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Gas still an issue Gov. Walker vetoes HB 132; enalytica cites disadvantages of competition Kristen Nelson Petroleum News
Gov. Bill Walker did what he said he would do - vetoing House Bill 132, which would have limited use of funds allocated to the Alaska Gasline Development Corp. for a study of enlarging the Alaska Stand Alone Pipeline project to a size competitive with Alaska LNG, the project in which the state is an equity partner.
“This veto in no way means the end of discussions with legislative leadership,” Walker said in an April 17 statement. “We continue to have multiple meetings to ensure AKLNG is successful and remains the priority while maintaining access to a backup option.”
Although the Legislature met April 19 in joint session to vote on the governor’s appointments, it did not take a vote on overriding the veto, and had no further joint sessions scheduled when Petroleum News went to press April 23.
In an April 18 press availability the governor said legislative concerns may be that his intentions “are to in some disrupt what’s been put in place.” He said his desire is to take an in-depth look at AKLNG, which as he has said before, he thinks that will take about 45 days.
The governor said it may be possible to make changes in the joint venture agreement to take care of his concerns.
And he said he won’t aggressively move on a backup plan until after the review is completed. Walker said he would brief legislative leadership on results on the review, in fact, he said, he would sit down with them during the review to provide updates. He said he expects a written report on results of the review, with care taken not to violate confidentiality. Walker also said he expects the document will become public.
Discussions with leadership would involve an explanation of his concerns and how they can be fixed, he said.
The governor said that as the project moves into the negotiation phase this summer he will make sure the terms negotiated are good for Alaska. Negotiations will include taxation and gas balancing agreements, Walker said.
The enalytica view Senate Resources got an end-of-session update April 16 from the Legislature’s consultants, Janak Mayer and Nikos Tsafos of enalytica, with a focus on risk analysis for LNG projects. In a presentation prepared for the committee, the men discussed five aspects of the projects: Will the gas supply be reliable? Are the sponsors credible? Is there stakeholder buy-in? Does the ecosystem support development? And, is the project commercially viable?
The AKLNG project got high marks - four green lights and one yellow light, with that cautionary note being on whether the project is viable, since the cost is still in a wide range, $45 billion to $65 billion.
An alternate project, “Plan B,” got one red light, two yellow lights and only two green lights.
Because Plan B does not involve the producers, the issue of reliability of a gas supply got a yellow light. Plan B also got a yellow light on commercial viability for the same reason as AKLNG: The project cost is not known.
Plan B got a red light on sponsor credibility, since potential sponsors mentioned for an alternative project - such as Japanese utilities - do not include sponsors with successful large LNG project experience.
Since the state would presumably support Plan B it got a green light on stakeholder buy-in. And a green light on does the ecosystem support development, which involves issues such as can the government manage approvals, is there a physical risk to the infrastructure and is there existing infrastructure and a strong labor pool.
Problem with concurrent projects But red lights dominated when enalytica did a risk analysis on concurrent pursuit of the projects, with that labeled as problematic. In general, the men said, the AKLNG partners are unlikely to continue spending at current levels without state commitment, the state would need more resources to advance both and would also need to balance between the two projects.
It would be hard to secure regulatory approvals for two projects at the same time from the Federal Energy Regulatory Commission and the U.S. Department of Energy, enalytica said, with parallel community engagement creating confusion and complications.
Competition between the projects for technical and design work would likely raise costs for supplies and labor, with asset and intellectual property ownership issues dictating independent efforts.
On the market side, enalytica said buyers would be “very suspicious” of the same gas being marketed by different projects and said it would be difficult for the state to sign firm sales contracts while gas ownership remains unclear.
Likely partners would be different - partial investors vs. project sponsors - and, enalytica said, a project owned by the buyers would be an atypical project structure. There are almost no large projects where large resources are sold at the wellhead, they said.
As for financing, those discussions are unlikely to advance very far until other risks have been mitigated, and lack of clarity on financing will limit the ability to advance with investors and buyers.
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