Kawasaki: Obama visit engaging, productive

Fairbanks Democrat says Obama listened to Alaskans, but could have provided more comments on state’s resource development prospects

STEVE QUINN

For Petroleum News

House Rep. Scott Kawasaki says he’s grateful for President Obama’s visit and enjoys reflecting on it, but he also believes it’s time for the state to get back to business and that includes the Legislature.

The Fairbanks Democrat says there is plenty of heavy lifting ahead in a special session and next year’s regular session as lawmakers address advancing the AKLNG project and reviewing the state’s tax credit system.

Kawasaki, who spent eight years on the House Resources Committee and two years on House Finance, spoke to Petroleum News on what he believes lies ahead.

Petroleum News: What are your impressions of the president’s visit to Alaska?

Kawasaki: I can tell you the things we’ve relayed to the administration these last few years, I think he’s listened to. The one thing he announced (Tuesday) was the need for more icebreakers to really position ourselves as an Arctic nation, which the United States values because of Alaska. Someday I hope there is an announcement about a Nome naval station. I think it’s bound to happen in my lifetime.

Petroleum News: What’s been missing for you?

Kawasaki: He’s kept very fairly quiet on the development issue. On climate change, the carbons are part of the problem. I don’t think he’s transitioned into how we can bridge the solution over the next 30 or 40 years. There is going to be a need for hydrocarbons for the foreseeable future. I think as more people drive cars in China that will drive up the demand. As we shift from coal to natural gas, that will shift from one energy source to another. He hasn’t really mentioned how that will happen. Again, he definitely understands Alaska has a huge position in our nation’s energy future, but he hasn’t talked about the transition.

Petroleum News: Why has this trip to Alaska been so important to the state?

Kawasaki: Well, I think it’s important to Alaska for one so that we as Alaskans can show the president what’s happening here in the state as far as energy development, as far as resource development. Obviously the trip is primarily about the environment and we need to show him what’s going on with the Arctic environment.

Petroleum News: He was pretty transparent about what his agenda would be: climate change. Most here also want discussions about Arctic policy to also be about economic development, too. Can be reconciled?

Kawasaki: I think part of this trip is about the concept with melting sea ice and with the fact that there are environmental and climate changes happening throughout the world that is something where Alaska can gain advantages with other Arctic nations.

We are poised to be the Arctic nation and Arctic state that is closest to where all the transportation is happening. That’s something that is a great highlight and of great importance for not just Alaska as a state and for our economy but for a nation overall.

Petroleum News: So what, in talking to your colleagues who live in those Arctic towns, do you gain a sense would be priorities?

Kawasaki: In the next several decades we may see something like a Nome naval station as the routes for shipping and commerce and industry start to grow into the Arctic, clearing the way for transportation and goods to move back and forth by barge. I think protecting our shores are going to be important. Having naval presence and a Coast Guard presence within the Arctic is going to be important for our coastal communities within the state.

It’s opening an entirely new picture globally for us when it comes to resource development particularly oil and gas. I don’t think it’s going to go anywhere; it will be here for the next 100 years, and I think this is a good opportunity to seize upon.

Petroleum News: The president visited Seward, Dillingham and Kotzebue. What do you think of his choices?

Kawasaki: Well, of course everybody wishes he would have come up to Fairbanks. We have the premier Arctic institution in the University of Alaska Fairbanks. Certainly he had to make some choices along the way. Those are great communities, too.

Petroleum News: So what would you like his takeaway to be from this visit?

Kawasaki: I want his takeaway to be that as a young sovereign state that Alaska can help the rest of the country when it comes to a lot of different needs. We’ve got fish, we’ve got gold, we’ve got timber, we’ve got a warehouse of oil for the rest of the country if we are allowed to develop our resources. I hope the president sees we can do a good job managing. If offered the chance, we will do a good job.

Petroleum News: So what would you like to see next from the president or his administration after he leaves Alaska?

Kawasaki: Again we are the big energy producing state. We are the storehouse for resources from fish to minerals to timber to oil and gas. I’d like to hear from the administration on how Alaska can help solve some of the deficits the rest of the United States has. Whether it’s energy, timber or fish, we are the storehouse for the rest of the United States and I’d like to see a little more attention to this state when it comes to that. I think he’s getting the picture, getting the idea.

