Giessel sees opportunity in LNG project

Anchorage senator serves on Arctic Policy Commission, would like to see Alaskan chair Arctic Council when US heads it in 2016

Steve Quinn

For Petroleum News

Sen. Cathy Giessel gets first crack at Gov. Sean Parnell’s gas line bill. As chair of the Senate Resources Committee, Giessel will have held the first hearing on Senate Bill 138 on Feb. 7.

Prior to that, the Anchorage Republican held overviews on two non-binding agreements between the state, North Slope leaseholders ExxonMobil, BP and ConocoPhillips, pipeline company Trans Canada and the Alaska Gasline Development Corp. The first was a memorandum of understanding, MOU, and the second a Heads of Agreement, HOA.

Giessel’s handling of SB 138 was also timed with the release of a preliminary report released by the state’s Arctic Policy Commission.

Giessel sat down with Petroleum News to discuss her views on the report and SB 138.

Petroleum News: Let’s start with the Arctic Policy Commission’s preliminary report. The report seems to be an aggregate of recommendations. What do you want federal regulators to do with this report?

Giessel: This is preliminary. The commission is in place until January 2015, so we have another year to work on it. We recognize that it is not complete. My team took up a second portion of this report, and that was oil spill prevention and response, and we didn’t do that until October. So you can see it was a very short timeframe to put anything together. That section will get a lot more attention this coming year. We will refine recommendations. The goal of this report is to advise and guide the federal government as they write Arctic policy.

Right now we’ve seen about six different reports come out in the last year from the federal government. They are extremely broad and high level. In some cases, they are a little misinformed. We recognized that if we don’t speak up, that will be the Arctic policy.

We need to help them hone in and help them clarify, making it something that is really applicable and reflective of Alaska. A lot of those folks writing those reports have never been here. The U.S. takes up the chairmanship of the Arctic Council in 2016. We would like to see an Alaskan the person who is holding the gavel in that role. Just as Canada, which has the chairmanship now, has a Canadian First Nations person (Leona Aglukkaq, an Inuk from Nunavut) holding their gavel, we believe an Alaskan should hold the U.S. gavel.

The federal government doesn’t seem recognize that we have a process in place that has been working and actually I understand that federal regulators came and sat in on one of our DNR-DEC-Fish and Game meetings. They have weekly meetings where they collaborate and talk about permits, problems with the permits and what they want to improve. So federal regulators sat in and were very impressed.

This is basically a case of speaking up or not being heard, right?

Petroleum News: You noted the oil spill prevention and response, with Shell trying to get back on a schedule for exploration, is there a connection between future exploration and this segment?

Giessel: The oil spill prevention and response chapter wasn’t intended to address specifically a particular company’s project. It’s more globally how are we as a state prepared to respond to an incident. We have Alaska Clean Seas, but that is still kind of limited. We have our oil spill prevention and response fund in the Department of Environmental Conservation that is responding to the various smaller spills, but we really haven’t addressed how we would manage something larger.

One of the things that we are aware of is that when industry is present offshore, they bring with them the infrastructure, the vessels, and the trained personnel to respond to these different kinds of incidents. It actually brings a positive to the communities around that area in a bigger way. By this I mean when Shell’s vessels are present and there are vessels navigating through the Bering Straits, referring to those as innocent vessels, if they have an incident, having a company like Shell present with response vessels actually protects us — because we have no Coast Guard up there. It’s a positive thing. It’s a comment that (former state Rep. and current Northwest Borough Mayor) Reggie Joule made at PNWR last August that they actually bring a safety net with them. It’s a very insightful comment. We can rely on industry. We have to have a Coast Guard presence. That’s another key talking point you’ll see in the commission’s report, urging the U.S. to ramp up our Coast Guard and our icebreaker response capabilities.

Petroleum News: All right, getting back to having someone from Alaska take the lead when the U.S. chairs the Arctic Council, who would you have from the state in that role? One of the co-chairs?

Giessel: I’m not going to name names. I think we’ve got a lot of Alaskans who have been working on Arctic issues and are very knowledgeable about Arctic issues and have a global perspective as well. I’ll leave those unnamed, because I don’t want to leave someone out inadvertently. I think we have at least five people right off the top that I could name who could fill that slot in a very credible way.

