like we can. Let us be our own state instead of a colony.

Petroleum News: Have you been keeping an eye on the Dalton Highway progress?

Chenault: I’ve seen a little bit of it. It’s one of those things where you can’t control Mother Nature. I think they are moving equipment back and forth. I’m sure we’ll be spending money to rebuild that road. It’s a vital interest and the lifeline of Alaska right now with Prudhoe Bay and the North Slope. We’ve got to do what we have to keep supplies and equipment moving back and forth to keep our revenue stream up. They did everything they could. Once the water started receding, they did everything they can to shore up that road. It’s expensive enough to do business up there, but if you’ve got to fly things up there, you end up costing everyone more money, including the state of Alaska.

Petroleum News: Now that you’ve been home for a while, what are you seeing that tells you there is some progress on the AKLNG project?

Chenault: Well, I’ve been home really for about one week the last two months. I came home last Saturday at 6 and I came back to Anchorage Sunday morning at 5 o’clock. But I still see parcels of land they are picking up here and there. I see property they want to buy. They had a meeting here a couple of weeks ago and talked to the community where they are at. They are still doing seismic work and other surveys on the property to make sure it’s the right property to build on. Things just seem to keep moving forward. Not a lot may be said right now, but you just see a little bit happening here and there. It just moves the project a little further along. It doesn’t mean they are going to do it tomorrow. You won’t see them building an LNG plant right now.

All you’re going to see is raw land that they bought up. At some point in time the governor may come down and get a big picture view of it to look at the routes they are proposing for pipelines. There is not any land clearing right now. Getting those parts and pieces and a permit here and another permit there tells me the Energy Department and our state departments are working together trying to make this thing happen. As long as they are moving forward and trying to get to FEED, that’s good for Alaska.

Petroleum News: What would you like to see accomplished by the end of the year toward advancing AKLNG, whether it’s a special session or something else?

Chenault: Well if we have to be called in for a special session, that’s good news. That means we are moving forward. What all would be accomplished there, I can’t really tell you right now. I know the big issues right now are probably the gas balancing agreements.

That’s probably the biggest thing. Alaska doesn’t have a lot to say in that. That’s more the Big Three to determine the takeoffs of gas at Prudhoe and Kuparuk or other sites, plus Point Thomson. They will have to determine how much gas they are going to pull off. That would be something good for the whole project if they could come to an agreement on that.

Then we’ve got the PILT (payment in lieu of taxes) issue out there; then we’ve got the RIK issue. The RIK issue is something that the administration is going to have to put together and bring a package to the Legislature to see if we can get on board with that.

There are numerous things going on. Then certainly the option of buying out TransCanada: What is the risk analysis? What is it going to do to bonding and so on? Those are issues we are going to have to deal with.

Petroleum News: Speaking of the Big Three, we’ve been hearing over the last year that there is a stronger alignment now than when there was the prospect of a contract under the Murkowski administration. Are you still seeing that alignment among the three?

Chenault: Well, each of them have their own problems. Each of them is going to complain. No different than the state will, but I think we are closer to a point where people can kind of understand why this is a project that could go forward maybe versus one that couldn’t. It was always tough for the Big Three to determine that they would have to pick up 100 percent of the cost, but use only 75 percent of the line because Alaska is going to use the other quarter.

With Alaska being a partner, that has eliminated, I think, a number of issues out there and that’s brought a project that they feel that can move forward with. I don’t know whether it’s going to happen or not.

They are still spending millions of dollars on this thing when they could certainly do what they’ve done around the world and shutting down projects because of the price of a barrel of oil. While this is a gas pipeline and not an oil pipeline, they are still making money off of oil. They have to have the capital to move forward. So far they are still committed. They haven’t slowed anything down that I can tell so far.

Petroleum News: With that in mind, a lot of companies - the independents and the fully integrated companies - have slowed down some of their project work. Should the state consider itself lucky right now that it hasn’t happened here?

Chenault: I think so - somewhat lucky. I think there is potential here for a world-class project. I think that’s good for Alaska and everyone involved. If they continue to get positive feedback from the state and all the other people they are working with, maybe they will go forward with it.

Petroleum News: As you continue to wrangle over the budget and discussions of cuts and future revenues get kicked around, your own bill featuring tax breaks for Agrium (or any facility manufacturing gas-to-liquids, ammonia, etc; HB 100) is still in committee on the Senate side. You once joked about how sometimes it’s not fair to be the speaker because you can’t speak to your own bill as readily. Is it tough to get a bill - any bill - that speaks to tax reductions?

Chenault: Yeah, it is because when we are looking at the deficits that we have and looking at the options out there, it’s hard to sell an option like that. The way I look at it is it’s actually a revenue enhancer for the state. They only way they would get the credit is by buying gas they would be paying royalty on.

So to give them for instance $3 million, the state of Alaska would receive about $15 million in revenue. They wouldn’t get that if they weren’t using that amount of gas from state leases. Right now we are getting zero.

Not only that, it would put 200 Alaskans to work at high paying jobs. And it helps the economy in the state. It helps my district and my borough. It has far reaches. It goes to the (Mat-Su) Valley for fertilizer that used to cost $200 a ton. Now that they are bringing it in from Canada, it costs $500 to $700 a ton. It helps the farmers.

There are a number of things that it does in spreading the wealth throughout the state. So I have to look at it like that. It’s a tough sell because it’s a tax credit. It’s not like it’s a tax credit and they don’t pay anything. They end up paying the state roughly $15 million a year in royalties they pay.