Balance of austerity, development goal

Chenault, returning as House speaker, says cutting operating budget will be challenge; diversifying economy with gas line important

Steve Quinn

For Petroleum News

Mike Chenault already had the record for being the state’s longest serving House Speaker when he was voted by his peers to a fourth term. That tenure begins when the new Legislature gets sworn in next month to begin a session that features a new governor, Bill Walker, and the administration he continues to build.

When the Legislature last adjourned in April, the price of oil was higher than $100 per barrel. Today, it’s barely touching $60.

Still, Chenault, a Nikiski Republican, says while the state must practice austerity, it must not lose sight of long-term goals such as advancing a natural gas pipeline to an LNG export facility.

The Legislature also faces an administration with appointments with philosophical histories differing from Chenault and his caucus, creating a prospective rough start when lawmakers return to Juneau in January.

Chenault spoke to those and other resource development issues with Petroleum News.

Petroleum News: You’re getting your fourth term as speaker. Your priorities have been pretty clear: Establishing a framework to advance a gas line with priorities of getting North Slope gas to Alaskans. Has any of that changed?

Chenault: Not really. All of us are trying to do the best job we can. The people in my district are very important to me. I want them working. The more Alaskans we can get good jobs for, the better off the state is. I’m going to continue to push for resource development, whether it’s oil and gas or mining, the best that we can in order to give Alaskans the best opportunity based on jobs.

The big issues will be the operating budget. We can trim the capital budget some more. The operating budget is going to be the big piece. We’ve got education and the governor saying he wants to expand Medicaid. There are some who don’t want to do that because of the future costs involved.

According to the bean counters unless we get a lot of new oil and the price goes up, it will be at a time when we don’t have much money. There are folks talking that there is a way we can address the people - the 40,000 - who don’t have insurance covered. I’m willing to listen to that.

Today it might not cost money, but wait a few years and find out it might cost millions. By then you’ve got people depending on that program, I can tell you as a legislator for so many years, there’s a lot of pressure on you.

Petroleum News: Let’s go to the interim. Are you pleased with the progress thus far on the pipeline projects being pursued be it AKLNG or ASAP?

Chenault: AGDC’s project is moving along on budget and on time. From what I can see AKLNG and talking to those folks, they are progressing. Naturally we hope by the end of this session, or certainly this year, we get some type of offer back to the Legislature to see about moving the AKLNG project forward but we won’t know about that until it happens.

Petroleum News: Do you still believe the ASAP project remains important enough to keep on the table?

Chenault: I think that it is. You know, a lot of people are trying to call it a fallback position, but if the numbers don’t work out and we can’t get big project sanctioned, then we will have a lot of the information that is needed on both projects that AGDC is working on. We paid for other information through the AGIA process and through the AKLNG process. If we can’t make a big line work, then maybe we can make a smaller one work. Naturally, the economies of scale and economics are going to drive either one of these two projects. If the big project, for whatever reason, were to go away, then it would give us the opportunity to still get gas to Alaskans to try to drive the cost of energy down.

Petroleum News: Now I know you weren’t a big fan of AGIA, certainly the licensing process, but was there any redeeming value to it, given the information you just noted?

Chenault: I think there is information that can be utilized in any of these projects. Now whether it was worth what we paid for it or not, that’s a whole different story. Not having signed the confidentiality agreement to be able to look at some of the in-depth information that’s there, I can’t make an educated decision other that I feel there is information we will be able to use for any project if we are fortunate to move forward on one.

Petroleum News: You noted confidentiality agreements. How do you strike a balance between the confidentiality agreements and assuring the public transparency because there will always been industry information considered proprietary?

Chenault: I think there is a way to do that. I don’t know exactly how. People always want information, as early as they can get it so they can try to be informed for whatever reason. It depends on who they are. A lot of times it’s information that should probably not be available until it’s thoroughly vetted, until it’s determined what is the real confidentiality of this information.