Petroleum News: What else do you believe you folks achieved either through this report or your meetings last year?

Giessel: I think that it was a great opportunity for lawmakers — there are 10 of us on the commission — to get to sit in listening sessions with rural folks in those rural communities. That’s not something we get to do a lot. A surprising time was in Barrow when several folks — former Mayor Edward Itta being one of them — came forward, and I’m paraphrasing, of course, and said, we are good with resource development in that area. We hope we are able to stick a straw in ANWR and pull out oil. We are a little uncomfortable about offshore. We think more work needs to be done as far as protection of the environment, but let’s open up ANWR. That was a surprise to me, but one I was happy to have heard. It wasn’t just Mayor Itta. It was others.

Petroleum News: OK, still on offshore drilling. What are your thoughts on the 9th Circuit Court’s decision critical of the government’s lease sale, which led Shell to postpone this year’s drilling season?

Giessel: I was disappointed. Shell has done remarkable work on the Arctic. They have been collecting a tremendous amount of data that the Coast Guard and federal government did not have about the environment, on the ocean floor and the area. Temperatures, ice thickness, all of this information the federal government didn’t even have. I think they are very prepared to go forward with drilling, so it’s disappointing to me when the third branch of the federal government (judicial) steps in and makes decisions about our resource development. I’m thankful that Shell seems to be willing to persevere. Five billion dollars spent so far in more than five years. I’m thankful they are willing to continue. Of course they have a global portfolio and they have spent a tremendous amount of money so far, so I can certainly understand you have to make a fiscal decision.

Petroleum News: Now closer to your job. What are your first impressions of SB 138?

Giessel: At this point we have not done a sectional analysis — formally. I’ve certainly read through it. I’ve talked with the three producing companies, TransCanada and Dan Fauske, the executive director of AGDC. I’m very encouraged. I think there has been a lot of hard work, negotiations, give and take. I think this is a tremendous opportunity for Alaska to get our gas developed in a way that allows us to benefit much more than we did with the oil pipeline.

Petroleum News: You weren’t around for the Stranded Gas Act or AGIA. So what is your approach? Do you delve into a historical understanding or do you go at it with a different lens and treat this on its own merit without a look back?

Giessel: First of all, I would modify your statement. I was around for the Stranded Gas Act and AGIA. I was a citizen and have been my entire life, so I watched this as a citizen. The Stranded Gas Act was much different than this. AGIA also was much different. The commercial conditions those two were developed under were very different than today. I think there is window of opportunity right now for our gas. We see it in the contracts that will be expiring in 2020. We see it in the timing for the Point Thomson agreement and the requirements that Exxon has to commercialize that gas by 2019. All of those things are going to make this a significant opportunity that we want to take advantage of. What’s more, Alaskans want something to move forward.

The past two years, the House Majority has done some pretty careful polling. It’s interesting to look at citizens’ response to the idea of going forward with developing our gas. It’s 60 percent to 70 percent of responses saying let’s get this done. At 70 percent, they are saying let’s use state funds to get this going. That’s essentially what HB 4 did last session, getting AGDC moving forward and this bill, this negotiation that’s gone on actually takes us to the next level in accomplishing what Alaskans want to get done.

My friends and family in Fairbanks are very decisive about this. We need to get gas moved from the North Slope. Trucking is a good stopgap measure, but really the way to ship gas is by pipeline. It will bring in the lowest cost to Fairbanks as well as other areas of the state. In Southcentral, we have the wonderful opportunity that Hilcorp has presented to us as well as Cook Inlet Energy by finding more gas in the Inlet to the point that even the Agrium plant is considering reopening. That’s excellent. Conoco has asked for a renewal or reinstatement of the export license of natural gas.

Those are all great, but Hilcorp’s sale of gas to the utilities in Southcentral only goes up to 2018. I’m hopeful they will find more and more economic gas in Cook Inlet, but at the end of the day, we’ve got a lot of gas on the North Slope that we need to bring down to Alaskans, not just down the corridor but as we get it to the export facility we have the opportunity to put it on ships and get it to our coast communities as well.

