Costello: New LNG ideas welcome, need vetting

Anchorage Republican freshman senator enjoying posts as Resources vice chair and Labor & Commerce chair, awaits fall special session

Steve Quinn

For Petroleum News

When she served in the House, Mia Costello’s first committee choice was Resources. She served on the Finance Committee instead, hardly a default position.

But now that Costello is in the Senate, she got her wish. She’s vice chair of Senate Resources and the chair of the Labor and Commerce Committee.

She secured those two spots as the state is deep into discussions over the prospects of a large-diameter gas line project leading to an LNG export facility.

Costello, an Anchorage Republican, shared her thoughts with Petroleum News on the status of the project and options being debated.

Petroleum News: Let’s start with the recent discussions on the AKLNG line. The governor said in a letter that, in a general sense, things are moving too slow for his liking. What’s your take?

Costello: I can say I appreciate the governor having a long-time interest in Alaska getting a gas line. I do appreciate that. I will say I think we are exactly where we need to be. What’s important to keep in mind - the route, the size of the pipe and the work that’s being done now - has all been thought through, and so I think we need to keep track of the plan that we have. I think that we are seeing a need in Alaska’s economy, in our budget and in our energy needs for a gas pipeline in our future.

I think it’s important to stay on the course that was set in law (SB 138). We are coming up on a known special session where we will be reviewing the contracts and moving hopefully into a FEED stage gate, moving past pre-FEED. I think that any new ideas or variations in the plan, while it’s important to consider all options, I think that we have solid plan forward.

I’ve been really encouraged by information that I’ve seen. I know that we are working every day on the gas pipeline, and I’m really encouraged by it. Because we are a partner in this, it’s not as if we are watching a project that someone else is developing and working on and commenting on it, then maybe wanting it to move faster perhaps.

Because we are a partner, we have to work in that kind of environment and do things in a very planned out judicious manner. I’m encouraged. This is not uncommon for the governor to have a sense of urgency that he communicated.

I did meet with the governor during session to talk about the gas line. It was a great meeting with him. I know he is the type of leader who wants to throw out a lot of ideas and see which ones stick. So I appreciate that. But I also think we are right on track. Hopefully we will have our special session and move forward.

When you think about it, we’ve had our first Arctic project with TAPS. This will be the second project in an Arctic environment and it’s a massive project. The impact it would have on Alaska’s economy and jobs and our future is significant.

Everybody shares in the desire to get the results as fast as we can. These things work like clockwork. I think we got some good news with the Energy Department basically treating our application with a quick manner. That they awarded the export license for the free trade countries and the non free trade countries, says a lot to me. What that says is that the state and the feds both know how important our project is for the state.

Petroleum News: One of the governor’s concerns is the size of the line. He would prefer a 48-inch line rather than a 42-inch line with expansion capabilities. What are your thoughts on that?

Costello: I think that the plan that we have for the 42-inch line and allow for expansion so the volume of gas going through the line is changeable is the right way. I think there are only two companies in the entire world who can produce a 48-inch pipe and it’s a very difficult proposal. Having a fresh set of eyes on the project is always good. The governor is tossing out ideas and perhaps they need a little more study. The risk and the benefit of the 48-inch line, it hasn’t been looked at. I think right now it adds more risk to it. We can increase the volume that’s going through already in a 42-inch pipe. It’s healthy to have these kinds of discussions. What I’d like to see happen is all the partners moving forward together with all the engineering work that’s been done, move forward with what’s on paper already.

Petroleum News: So you feel the same way about the route? Again the governor is tossing out some dissent, preferring a route east of Cook Inlet rather than the studies calling for the western route.

Costello: It’s interesting that you ask that because when I was in the House, we asked all the questions about the route. At the end of the day, it’s the engineering and the physics that will determine the route. The route through Tyonek (western route) I think has shown to be the preferred route. If you go to Point MacKenzie (eastern), I think within the last year there has been 42, maybe 43, feet of sediment change at that point.