Some things need to be held confidential just to help the negotiations not only with the big three owners of the natural gas but also information that you don’t want people who you might be dealing with to know because it gives them an advantage. In Alaska, we need to treat our involvement as such.

We need to be looking out for Alaskans and if that means we have some confidential information there as far as negotiations, then we need to hold on to that to make sure we get the best deal for Alaskans. Not the best deal for the buyers of the gas. Not the best deal of the sellers of the gas, but the best deal for Alaskans.

Petroleum News: Do you think there is anything the Legislature can accomplish during the upcoming session toward advancing a project or is it a patience waiting game for year’s end when a prospective offer comes?

Chenault: I don’t know yet without having talks with the AGDC and AKLNG folks on when do they feel we can be in a position to have that information brought to us so we can make an informed decision.

Petroleum News: As you consider the time you’ve been in office, what progress do you believe has really be made toward getting a gas line project under way as this has been pretty elusive?

Chenault: I think probably the biggest thing we have now is we have the state of Alaska and the big three gas holders talking about the same project and working toward the same project. Never before have we had that. With AGIA, we had the state on its own. People tried to say that Exxon finally said, OK, we are going to work on it. But I don’t think anywhere you’ll find Exxon actually signed a contract agreeing to the terms of AGIA. Then you have the Denali project with BP and Conoco working out there. For a $65 billion project, you have to have all of the players in the game and all of the players making informed decisions. That’s what we have right now. With the AKLNG project, we have the producers, the state, AGDC, which is a state corporation and we have TransCanada the pipeline builder. You have all of the pieces to put a successful project together. It’s a matter of can you come to terms?

Petroleum News: Given the fiscal situation right now, can the state afford to be on a concurrent path with two pipelines?

Chenault: I guess you can look at it two ways: Can the state afford to or can the state not afford to. I don’t think the state can back out right now and say, no we can’t afford to. I think we are committed to a project. We want to see a project move forward. The money for an AGDC project is already allocated. They are not going to come back to the state and ask for any more money. They already have enough money to get through the FEED process.

I don’t know about the AKLNG and what the next ask will be from them. I think that is going to be determined by how much work they’ve got done and where they are in that process. I still continue to think we’ve got to diversify Alaska’s economy. I don’t think Alaska can continue to afford to be dependent just on oil while the gas revenue is years away.

If we continue to delay, it would be another year later where there isn’t gas for Alaskans. We need to continue to move forward with these projects until we get to that go, no-go situation.

Some might know that the AGDC project is not duplicating the work that the AKLNG project is. It is complementary to the AKLNG project, because they have been working on a lot of the information from Fairbanks south for instance versus AKLNG which has been working on a part of the project Fairbanks north. That information that AGDC is getting will fit right in with the AKLNG project and vice versa.

The economics will be the driver of this project. So there is no repetition, no duplication of studies or any other work that is needed between the two, so it works seamlessly together. Alaska needs to keep moving forward.

Petroleum News: With oil prices hitting five-year lows, do you think that’s bringing a dose of reality to the state as to just how volatile things are for the state?

Chenault: I think it does. When I came into the Legislature, we were in a spending deficit, then the price of oil went up and when your budget is based on the price of oil, and it’s higher you have the opportunity to do things in the state that otherwise you would not be able to do, whether that’s fix roads, or build schools. Like a number of capital projects around the state, I think you see that spending increase. Whenever the price of oil drops, you don’t see those expenditures on the same scale. The catch is the operating budget. When you have money there, they want certain services. Now when the money is tight and the price of oil is down and you start looking to make reductions in the operating budget, it’s going to have an effect on communities around the state and some individuals around the state.

Petroleum News: When we’ve talked in the past, you noted how high oil prices masked the problem of the state’s former tax regime and declining production.

Chenault: They were masking the continuing decline. There is no doubt. I think we will stem it to some extent. Now will we bring it to 2 million barrels a day, the chances are no unless you bring in offshore or ANWR. If you take a 50,000 barrel a day decline, can you stem that. I think you can. If you take a look at what incentives have done here in Cook Inlet to drive new production. I think at one time it was down to 7,000 barrels a day, which is way down from the 1980s in the heyday. I think we are right now at about 16,000 a day. So I think the right incentives, the right conditions - and certainly the technology is helping - there are a lot of barrels out there we can get because of the right tax incentives.

