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Is All-Alaska gasline initiative good or bad for Alaska? Proponents view project as economic boost for state or possible catalyst for other North Slope gas projects; state says project distraction, would be drain on state funds Kristen Nelson PNA Editor-in-Chief
Is there a role — other than that of landowner, lease seller, regulator and tax collector — for the state of Alaska in the development of North Slope natural gas?
Alaska voters will have a chance to express their opinions Nov. 5 when they vote on whether the state should own a gas pipeline project.
The “All-Alaska Gasline Initiative,” ballot proposition No. 3 on the general election ballot, would establish an authority to buy North Slope natural gas, build a pipeline to Valdez and sell the gas as liquefied natural gas.
Proponents and opponents discussed the initiative Oct. 15 at an economic forum sponsored by the Anchorage chapter of the International Association for Energy Economics.
Scott Heyworth, initiative sponsor The initiative will do something that has never been done before, said Scott Heyworth, the proposition’s chief sponsor: It will offer Alaska natural gas to the market.
If you think the oil companies are looking out for the interests of Alaska, vote ‘no,’ Heyworth told the audience. But, he said, if you think we should look out for our own interests, vote ‘yes.’
Heyworth said he wanted to debunk three myths about the authority: it will not, he said, be a threat to the permanent fund because the credit of the state is not pledged; it will not cost $250 million for startup, just a few million for negotiators to buy the gas; and it is economic, as demonstrated by Yukon Pacific Corp.’s economic model. The real problems, he said, are with the Alaska Highway project.
Heyworth said that in addition to selling liquefied natural gas to the Far East — the main goal of the initiative — having a gas pipeline to Valdez would provide feedstock for a petrochemical industry in the state, the products of which could then be shipped south in containers which leave the state’s ports 90 percent empty after bringing goods north.
No Alaska hydrocarbons should be allowed across the Canadian border, he said, because they will just be used to feed the Alberta petrochemical industry.
State can’t afford it Larry Persily, deputy commissioner of the state Department of Revenue, said the initiative is well intentioned but ill conceived, and would be a distraction to and in conflict with ongoing efforts to commercialize North Slope natural gas by a pipeline to the Lower 48.
Persily said the cost of the money needed for any project is based on risk: it’s business, it’s not social policy, he said. State ownership of the project does nothing to reduce the risk, he said, and taking this project to the market would be asking the same pool of investors to lend money for a project they haven’t supported as shareholders in major companies.
He also said the state doubts that anyone would loan money on the project without the owner making a sizeable equity investment. Where, he asked, would the state get the money for an equity stake in a $12 billion dollar project? And where would the gas be sold with a large volume of gas on the Pacific Rim that doesn’t need 800-mile pipelines already competing for market?
LNG project not economic George Findling, formerly on the Phillips Alaska Inc. gas commercialization team and now with ConocoPhillips in Houston with responsibility for Alaska gas, said ConocoPhillips is focused on a pipeline to the Lower 48 rather than an LNG project. There’s history behind that focus, he said: the companies which now form ConocoPhillips Alaska — Phillips Petroleum and ARCO Alaska — have sold LNG to and studied the Far East market.
Findling said company studies found the Pacific Rim market “vastly” over supplied with natural gas, with supply currently standing at about two times demand. And an Alaska LNG project was found to be about twice as expensive on a per unit basis compared to competitors. The problem, he said, is the 800-mile pipeline to tidewater. Findling noted that BP’s new Indonesia project had to penetrate new markets in China to be commercial.
Alaska’s producers see the Lower 48 market as a better solution, he said, especially since gas shortfalls are projected for the Lower 48.
Economics and politics must mix Rep. Jim Whitaker, R-Fairbanks, said that while economics and politics probably don’t mix perfectly, they must mix in 21st century Alaska. Both economics and a gas purchaser are required, he said: Nobody is talking about building it and they will come. Proposition No. 3 is part of the political process: studies show the project can be done and the initiative suggests we test the project in the market, he said.
The state owns the gas, Whitaker said, and is required to achieve maximum benefit for its citizens while the producers have divergent economics compared to the state.
State ownership eliminates federal taxes on revenues, and if structured correctly this project would bring revenues to the state and provide pipeline access to companies who do not currently have North Slope natural gas discoveries. Whitaker said he thought it worthwhile to take the notion of state ownership to the market.
Permanent fund as equity? In response to questions on state equity in the project, Whitaker said that if the state had to come up with equity for a project he couldn’t think of a better investment for the state’s permanent fund than a pipeline. Heyworth said he believes the project can be financed 100 percent with debt. But, he said, should equity be required, Native corporations, construction firms and gas purchases are the entities which should provide that equity.
The Legislature would have to fund the gasline authority if the initiative passes.
Asked if the Legislature would provide that funding, Rep. Whitaker said that anything could happen, but if the initiative passes, he said, the Legislature has to take it seriously.
Heyworth said he has talked to a number of legislators who have said that if it passes they would move to fund it.
Persily that he thinks it will pass, that the Legislature will fund it if it passes overwhelmingly, providing enough money for an office and staff, but he also said he believes that the authority will die away in a couple of years.
A spoiler? The authority which this initiative would create would have to negotiate with the producers to buy natural gas. Findling said ConocoPhillips would negotiate in good faith to sell natural gas to a viable project. Heyworth was asked what would happen if producers said an offer to buy gas was too low and refused to sell? He said it would be a political and public relations disaster for the producers if they wouldn’t negotiate, but, he said, it might go to litigation. “We must get our gas back,” he said.
Heyworth was also asked if a reference to eminent domain in the proposition meant that the authority would move to condemn the gas if it couldn’t reach a negotiated price with the producers. He said eminent domain was a possibility, but he pointed out that it would happen because the producers don’t want to sell us our gas.
But, Heyworth said, eminent domain in the proposition refers to land acquisition.
In response to a question about two years being lost due to the authority, Whitaker said the authority was a catalyst: not something to stop the project, but a statement that either you do it or we will. Heyworth predicted a two-year delay of there are gas provisions in the U.S. Energy Bill, saying the oil companies will study it again — that’s where the two-year delay will occur, he said.
Role of Yukon Pacific In response to questions about the meaning of Yukon Pacific Corp. having “pledged” its permits to the project, Heyworth said that while there was nothing in writing, Yukon Pacific had testified before the Legislature that it would make its permits available to the authority. No price had been set, he said, that would have to be negotiated.
But, he said, most of the engineering has been done: this project doesn’t need a feasibility study, it just needs to go to the markets.
Paul Fuhs, speaking for Yukon Pacific, said the company has not taken a position for or against the proposition, but is willing to work with anyone, willing to negotiate with anyone who wants to move the project forward.
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