So I think that it’s almost like a scientist who keeps testing things and comes back with the same answer. Then you know this is the route that is going to work. Again, I appreciate tossing out different proposals but I think that what we will find at the end of the day, the science and engineering will dictate what we have on paper now.

I think what it is actually, if I can be frank about it, I think the governor wants his stamp on the pipeline. He wants to be seen as somebody who is an advocate for it and perhaps wants to make his mark on it. And I think that’s great.

Whether or not he is going to be able to make a change that he feels is needed, we can look at those things. I think we have to come back to what is the safest most scientifically responsible route and size. And the economics too, certainly the economics play into it, too.

Petroleum News: The governor also noted how important it was to lock in a fiscal arrangement for 25 years and how that would require a constitutional amendment.

Costello: I know we will need a constitutional amendment to get around the fact that one Legislature can’t bind over another, so I think we will need that change. For a project of this size, we’ll need to enter a long-term contract. I agree with the governor that it’s going to be required. Remember the one hearing where somebody said oil is like dating and gas is like a marriage. This is a long-term commitment. Where that comes in the process, probably not this fall, but who knows? I think that would be exciting because that means that the project is imminent.

Petroleum News: Can the voters be convinced of this kind of amendment?

Costello: You know anytime you change the constitution, it’s a sobering exercise and it’s not something to go into lightly. At the same time, once you start looking into this project and you look around and say what kind of environment is needed, then once the public becomes more engaged with the project, I think it’s something people can get behind. I hope.

Petroleum News: There are some who believe over the years this kind of amendment would strip the state’s ability to tax.

Costello: We hear this a lot about Alaska giving things away. We are going to have a dual role as a regulator and also as an owner, so we’ll have to look at that. We’ll have the communities, too, seeking payment in lieu of taxes, because that line is going to go through a lot of municipalities land. The state will look at royalty in kind versus royalty in value. We have a lot of different tax related issues connected with this. I think the state can figure this out with the support of the public, with the partners. What we have to gain by a gas line is something the state needs for its future. We’ve struggled with low production, and low prices for oil. We’ve struggled with energy challenges for Alaska, so the opportunity the gas line brings is what is going to bring all parties to the table and figure it out. It’s exciting, too, because right at the same time we are talking about a gas line and working on one, we are seeing the opening of the Arctic.

I think that the long-term economic benefit to the state as far as development and possibly bringing new business to Alaska because of this new energy source that we have. I know the governor has been an outspoken fan of the ASAP line but the AKLNG line will have five offtake points. We absolutely have to satisfy the needs of Alaskans, and we will. That’s exciting too.

Every session we are grappling with how to help the Interior with its energy costs, and I think the answer for them is in this line.

Petroleum News: The governor had said he was willing to consider a long-term lock in, but not with oil. Do you think it would stand a better chance of passing if it were just with natural gas and not oil?

Costello: Yes, I do. Gas is a different commodity than oil. I can’t anticipate what will happen, but I do think you’ll see an amendment for gas.

Petroleum News: Given all of that - size of the line, taxes, the route - what in your mind is the priority from now until year’s end for the Legislature to tackle either through a special session or otherwise?

Costello: with any issue that we face, you have to ask yourself what’s in the long-term best interest in the state for Alaskans and future generations. We don’t want to get ourselves in a situation where we are second-guessing ourselves. However, in some ways we’ve tackled half of the problem where we passed a law that says these are the stage gates.

We are saying yes at certain points. We know what we are addressing in that situation. By going from the pre-FEED to the FEED stage, I think we’ll get a lot more information that we haven’t had so far. Almost more than any other time of our state’s history, we need to put politics aside and just ask ourselves is what we are doing in the best interest of the state.

So far I feel pretty good about the laws that are in the books with these stage gated procedures. We have people coming to us with different thoughts. We have legislative consultants. The governor has his consultants. I can’t speak highly enough about DNR Commissioner Mark Myers and his assistant (Deputy Commissioner) Marty Rutherford. The governor has a great team. The state has a great team. The state needs to identify our strengths and weaknesses.