Petroleum News: Now you’ve got a new administration getting in place and there are some appointments that have already upset some of your colleagues and members of your caucus, starting with the chief of staff Jim Whitaker, who was critical of you, Rep. (Mike) Hawker and now Sen. (Kevin) Meyer for your ties to the oil industry during the tax debate.

Chenault: What we did was declare our conflict or perceived conflict in House Finance Committee. In all reality, according to the rules, we only needed to declare the conflict on the floor. We chose to declare it in the committee because we wanted to put it out there in the public. Folks will have conflicts or perceived conflicts. Jim chose to put an article in the ADN and sort of chastise us. Nobody thinks it’s humorous. Everybody takes it fairly serious. It’s something the administration and myself will have to work out. I’ll talk to the governor and have those conversations with him and we’ll take it from there.

Petroleum News: Is this something that can be forgotten or forgiven?

Chenault: It can’t be forgotten. If you want to impugn my integrity, you can do that but there are repercussions for that. I’ll just leave it at that. I don’t know how the other two feel about it, but that’s how I feel.

Petroleum News: What about bringing back Mark Myers, this time as Resources commissioner and Marty Rutherford to return as deputy commissioner? Philosophically, you weren’t in line.

Chenault: Those folks, they will come before the committees and there will be folks who will not support them. I think both of them are very smart. As far as I was concerned they were on the wrong side of both issues, whether it’s AGIA or ACES. I’ll try not to let that interfere with how I vote for him. As I told the governor, I’ll keep an open mind, but whenever you bring somebody back from previous administrations, they come with baggage. Sometimes that’s good. Sometimes that’s bad. Whether you like it or not, we all carry it. When you try to make decisions and do what’s best for Alaska, I’ve got to go with my gut most of the time. A lot of it is going to be what kind of information these folks bring forward as to what direction they want to take the department. That will be the key. We don’t know a lot about the administration as to what direction the departments are going to go. Until we have those conversations and are able to have those discussions, it’s hard to say up or down, yes or know. I want to hear what the objectives for the departments are.

Petroleum News: The most recent objection came against (former longtime legislative staffer) Ken Alper to the Department of Revenue.

Chenault: Ken was a highly regarded Democratic legislative staffer and folks have good things to say about him and some who may be on the other end, don’t have the same things to say.

Petroleum News: On to D.C. The state is sending one new member to the Senate and a veteran who will take over the Energy Committee. How does that bode for Alaska?

Chenault: I was just visiting Dan (Sullivan) in D.C. I think Dan being new, he’s still trying to find the restrooms in the building and we talked about that. But he has his head on right. I know what he did when he was DNR commissioner and when he was the AG, so I feel comfortable that he will do all that he can to help with resource development. Now what that means on the federal level yet, I don’t know. Hopefully it means streamlining some of the permitting processes that will allow us to move forward quicker. We’ll have to wait and see once he gets sworn in.

Petroleum News: And what about having Sen. Murkowski sworn in next month as Energy Committee chair?

Chenault: I think that’s good for Alaska. It gives her the hammer so to speak on some of these agencies who have been making Alaska and Alaska businesses and opportunities for resource development a living hell. Who knows? We don’t know what opportunities are there because they haven’t started the work. I feel there are better opportunities to negotiate rather than to negotiate from the standpoint of doing nothing, which is how I feel the federal administration has been treating Alaska, and then complaining how much we take in federal funds.

When Alaska became a state, the biggest concern the federal government had at the time was we would become a drain because of the size of the state and the low size of our population. That became true but it’s not because of Alaska or Alaskans, but it’s because the federal government will not allow us to develop our state the way other states have been able to do and that makes us more dependent on the federal government. If they want to blame somebody, all they’ve got to do is look in the mirror.