Petroleum News: Do you think, as the governor has said, the president sees the AKLNG project as important. It didn’t make his speech.

Kawasaki: I think the president noted the importance of AKLNG before it was named AKLNG back when he first ran in 2008. He was talking about Alaska and its importance to solve some of the energy problems in the Lower 48. Since then, of course, a lot of things have happened. Hydraulic fracking has happened in the Lower 48 resulting in a glut of hydrocarbons. He’s had his eye on Alaska in the very beginning. I remember when he made an address talking about AKLNG but it was just a concept back then, talking about how Alaska had this wealth of hydrocarbons that can be part of the solution of energy issues within the United States. I think he’s had his eye on it for a decade since before he was in office.

Petroleum News: So are you disappointed he hasn’t talked about the gas line?

Kawasaki: Again, in 2008 when we were caucusing, he did send up a tape, he did mention a natural gas pipeline. He has talked about it before. In light of the fact there is such an energy glut in the rest of the Lower 48, it’s not the most pressing issue for the chief executive in the country. I think he understands that Alaska is positioned very well when it comes to energy to help supply domestic needs and international needs as well.

Petroleum News: Still on AKLNG, a special session is anticipated and one of the governor’s plans, something he’s said more than once, is the prospect of buying out TransCanada. What are your thoughts on that?

Kawasaki: We had talked about buying out TransCanada when SB 138 passed. It was a concept that had been put in place and it had always been a notion that Alaska as a sovereign state that Alaska should have an ownership piece.

I think clearly it was conceived when the Legislature passed the Senate bill. I think the governor is right in at least offering that as a position at this point. We’ll see if it makes economic sense for us, whether it makes financial sense for us, and whether we can get the money for it, but certainly it was laid up as a concept when the bill was passed.

Petroleum News: So what value would there be to doing this as you see it?

Kawasaki: I think the value has always been that Alaska’s position at the table would be strengthened and as a sovereign we want to have the strongest position we can at the table when it comes to negotiating with the other entities that are there.

Petroleum News: Can a sovereign, in this case the state of Alaska, be both an owner and a regulator? How do you strike that balance?

Kawasaki: That was of course the rub with the Senate bill that passed, how can we be both an owner and a regulator? What happens when we compromise one over the other? But we are both an owner and a regulator currently. We are an ownership state now. We also regulate and own when it comes to our natural resources. When it comes to fish and game, we own and regulate.

There are lots of circumstances where we have been both owner and a regulator it’s worked out. In this case there is no difference. It will take some heavy analysis and it’s going to take some decision making for how that works out. I think it’s worthy of having a debate and worthy of having a vote.

Petroleum News: One of the other discussions is a constitutional amendment that would enable the state lock in taxes for decades.

Kawasaki: Well this is where the public is going to have a shot at weighing in on this. I guess what I can say is it will be done in a transparent manner. The public will see what’s going on. The Legislature will understand what commitments will be made today and how those commitments will be played through 20 years from now.

I think Alaskans for too long have been waiting for a pipeline to happen. I think Alaskans for too long have been waiting for a pipeline to happen. I think Alaskans are waiting for work to begin. If this carries that notion to the point where we can make a good decision, I think the public will support it. That said, there are a number of nuances on number of years it would take. The financial challenges that will have to be met during that 20-year timeframe would have to be known. How small communities are treated within the context of AKLNG and ultimately what our budget outlook is going to be are all moving pieces within the puzzle.

Petroleum News: would all of that be tied to a vote for a constitutional amendment?

Kawasaki: The constitutional amendment will be just yes or no. But getting to a point where we agree this is the best way moving forward - and the Legislature will have to agree - it’s going to take for all of those to be known items basically. We in the Legislature have debated one-word amendments for hours and hours. This is infinitely more complex. But I think the ramifications are infinitely more important so at some point we are going to have to take this up sooner rather than later. It will be all-consuming when we discuss what the wording is.

Petroleum News: Do you think there would have to be a backup plan if it were to fail with the voters?

Kawasaki: I think if you can get two-thirds of both houses to agree on the wording, then I think the two-thirds majority in the Legislature will have their work cut out for them to convince the public and the constituency they serve that this is the right thing to do. I think the harder part will come earlier and that’s getting something passed by the Legislature.

