Anchorage Democrat focused on long term

Rep. Andy Josephson wants to see safe development which benefits state, believes compromises with feds could allow ANWR drilling

Steve Quinn

For Petroleum News

House Rep. Andy Josephson began his second term in office with an appointment to the House Resources Committee. He spent his first two years on the Energy Committee, but he regularly attended Resources hearings, sort of a self-imposed apprenticeship.

He watched while the committee advanced legislation to re-write the state’s tax regime (Senate Bill 21), create a plan for an in-state gas line (House Bill 4) and create a path for a large-diameter line to an LNG export facility in Nikiski (SB 138).

The Democrat calls Anchorage home, but he’s lived in Lower Kalskag, Fairbanks, Kenai and Kotzebue, and believes that geographic diversity will help when analyzing resource bills.

Josephson, an attorney seen regularly carrying a blue statute book, spoke to Petroleum News about what he sees ahead for Alaska’s gas line prospects and his ideas for getting ANWR approved for exploration.

Petroleum News: You’re not a rookie legislator and you’re certainly no stranger to the legal world, but it’s your first year on Resources. Talk about the learning curve that you are facing.

Josephson: I’m actually a little envious of the folks who were on that committee during the 28th Legislature. They were privileged - some might say burdened - to review HB 4, SB 21 and SB 138. Those were the big bills. We’re not seeing that much activity yet. We think there is going to be a special session because if SB 138 is going to advance, there is going to be some firm transportation commitments and other agreements the Legislature has to sanction to move toward FEED.

I don’t know if those are going to come forward before adjournment. I don’t think so. So Resources has been sort of interesting. It’s interesting because of HB 132. I’m real happy to be on the committee. I wanted very much to be on the committee and I was very glad my colleagues saw fit to give me that seat.

Petroleum News: What do you like about it? Obviously it’s going to be a front lines committee.

Josephson: Well, I like people fine, but people are temporal: they are here and they are not. I’m interested in Alaska in the long run. What I tell my constituents is that I’m a supporter of what I call smart development. I view the large gas line as an obviously smart development and that’s why I voted for SB 138. It passed enough of my requirements to make sense, and I applauded the previous governor’s teams’ work on that. Basically I’m really interested in the outdoors, what we do with our land and our water, and our wildlife and fisheries.

And so those are the reasons I wanted to be on Resources. I’ve lived across the state probably more than or at least as much as any other legislator. I twice lived in the Bush, including a very remote village - or relatively so. I lived in Fairbanks and Kenai, now principally Anchorage and here in Juneau. So I think in sort of a statewide perspective.

Petroleum News: Still on the gas line, how do you feel about what the governor is telling the Legislature so far about plans and his direction?

Josephson: Well, I certainly think what the governor has said needs to be flushed out a little bit, but my review of the HB 4 process, which I’ve undertaken to get ready for the hearing on HB 132, suggests that it was understood by the sponsors of HB 4 that if the AGIA limit of 500 mcf were lifted, that the in-state line might change. It might change dramatically. So I think the governor’s position of having some competition and a backup has merit. I invite that dialogue. At the same time, as I said just a minute ago I thought that SB 138 inarguably at this point advanced a gas line project further than ever in Alaska history and that we should continue to progress that scheme, albeit with some serious discussion about TransCanada’s role. But I do think that the governor’s point that this hasn’t happened yet and we need to have an alternative makes sense.

Petroleum News: What are your thoughts on TransCanada’s role right now?

Josephson: I need to learn a lot more about it, but fundamentally what I need to know is naturally the pluses and minuses they bring the state. The pluses I hear of is that they bring wisdom and expertise in pipeline development. They bring cash so that we can continue to, at the low price of oil we are suffering through now, we can continue to survive the next four or five years without spending down all of our savings trying to advance the midstream and gas treatment plant independent of their assistance.

