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LNG bills get first hearing Alaska lawmakers start work on gas authority project funding, Heinze looking to sell bonds to raise initial $200 million additional funding Larry Persily Petroleum News Government Affairs Editor
Senate Resources Committee members took no action Jan. 21 on a bill to appropriate $2.15 million for the Alaska Natural Gas Development Authority or a separate measure allowing the authority to consider building its pipeline and liquefied natural gas export terminal on Cook Inlet instead of at Valdez.
It was the first hearing this session on legislation dealing with the state gas authority, which was created by a citizens initiative on the November 2002 ballot and which faces a June 2004 deadline to submit a plan to lawmakers for a state-owned LNG project to move North Slope gas to market on the U.S. West Coast or the Far East.
Senate Bill 241, sponsored by Senate President Gene Therriault, R-North Pole, would appropriate an additional $2.15 million to the gas authority for the balance of this fiscal year ending June 30. The authority has spent the $150,000 lawmakers appropriated last session, and also the $200,000 additional funding approved this past fall.
The authority explained to the committee it needs the $2.15 million for engineering and design, cost and schedule work, financing and project economic consultants.
“I was very upfront with board members that they would have to justify the funding,” Therriault told the committee, which took testimony on the bill and held it for further deliberations. Administration reviews funding request The administration is reviewing the authority’s funding request and is a couple of weeks away from having a recommendation, said Steve Porter, deputy commissioner at the Department of Revenue and liaison to the gas authority.
After completing its project development plan this summer, the authority’s board of directors and the Legislature, governor and public will need to decide if the $12 billion project is feasible, said Harold Heinze, chief executive officer of the gas authority. The next phase would be 18 months and $200 million in work for engineering, ordering pipe and equipment, permits and regulatory reviews, and negotiating gas purchase and sales contracts, Heinze said.
A final decision whether to build the project would come in January 2006, he told the committee, distributing a chart that shows the first LNG shipments by December 2008, assuming the authority can convince North Slope producers to sell or ship gas for the project and the authority can arrange financing for construction. Authority would sell bonds Rather than seek state money to cover the $200 million, Heinze said, the authority would sell “financial instruments” to investors who are used to putting money into risky ventures.
The initiative that created the gas authority gives it legal standing to sell bonds backed by revenue from the project, but makes clear the project stands on its own and the state general fund is not responsible for the debt.
Supporters of a state-owned LNG project say it could make enough money to cover its borrowing and return billions to the state general fund over the life of the gas reserves.
Resources Chairman Sen. Scott Ogan questioned Heinze about the economics of competing in the crowded Pacific Rim LNG market, adding that he understands there is a lot of gas at or near tidewater that can be delivered to market cheaper than Alaska gas. Senator questions competitiveness “The overriding consensus of all the talking heads in the industry and analysts … is that the world is awash with LNG,” said Ogan, a Palmer Republican.
The financial test, Heinze said, will come when the gas authority goes to bankers and investors to raise money. “We are not going to build this project with state money,” he said.
Sen. Fred Dyson, R-Eagle River, asked Heinze if the federal Jones Act, which requires U.S.-flagged vessels for domestic trade, could cause a problem or a heavy expense for the authority when overseas LNG competitors could use foreign vessels to deliver gas to the U.S. West Coast.
Perhaps the authority could order tankers with only their hull built in U.S. shipyards, to meet the requirement of the federal law for U.S.-bottom vessels, but then send the unfinished ships to foreign yards to have their “innards” installed at lower cost, Heinze said. Terminal site at issue Resources Committee members also heard and held Senate Bill 247, which would amend statute to allow the authority to consider running its pipeline to Cook Inlet instead of Valdez. Kenai freshman Sen. Tom Wagoner introduced the measure and said it would ensure that the authority considers all options for its LNG project.
“This amendment is not against the will of the voters” who approved the initiative for a Valdez project, Wagoner said in a sponsor statement. “Rather it is a protection of the voters’ interests by expanding the project description to determine the most economical project.”
He also presented the committee with a resolution from the Kenai Peninsula Borough assembly, approved just one day earlier, supporting the bill and calling on the authority to compare the economics of both routes.
Extra work for the authority would cost more money, Heinze told the committee.
Gas authority board member Scott Heyworth, sponsor of the citizens’ initiative, said the legislation is unnecessary because the law already requires the authority to study a possible spur line to the Cook Inlet distribution grid from its main line to Valdez.
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