Petroleum News: If there is a special session, what do you think the priorities would be? What would you like to see accomplished in those 30 days.

Kawasaki: I think we have to talk about the revenue picture, the revenue outlook and continue some of the discussions we’ve had in this last legislative cycle about how we make ends meet in terms of our budget. The discussion never really ended when the special session ended. I know the governor is pushing that discussion that way. The budget is going to be one of the big issues coming into January. Revenue solutions have to be discussed in tandem with AKLNG because that’s something that ultimately will be a cost in the budget, either tax certainty for a long period of time or other things. It will be a costly discussion.

Petroleum News: Looking ahead to the regular session, there is thought that the Legislature will need to review the tax credits formula. What are your thoughts on that?

Kawasaki: The regular session will be about the budget and about some of those things that are costly to the budget. One of the big cost drivers has been I think oil and gas tax credits. The oil and gas tax credits have grown from almost zero when I started to almost $600 million. That’s a capital cost that has quite an outlay to it. We are going to have to figure this out. The amount of money we are paying out in credits and deductions is going to be so large, I don’t know how the budget can hold that.

Petroleum News: Some of these credits come from tax regimes that you supported, specifically ACES. How do you go about creating something that is perhaps a little more durable?

Kawasaki: I’ve been through three major tax codes since I’ve been in office and that’s only been 10 years. I think we did a good job when we introduced ACES. Some of the parts of ACES did what it needed to do. Others didn’t. The plan that was before that, the PPT model, did some things that were good. Others needed to be revised by ACES. This new plan we’ve got in place does some good things. But I think we have to constantly refine some things when we know it’s not working. I think we know as far as a revenue generator this is not working at all in the state’s favor.

Petroleum News: Let’s get a little closer to home, the Interior. The gas line has often come with the promise of off-take points to help Alaskans. Energy costs in the Interior have long been a concern for Interior lawmakers. Do you see AKLNG as being a solution Interior folks believed a gas line might be?

Kawasaki: There is not a lot said about what the off-take points would be for AKLNG particularly for the Fairbanks area. Whether an off-take is even a workable solution isn’t as clear now because it would probably require a billion dollars worth of investment into a plant, which is not currently in the proposal. And so I don’t think there is a lot of promise for some sort of energy solution just because we built a pipeline through our backyard. We have TAPS line in our backyard. That doesn’t mean we get cheap gasoline in our backyard that can be refined locally. So an off-take would be a great thing. An off-take would be something that would be especially welcome here within the city, but with the time horizon for how long this would get built, not only the pipeline but the plant, I just don’t see it as a real near-term solution for Fairbanks.

Petroleum News: The Legislature passed the IEP bill during regular session, even if it was a bit of a slog. Are you seeing anything good come from the bill yet in the early stages? Could it be a start to a quicker solution?

Kawasaki: all summer long in my neighborhood, they have been dropping lines local. Fairbanks Natural Gas, of course, had a fairly aggressive plan for build out. I think they did 80 miles of pipe last year, and I think they are pretty close to the same amount this year.

The North Pole area, which is going to be the first of the Interior Gas Utility service area, I think they have 60 miles of pipe put out this year. So it’s something that’s very aggressive we’ve never seen before. I think we are hopeful to see that this combination between Fairbanks Natural Gas and IGU actually does go somewhere where we can offer, not only within the city of Fairbanks, but outside of the city of Fairbanks to the lower populated areas, some sort of solution to the high cost of heating. I think people see this as really promising because they see the construction going on, and are supportive of it.

Petroleum News: Also, in your backyard is a company we don’t always hear a lot of because it’s the majors in the news. That’s Doyon. Its drilling program has to give you optimism.

Kawasaki: The big thing about Doyon as opposed to say a major for-profit company is that Doyon is primarily trying to serve its own shareholders, many of whom are from the local community. It’s like when a Native corporation from the Copper Valley area wanted to do their own work and Doyon is positioned and poised to do the same thing. They don’t have to have the same high return for their investors that most major developers do. Their idea is doing something for the region. I’m definitely looking forward to seeing how their prospect looks at the end of the drill season.