I think they give us a little more standing with the oil companies. I assume they do. I think they give us some insulation from them. I think that they act as an ally. In fact they do act as an ally in that they are incentivized to get as much gas down the pipeline as possible. That’s our motivation, too. So that’s what I’m weighing, against this: they are going to charge us a tariff and be owning an equity share that we would otherwise own, at least in part. And they are going to be taking some of what would otherwise be our profit.

Over the course of the pipeline, if it’s 30 years, that’s in the billions of dollars. I’ve analogized it to the pay down on the unfunded liability in that what it has gotten us is the ability to pay less now. But the back end of it, we are losing about $5.7 billion. It’s sort of a similar amortization. I think that although there is comfort in having TransCanada there for the reasons I described, I want to make sure that it’s imperative that we have them. We don’t have to have TransCanada. I want to make sure there is a compelling reason that we have them.

Petroleum News: What would you still like to hear from the governor on his gas line plan?

Josephson: I guess I need his proposal, which is a market-driven, purchaser-driven plan as I understand it, to be more crystallized so that there is a little bit more in the way of specifics relative to what that backup plan would look like. I’m hopeful it’s more than HB 4 has passed in 2013 because that would have resulted, I think, in very expensive gas and virtually no profit to the treasury. That’s not acceptable. That’s why I voted against HB 4. I also hope that when I hear more from the governor and what he has in mind that it’s on a similar decade-long timeline as AKLNG is. That’s pretty important. If we start talking beyond construction beginning in 2020 and completion in 2025, you’re in the netherworld, and you lose people, besides which we won’t have any money then. So those would be my thoughts on that.

Petroleum News: With HB 132, what do you make of the give-and-take between the governor and the speaker?

Josephson: Nature abhors a vacuum. There is a natural tension between the speaker and the governor. The speaker certainly wanted to see the re-election of Gov. Parnell and that didn’t happen. That’s just life. That’s where we are. The thing that I found interesting as an observer is that my memory of 2014 for example was that the speaker and his supporters had some reservations and expressed those reservations about SB 138. They expressed very clearly a concern that it would somehow impede HB 4 and the small line. Now they voted for SB 138 in the end. Now they are the strongest supporters of it. We’ve seen the evolution. That’s why I say nature abhors a vacuum. Unfortunately because of politics, perhaps on both sides, no one seems to want to occupy the same space. That’s what I would observe even if I weren’t in the Legislature.

Petroleum News: If the friction continues, and it doesn’t look like it will at this level, could it impede the Legislature?

Josephson: Sure. Absolutely. Because we have work to get done and relative to the AKLNG proposal, there is a ticking clock. For example, by Dec. 31 of this year, we have to decide our equity option relative to the midstream and the GTP. Mr. Persily (Larry, former federal pipeline coordinator now Kenai Borough gas line coordinator), when I asked him about this, he said you could ask TransCanada for an extension, but I have this feeling they might want something for that. I think it’s critical. I’m relatively sure I’ll be a yes vote if I’m asked to push that button. I want as much equity as I can get. We can’t derail this for the reasons I’ve noted, the timeline and the need for revenue enhancement. There are many scenarios, not just on this, if you could get the 61 of us in the room together and say let’s not leave until we have a game plan. That would always be better.

Petroleum News: Alaska has been in the national news with issues pertaining to the Arctic, be it ANWR or offshore drilling, and even the issue of revenue sharing. What are your thoughts on what the (Obama) administration is doing?

Josephson: I have a number of thoughts. I think that Sen. Begich is no longer a U.S. senator. The president is burnishing his environmental record. We saw President Bush do this west of Kauai through the Antiquities Act. I think it’s part of a management plan for the Department of the Interior but not much more. I understand the reaction to it. I heard a presentation from Ken Alper of the Tax Division. I have a feeling there is a ton of oil in the 1002 area, and I have been a supporter of drilling for that oil.

I also think it’s sort of remarkable that there is no way to resolve this. Both camps are very entrenched and so we have what I call a draw over the last 30 years. I can think of a myriad of ways where for example the conservation community is given something else or when drilling ceases, that the area would be added to the wilderness of the Arctic National Wildlife Refuge.

