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Alaska gas authority needs answers Board short on money but not on questions about LNG project Larry Persily Petroleum News Juneau Correspondent
The Alaska Natural Gas Development Authority is trying to determine what key questions it needs to answer, whether other state agencies have staff to provide the answers and, if not, will the administration and Legislature find additional funding for the authority as it pushes ahead with plans for a state-owned natural gas pipeline.
Major questions include whether the authority’s income would be exempt from federal taxes, whether the authority’s bonds would be tax-exempt, how would tariffs be set for in-state gas distribution, whether the gas must travel aboard expensive U.S. tankers, and how much would the state benefit from the project to move 2 billion cubic feet or more per day of North Slope natural gas to market.
And if the state doesn’t have the staff to help provide the answers, some of the authority’s board members are growing impatient at the lack of financial support for their work.
“We’re getting strangled here,” said Scott Heyworth, a board member and principal backer of the November 2002 ballot initiative that created the gas authority. “We need our money.” CEO proposes board committees Harold Heinze, the authority’s chief executive officer, presented the board at its Oct. 21 meeting with a revised work plan and a suggested committee structure for board members themselves to start tackling the unanswered questions about the project, its costs, federal shipping and tax laws, a business plan and market opportunities for liquefied natural gas from Alaska.
“I’m not in favor of this,” Andy Warwick, board chairman, said of the committee structure. “I just don’t see this as going anywhere. … Most of the areas I see here are beyond the abilities of us as individuals,” Warwick said.
The authority doesn’t need board committees, he said, it needs sufficient funding to hire consultants for the work.
The Legislature appropriated $150,000 for the authority for the fiscal year that started July 1, with 60 percent of the money going to pay for Heinze and a part-time administrative assistant. The authority has no other staff.
Supporters of the citizens’ initiative that created the authority had asked for $1.5-2 million for the first year of operations. The initiative requires the authority to present a project plan to the Legislature by next summer.
The authority in late August asked for up to an additional $2.5 million in a special legislative appropriation before lawmakers return to session in January, though the authority later backed away from that request after receiving assurances that the administration and legislative leaders would help in finding whatever staff or funds might be available to assist with the work until the Legislature reconvenes.
Senate President Gene Therriault, R-North Pole, addressed the board by teleconference Oct. 21 and restated his support for some additional funding. He said he was scheduled to meet later in the week with the chair of the Legislative Budget and Audit Committee to discuss possibly using legislative funds to pay for a consultant’s study of in-state benefits from the gas pipeline project. The proposed study would go beyond tax and royalty revenues to include economic growth, job creation, energy availability and power costs.
The administration, meanwhile, likes the idea of the board setting up work committees, said Steve Porter, deputy commissioner at the Alaska Department of Revenue and liaison to the gas authority. For those areas where the board believes it lacks the expertise or time to answer the questions, he said, the authority needs to send a specific request for assistance to the administration.
In addition to the tax, business and in-state benefits issues already listed, Porter said he also believes the authority should move ahead with trying to determine how much it would have to pay North Slope producers for the gas. Can the authority get the gas? That’s the key to the whole process, said board member John Kelsey. “We’re assuming we could buy that gas. If we can’t, let’s go home.”
Much of the support for a state-owned natural gas pipeline comes from Alaskans’ frustration with waiting for North Slope producers to build a line to bring the gas to market. And although the state authority could issue bonds and build the pipeline, the state has no gas to ship or sell unless the companies go along with the plan and either sell their gas to the state or pay to ship it through the state pipeline.
The state would receive a 12.5 percent royalty share of whatever the companies produce on the slope, but that alone is far short of what would be needed to fill the authority’s proposed 2 bcf per day, $12 billion project.
Porter and Heinize were to meet again at the end of the week to work on drafting a detailed list of work projects and requests for assistance to send to the governor’s chief of staff. The chief of staff had sent the gas authority a six-page letter Sept. 15, asking for much more information on the authority’s plans before the governor could consider its request for additional funds.
Heinze told the board Oct. 21 he is getting close to finishing the response to Chief of Staff Jim Clark, and that he is waiting for board members to send him their comments on his latest draft.
In other action at the board meeting: Sempra report concerns board • The board reviewed an industry news report quoting anonymous sources that Sempra Energy and Royal Dutch/Shell had agreed to join forces for a 2 bcf per day LNG receiving terminal on Mexico’s Baja Peninsula to serve the Southern California market. The Alaska gas authority had been hoping to win the role as LNG supplier to Sempra’s proposed Baja terminal.
Officials of San Diego-based Sempra have not confirmed the report, and Heinize told the board he would continue calling the company for a status report.
Shell has extensive natural gas reserves in Australia’s North West Shelf and Russia’s Sakhalin II project, and could supply all of the gas for the joint operation with Sempra.
“It’s a surprise, but not necessarily surprising,” Heinze said of the reported Sempra-Shell venture, adding that even if Alaska loses out on the initial supply contract perhaps the state could get in line to supply LNG if the Shell-Sempra terminal expands. Adopts Yukon Pacific as ‘base case’ • In discussing what the authority would give consultants and others as a “base case” for discussions of the project, members voted unanimously to adopt the Yukon Pacific Corp. proposed LNG project as its own starting point.
“This way we define our project,” Heyworth said.
Board members agreed the Yukon Pacific proposal would at least provide consultants and others something to look at, comment on, amend and improve as needed.
Yukon Pacific has been unsuccessful in its 20-year effort to secure financing, gas supply and sales contracts to build a pipeline from the North Slope and a liquefaction terminal at Valdez to ship LNG to either the Far East or California. The company’s latest report, which was distributed to gas authority board members at the meeting, says the project could be economical at 2.2 bcf per day, splitting its deliveries between the West Coast and the Far East. Authority wants purchasing code • Board members also discussed the need to propose legislation next year that would exempt the authority from the state procurement code, especially for hiring consultants.
“We need to have a code … that would allow us to do the things we need to do,” Heinze said. “The procurement code doesn’t do that.”
State procurement laws require competitive bidding for most major consulting and professional service contracts, which the gas authority fears could cause delays as it moves to finish its work before the end of the next legislative session.
Heinze recommended the board look at drafting legislation that would exempt the authority from state procurement laws, and instead adopt its own policies. Seward makes pitch for work •The city of Seward proposed that the authority could bring steel plate from Korea to Alaska aboard empty ships coming to take on coal from the Healy mine at the Seward dock. The steel plates could then be made into pipe for the gas line project at a steel mill constructed at Seward.
And, to show the benefits of in-state LNG, the steel pipe mill could run on LNG brought over by tanker from the ConocoPhillips terminal at Nikiski, on the other side of the Kenai Peninsula.
The board took no action on Seward’s suggestion.
The city also presented information on its skilled work force and waterfront industrial facilities that could be used in fabrication of project components.
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