Pearce: Still in touch with AK issues

Former Senate President says gas line progress may not be visible, but it’s significant; questions Walker’s path to advance project

STEVE QUINN

For Petroleum News

Former two-term Senate President Drue Pearce hasn’t been in state government in more than 10 years. Yet the former federal pipeline coordinator has got her fingers on the pulse of heavy-hitting resource issues such as Arctic development, marketing North Slope gas and tax policy. Pearce now serves as a policy advisor for law firm Crowell Moring, splitting time between homes in Alaska and Maryland. A former member of the Alaska Gasline Development Corp. board, Pearce spoke to Petroleum News on resource development issues facing Alaska and its Legislature in the coming session.

Petroleum News: Let’s start with Arctic development. What are you seeing the last three or four years when the country ramped up to become Arctic Council chair and ultimately assumed its post, which it has held for nearly 18 months? Has it advanced or failed to advance the resource development prospects.

Pearce: What I’ve seen is that being chair of the Arctic Council has not only not advanced natural resource projects in Alaska, it’s probably put us back a few steps. I say that because while there is more awareness in the Lower 48 today that the United States is an Arctic nation, there is always much more climate change alarmism.

There is a belief more widely held that the United States needs to quickly move to a post carbon economy. Those things together have probably made Alaska more of a symbol to those in the Lower 48 who have the belief that my goodness we need to save Alaska from Alaskans than there was before we became chair of the Arctic council.

I will say what has been positive. There is a better understanding now of our university system and our world-class geophysical institute in Fairbanks and the world-class research that we do on everything Arctic. There is also a better understanding of what we do with the state’s continued efforts in bringing renewable energy to a community that has a renewable resource that it can exploit.

But on a national basis and even on an international basis, what I’ve seen is a more cautious and even more negative approach to development in the Arctic. I’ll give you an example. When President Obama and the five Arctic Scandinavian country leaders met in May for their big summit - it was after his first summit with Prime Minister (Justin) Trudeau in Canada and they did an Arctic statement saying they would be cautious in their approach to developing oil and gas in the Arctic.

Then the stakes got a little higher when he did a statement of agreement with Finland, Sweden, Norway, Denmark and Iceland and it called for using the precautionary approach in decision making for oil and gas development in the Arctic. It specifically calls out oil and gas and the precautionary approach.

The thing about the cautionary approach - defined by Oceana for example - it means knowing and having all the information ever about what all the impacts might ever be before doing anything. So it becomes never doing anything effectively. That is now the official position of the United States as taken in this agreement with other Arctic countries.

Petroleum News: Many carbon emitting industries had a similar approach supported by the Supreme Court, saying all financial implications should be considered before changes are made.

Pearce: The Arctic Council is interesting because its entire genesis came out of a move for most of the Arctic countries to protect the environment of the Arctic. The discussion started over agreements of management of Antarctica. What gets lost in that equation are the 4 million people who live in the Arctic and their dependency on having some sort of economic future of their own, economic security along with food security and an ability to develop on their territorial and ancestral land. In Scandinavia, they have the infrastructure that Canada, the U.S. and Greenland don’t have. So they don’t need more infrastructure: They have the ports; they have the roads; they have the railroads, even, that we don’t have. So development becomes even more difficult here. The Arctic Council does not consider economic security or the economic well-being to the people of the Arctic to be in their wheelhouse.

Petroleum News: So are you getting a sense people who live in the Arctic are not getting a meaningful voice?

Pearce: Different people in the Arctic would tell you different things. But I’ll give you one example, one that I find very telling. The international group that advocates for world heritage sites will be releasing a report they did with the ICUN, which they pulled together experts and scientists from around the world to talk about what Arctic areas in particular - what oceans and what waterways - meet the criteria and what should be made world heritage sites.

I have not found - and I’ve tried at the state level, at the university level, at the North Slope level, at the ASRC or NANA level - I have found no one at least who lives in the U.S. Arctic who was invited to be experts and be one of this group that is going to be putting out maps that I’m sure are going to show huge pieces and parts of Alaska coastline and say those areas should be designated world heritage sites.

Alaska has to force his way to the table sometimes, which Craig Fleener by the way is very good at doing, but he’s one man trying to force his way to a bunch of tables. So it’s hard for the people who live in the Arctic to have the voice that I think they deserve.

Petroleum News: One of the longstanding Arctic topics for Alaska is ANWR. It comes up every year, even if it’s just resolutions in the House and Senate. Is it worth keeping this fight going?