Petroleum News: Do you have any concerns about the bill right now?

Giessel: You know we haven’t delved into it deep enough to identify specific concerns at this time. Looking through it and looking through the MOU and HOA, these seem like pretty solid documents. There are no details written in concrete. This is a very broad plan to go forward to pre-FEED. When we finish that early engineering and environmental work and we get down to the decision to do yet more detailed work that is going to come back to the Legislature. So we are going to have several decision gates to go through. So this broad plan seems pretty solid to me, but we’ll dig through it further.

Petroleum News: There seems to be a concern on both sides of the aisle and that’s this is presented as a take it or leave it. What are your thoughts on that?

Giessel: That’s a discussion we’ll have with the panel of the three producing companies, TransCanada and AGDC. If we change elements of this, what will it do to your negotiations? I suspect it will be, they’ll have to look at it again. This is not something that happened in a week. They wrestled with this for the last year. They’ll have to reevaluate anything we would change. I’m not sure what folks think needs changing. That’s the discussion we’ll have to have.

Petroleum News: What is your timetable for the bill?

Giessel: I’m not going to rush this through because we all have questions. There will be a point where frankly our questions have been answered, the Finance Committee will have detailed fiscal questions to be asked and they’ll need to have time to review those as well. I’m hoping the House will continue to move forward in their Resources Committee. Of course, then it’s referred to Labor and Commerce. So it’s moving along on that side, too and questions are being answered. I learned a lot from watching other committees so it’s helpful that we are doing this together.

Petroleum News: Many of your hearings have provided overviews in advance of the bill. That included a presentation from Exxon. What were your impressions?

Giessel: I appreciated when he talked about the arc of success and the three points that lead to a successful project: maximizing alignment; decreasing risk; decreasing costs. So he really painted that picture of his objective for that project. On the macro he went through where they are on each segment of the project. On Point Thomson they have lots of facilities in: ice roads; air strips; vertical support members for the pipeline. On the gas treatment facility, he talked about how more detailed engineering identified cost savings by reducing that treatment facility to only three trains. So already there is talk about cost containment. He talked about the export facility in Nikiski. They are working on acquiring land in that area.

These are signs to me that Exxon views this as a real project. Even the fact that they have a person of Steve Butt’s credentials and experience on this project says that yet again they view this as a serious project. One of the other things I appreciated Steve emphasizing was that, in his experience around the world, other projects like this around the world experience firewalls between each of these segments of the project. There is no coordination. This is an integrated project with coordination that will result in the most efficient project possible. These were strong positive points in my opinion. I appreciated the way he made a lot of the elements of this project so tangible, when he talked about the pressure that would be in the pipeline and it being similar to holding two Ford F-150s on the end of your index finger: Very tangible and understandable examples.

Petroleum News: TransCanada is still a partner. One of the criticisms is the company doesn’t bring gas to the table so they shouldn’t be a partner. Do you believe they should still be a partner?

Giessel: We need someone who can build a pipeline. I guess we could hire state employees to do that, but I don’t think it would have a very good outcome. I think we could enumerate several projects that didn’t turn out very well. We need someone who is a world-class company, who knows how to build pipelines, who knows how to build pipelines in our Arctic environment and through mountain ranges, someone who knows how to on time and on budget. Interestingly we are proposing becoming part owner of that pipeline. So that changes the economic outcome significantly, first of all making it more economical. Also, back when TAPS was built, you can remember that Gov. Egan was very adamant that Alaska should own the pipeline. At the end of the day, he was overruled on that. He kind of lost the argument there. This is our chance to own a portion of the pipeline, therefore, the economic upside. So I think it’s a great opportunity. The fact is the state of Alaska does not have the expertise to build a pipeline ourselves. We need a company who can do that.

Petroleum News: Still on that argument, those who believe they shouldn’t be involved, say the producers can build the infrastructure. What do you think?

Giessel: This will be a great question to ask in committee. I’ve asked the producers that question. Their answer has been this is not our expertise. I think this is a question they will have to answer on the record. It makes sense to me. I’m a health care provider. I know what I know. I also know what I don’t know. That’s a very safe thing for my patients because I know what I don’t know and where I need to send them for more expert information. The same concept applies here.