Petroleum News: So from ANWR to offshore drilling, what are your thoughts?

Josephson: Naturally, I would be sort aghast if someone didn’t support our getting 37.5 percent of royalty interest, which is what I think is being considered. I know the governor believes he’s making headway in that regard. I would be shocked if anyone could oppose that.

I have more concern than most legislators with the safety of drilling in the Arctic. I did support a resolution in 2013 for drilling in the Arctic. I also rose and expressed some concern because of what happened a year or two prior with the Deepwater Horizon and the Macondo catastrophe. My memory is no one in particular stood up after me and joined me in that concern.

Naturally, if we had a share of royalty offshore - way offshore - that were in place then it would be more enticing, the idea of moving forward. I also think that Shell’s record is pretty bad. While I think we have to be very sensitive about development in the Arctic.

Kissingerian is the term I use (the Kissinger perspective). That part of my politics comes out when I hear the Russians and the Chinese are going to develop without us. That doesn’t sit well with me. That rapidly turns me into a sort of a hawk on this issue. This fully resonates with me when I hear that the sea lanes are opening and that there is interest in mining, drilling and development from other superpowers, it doesn’t do us an ounce of good to stand down and watch that happen.

So I guess I would call myself sort of moderate. I do have a real concern with potential oil spills in the Arctic. I saw the Alaska Clean Seas Lunch and Learn and I was sort of impressed. I was sort of thinking a similar presentation could have been given in early March 1989 about the preparation of Valdez. I think we are a long, long way from being prepared from such preparation in the Arctic.

Petroleum News: You noted concerns over Shell. Does the Kulluk incident have anything to do with that?

Josephson: Yes. Absolutely. They had some violations in the Arctic itself. None of them caused any egregious harm. Yeah, I’m not impressed. I will tell you that retired officers from the Coast Guard - senior officers - have told me there is reason to be concerned. When it’s cold, icy and dark, we are told there is response capability but we have to be particularly vigilant.

Petroleum News: I know it’s not the Legislature’s decision or the administration’s, the decision rests in Washington, but what would make you feel better.

Josephson: I know there are some challenges to their work even in Puget Sound. I see they are having trouble and they aren’t even on site. I would need more assurance from folks like the Coast Guard that they have the equipment, the manpower, the response capability - all of the things that they need in the event of a spill.

Petroleum News: So what could it take to bring these creative alternatives to ANWR that you brought up? What would it take to bring these sides together?

Josephson: I’ll give you an example. I offered a resolution that said outside the Denali Park to the north and east there needs to be a conservation easement to protect the wolves. In exchange the federal government could surrender or ease rights to mining development on BLM lands - sort of a land exchange. That is the kind of thing that could be done with the Arctic National Wildlife Refuge. I just think there are all kinds of solutions like that and they are being explored.

Petroleum News: Closer to home in Cook Inlet, I know you weren’t around for the recent legislation designed to attract resource production, still, what would you like to see for Cook Inlet, either for further development or as an LNG terminus?

Josephson: I read a lot about Cook Inlet and the renaissance. When I arrived in 2013, the administration was taken to task by its own allies for the need - the immediate need - for more gas production to incentivize it.

Commissioner Sullivan was talking about how it was coming - and it came. Just two years ago we were talking about importing LNG, and that was sort of an embarrassing topic for everybody. I assume the zero gas tax has incentivized that. The search for oil has led to the search for gas.

Now we are being told that the Mat-Su Borough, for example, believes that setting aside Prudhoe and Point Thomson we can develop gas, liquefy it and ship it right from western Cook Inlet or take it by train to Fairbanks. I’m a supporter of whatever works, whatever can be done safely and whatever is useful.

But at the same time, I will tell you that I see tremendous, tremendous waste. I think the previous administration - although I just applauded and commended them on their gas team, particularly their LNG team - they were trying to do too many things, for too much money for too many different groups. We can’t do that. We have to be more selective and get census behind a narrower scope of projects.