Pearce: Absolutely. I believe in folks who have seen information on the “kick well” (KIC No. 1, the lone well drilled in ANWR), and I think they continue to believe the eastern flank and the coastal plain of ANWR continue to have the prospectiveness we thought it had back in the 1980s when Congress told the Fish and Wildlife Service they were to do the study and bring it back to Congress.

We’ve taken nothing out so there is no reason to believe it’s less prospective. Considering Armstrong’s new find, which is a different type of oil and gas field compared to Prudhoe Bay and Kuparuk, so something different to look for on the North Slope. That to me makes fighting to be able to go in and explore and find out what is and or isn’t in ANWR just as important, if not more important.

Chevron was the operator and that information is still held confidential by the companies as well as by ASRC and KIC (Kaktovik Inupiaq Corp.) as well as by the state. We certainly cannot stop being alert to the fact that the environmental movement wants to cut off all access to oil and gas on any refuge in the nation.

We’ve seen a greater push to stop any other sort of development of any kind on Fish and Wildlife refuges. In Alaska the land mass is vast. I think it’s very important for the state to have the opportunity and the people on the North Slope in particular, to have the opportunity to have access to the land and the resource.

ASRC and the village corporation have considerable land ownership in that refuge they have not been allowed to drill and find out what’s there. The fight over ANWR has been in part over that. Since it’s a refuge it should develop oil and gas. Now we’ve had oil and gas development in the Kenai National Wildlife Refuge since before ANILCA.

Petroleum News: Do you get a sense that this fight has become less proactive and more of a defensive posture against ANWR receiving that designation?

Pearce: I do. Whether they are playing offense or defense depends upon who is in the White House and which party is in control of Congress. Unfortunately, the stars have not been aligned at the right time, but I think everybody who has been on the ANWR side expected the Obama years to be on the defensive to keep the coastal plain available.

We’ve lost it at least in terms of a management plan. We haven’t lost it in terms of an antiquities designation for example. The way to untangle everything that has been added to the management regime of ANWR gets more difficult. It’s a bigger tangled web with each administration that toys with taking it completely off the table.

Petroleum News: Let’s switch to the gas line, which was your wheelhouse as federal coordinator. The state has tried several different approaches for different lines, but we don’t seem to have gotten very far. Is it a victim of market changes or have politics de-railed it?

Pearce: Well, first thing I would say is I think it’s important to note the Alaska LNG project - or whatever name you want to go by - has actually made tremendous progress. We are much further along in the engineering, design, development phase than we’ve ever been before. Much of that design and engineering is finally complete.

We’ve advanced the FERC progress forward tremendously and at great expense. We have DOE export authority. Lands have been purchased in Kenai. It is a real project. I think there has been real progress. I think this governor is even credible when he makes a trip that he has made (to Asia) because it has progressed so far. You can now see a window as to what it would take to get to that final FEED decision and then onto a sanction decision.

The timeline is tremendously shorter than what it was for example when I came on as federal coordinator when we still had all of that in front of us. The work that has been done is tremendously important and has been done by world-class organizations starting with TransCanada and Denali which was ConocoPhillips and BP. They did quite a bit along a route no longer being used but it was important work all the same. As Exxon came in as lead for the AKLNG, they have all consistently had what I honestly believe the best people they could have doing the design and engineering while trying to bring the cost down.

Many people in Alaska believe AGIA was a big mistake, but frankly the money TransCanada spent and the work they did was invaluable. When Exxon came in and built it further, all of that work is what has been built up into resource reports that FERC now has in hand and the progress of the FERC licensing. All that work has to be done before you can get a license to build a project. That sometimes gets lost with people who ask why are we still designing this thing? Why aren’t we digging?

Petroleum News: Were there any windows that were missed?

Pearce: That’s a hard question to answer. There are always windows. When I was at DOI and the first team that worked on the gas line from the Bush administration was a very high level team. FERC commissioners would say we’ve got all of these applications in the Lower 48 to bring LNG to the Lower 48. If Alaskans don’t hurry, they will miss the window.

Well, that window turned out not to even be a window because we found shale gas. Nobody expected the shale gas evolution and revolution. Nobody expected the international economic downturn which meant that the demand dropped. So it’s hard to see we’ve missed any windows. I think we are at a place now where we can take advantage of being ready to move quickly in making a pipeline happen when we see an opportunity.