We are embarking on new territory here. We need to be thoughtful and methodical about any road we take or steps we take and not get too overzealous, but at the same time realize this project needs to keep moving forward.

Petroleum News: Putting politics aside, that may be the toughest task you face, don’t you think?

Costello: I do think that. I spent a lot of time watching soccer games as a mom and you look at any one particular skill a player has. It still comes down to trusting each other, knowing that something seems a little off or there might be an uncertainty about something, then you get more information. You have to understand that no matter what position a person has, you have to come from a point and realize that every single person is trying to do the best they can for the state of Alaska. If that assumption is your baseline assumption, I think we can do this.

I was encouraged during the session when all the partners came together in front of the Senate Resources Committee and said we have alignment and I think that’s huge.

Petroleum News: About a month ago, the governor said he would like for the state to have a larger share of the pipeline, and this could require buying out TransCanada. How do you feel about that?

Costello: I would apply the same kind of judiciousness to that. My question would be what do we gain by that. They bring expertise that the state doesn’t have. Down the line, in the long term, what are the additional benefits to the state if we bought them out? Right now with our financial situation, we have to take that into consideration. The landscape of the project we are in right now is Alaska is facing a $3 billion deficit. It’s huge. So we have to ask ourselves, can we stretch the dollars that we have now to the point where we can get this project off the ground. In a different environment, it might be a question that I find easier to even consider. But having sat through the hearings I did sit through, the expertise that they bring to the table is expertise that the state can benefit from.

You know in high school, I visited the LNG plant in Kenai when we visited. I was really, really impressed. For years and years, I kept wondering why don’t we do more of this. Here we are years later, we are finally at a point

Petroleum News: The governor also expressed concern about the gas balancing. That seems to be out of the state’s control. Is that a concern for you or are you more focused on items that come before the Legislature?

Costello: I think it’s good to have concerns, but I think that is something that can be worked out, so I think that we can ask those questions and worry about them, but at the end of the day, they will be worked out. The state has questions before us that will impact us and we’ll need to focus on those.

Petroleum News: Putting on your Labor and Commerce chair hat for a second, what role to do you see the committee having as this project progresses?

Costello: To put on the hat of a former teacher and parent of two elementary school kids, I’m concerned that we will be able to fill the jobs. We need to be able to train young Alaskans today for those jobs. We need to be identifying what those jobs are. I’m concerned but in a positive way. We have to be thinking about all of the impacts this will have on the state. We want to be putting Alaskans in those jobs.

I know Commissioner Drygas from the department of labor is updating its strategic training plan, which I think is good news. I think that next session, I’ll have more hearings on workforce development and hearing from the commissioner and finding out exactly how are we doing to fill those jobs. We can anticipate a time when many people will be coming from outside Alaska because there will be so many jobs. But ideally you want to fill those jobs with people who are here today and in school today.

Petroleum News: Let’s switch to the Arctic. Shell is ready for a return to the Arctic for some exploration drilling. But this time, there was heavy pushback in the state of Washington, not just from folks in kayaks, but from its elected officials as well. What’s your take on that?

Costello: Well, in some ways you have to look at it in terms of who do they represent. They are representing their constituents, and there is a certain sentiment in Seattle over this. It’s unfortunate. I think the country will benefit from development of our resources in Alaska. I kind of look at everything in terms of where is the opportunity and there is an opportunity to educate more.

Gov. Walker went on a trip down south and I think we need to balance the concerns the people have with the environment with the need for jobs. We need to do a better job in general of making sure that we do things in a responsible way.

Development is going to happen in the Arctic. That’s pretty much accepted. If you look around and see the interest and the attention in the Arctic, I would rather have the laws we have in place governing those activities than having another country do that.

If we didn’t have so much trouble developing oil on land, it may not be a problem. This is another case where we just have to keep fighting and keep spreading the message that development of our resources helps Alaska. If we can’t do that in Alaska, then what is our future?