That’s something a lot of people don’t recognize. It’s a long build up before you can license a project. You don’t wake up one day and decide I’m going to build a gas pipeline and have it built 12 months from now ready to bring gas. The shortest timeline I ever saw was at least two years to do preliminary work, then a two- to three-year window to get all the way through the FERC processes into a license decision. Then there has to be a sanctioning decision. Now because we are at the end of pre-FEED and all of those FERC reports are done, we will be able to go to FEED after some additional work is done.

Petroleum News: There are always philosophical differences between some group of lawmakers and any governor. The one growing concern I’ve been hearing is the significant turnover with DNR. They lost Mark Myers, Marty Rutherford and most recently Corri Feige. I know you’ve weighed in on this somewhat. What are your thoughts?

Pearce: I think all of these losses are indicative of what concerns me with the administration and the governor’s approach frankly to the gas line. He has world-class people and then he doesn’t listen to them. I do know Mark Myers, I know Marty and I know Corri, and I know others who have not been allowed to stay including my fellow board members who were thrown out when the governor threw me out. What concerns me is I don’t understand his approach.

He dismantled a world-class team, and like I said, that team had made tremendous progress. Now he’s dismantled the Exxon led team that has made tremendous progress. He’s had five or six different people in charge of AKLNG since he came into office and he hasn’t been in office more than two years. It seems that the governor is single minded, laser focused on building a pipeline.

If you don’t agree with his way of wanting to make that happen, then you find yourself isolated and not part of the conversation anymore or simply gone. And sometimes he doesn’t even know what you think of the project and you’re still gone. The people we’ve lost, I think it’s very troubling that they left. Those people were not asked to leave; they left because they were uncomfortable working in his administration and didn’t agree with the direction he was going.

The Legislature has questions about the way he is going.

There are so many questions that he doesn’t appear prepared to answer. Where is the money going to come from? Does the state really have the capacity to replace the team that Exxon, BP and ConocoPhillips had pulled together, with people who frankly have the international expertise on how to build a pipeline? Does the market have any confidence in the state having the ability to execute making a pipeline happen? I’m not sure.

Mr. Meyer is saying they can sanction the project in 2018 even though they won’t have finished FEED. I think there are risks to that approach. What is the Legislature’s role? The governor seems to consider the Legislature to be kind of an inconvenient truth. They are there but he doesn’t quite know what to do with them, so he tries to ignore them. He certainly hasn’t worked close with them and tried to make them allies as far as I can see.

So I’m troubled by his approach. I’m very troubled by the people who have left who I have a lot of faith and trust in their ability, and frankly the governor had a lot of faith and trust in their ability - before he didn’t.

Petroleum News: There is also a strong sense among a growing number of lawmakers that the governor is moving forward with an uneconomic project. How do you see it?

Pearce: The administration’s own oil and gas experts call it the least attractive project that is on the drawing board right now anywhere in the world. Alaskans don’t like to accept that unfortunately, our gas is 800 miles away from tidewater. Any project that is at tidewater where most of the other major gas finds in the past decade have been are going to be less expensive to develop.

The good thing is we have discovered the gas; we know we have the gas. But it’s going to be expensive to treat, to get the CO2 out, plus the tariff for the pipeline has to be factored in. So you start at a disadvantage. That’s why the Alaska gas project is so big. The only way you can pencil it out is if you have huge throughput. That’s the only way you can ever make it economic, to make it the biggest project ever so you have enough throughput to pay the cost of the tariff and bring the total cost down.

It has always been a project that has been on the edge in terms of the economics. It’s not like discovering another oil field. Gas projects are not as financially strong because the commodity is not worth as much as oil.

Petroleum News: Speaking of the commodity of oil, tax policy seems to be on the table almost yearly. It seems like there is a difficulty establishing a stable regime. For years, it wasn’t fair to the industry on the high side. Some feel it’s no longer fair to the state on the low end.

Pearce: You know the constant changes to tax policy have made Alaska a laughingstock internationally and in the financial community.

Investors look at Alaska and have less interest in deploying their capital in a jurisdiction that changes or threatens to change its policy every single year. That is tragic because we have a lot of oil to produce but we should all be pulling together to figure out what’s the best policy to the state and the companies where we can maximize the oil we have remaining on the North Slope. The problem is what’s fair. What’s my fair share and what’s your fair share. I’ve about decided that it’s human nature to think that you’re not getting your fair share - whatever it is.

Also, it’s an easy target in a campaign season. Small discussions become major discussions. It’s a lot easier to talk about let’s tax the oil industry than talk about let’s restructure state government.