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Democrats jump into LNG fray Legislators want special session; support gas authority push into LNG Larry Persily Petroleum News Juneau Correspondent
Although the Alaska Natural Gas Development Authority has found legislative support for its rush to enter the liquefied natural gas business, the early backing is from the Democratic minority of the Legislature — where Republicans have a 2-to-1 majority.
“It’s become a partisan issue,” said Rep. Jim Whitaker, a Fairbanks Republican and longtime supporter of Alaska’s potential entry into world LNG markets. And because it is seen as partisan, Whitaker said, he expects the Democrats will fail in their request that lawmakers call themselves into special session to deal with the issue.
Whitaker, however, said he would vote in favor of the special session.
House and Senate Democrats signed a Sept. 15 letter to House Speaker Pete Kott and Senate President Gene Therriault, asking that the presiding officers poll lawmakers on whether to call a special session on natural gas for early October.
The Democrats want lawmakers to consider the state gas authority’s request for more money for planning and design work on a $12 billion project to pipe North Slope natural gas to Valdez, where it would be liquefied and shipped aboard a fleet of LNG tankers to the West Coast. The authority says it needs to move quickly to show potential customers that Alaska is serious about entering the LNG business.
The Democrats’ letter said a special session also should consider whether legislation or resolutions may be needed “to expedite the sale of Alaska’s natural gas.” Sempra is the catalyst Special-session supporters said the state must respond quickly to Sempra Energy’s request that the state get serious about trying to put together a formal contract with the company or give up on landing the contract to supply LNG to the San Diego-based company’s proposed West Coast terminal.
Although the Democrats referred to Sempra’s “offer to purchase North Slope natural gas,” there is no written offer and a company official said the state gas authority would have to assume the price risk in supplying LNG.
Kott said he would start polling his members the week of Sept. 21, though he does not expect the required two-thirds majority of the House and Senate would vote for a special session. “Personally, I think it’s premature,” said the Eagle River Republican, adding legislators need much more information before getting together.
Therriault, a North Pole Republican, said in a prepared statement he would begin polling his members after getting more information from the gas authority on the need for a session. If the only purpose of the session is to find additional funding for the authority, he said, that could be done to some extent from existing sources without a special session.
As for calling lawmakers back to Juneau to discuss a deal with Sempra, Therriault said it is unclear — lacking a defined proposal from Sempra — what special-session supporters want the Legislature to consider. Legislator tired of waiting Supporters of the special session said it’s more than just more planning money for the gas authority. It’s time to take action, said Rep. Eric Croft, the leader of the effort. “I’m tired of waiting for 30 years without playing. I want to play,” the Anchorage Democrat said, referring to Alaska’s long wait for major North Slope oil and gas producers — or anyone else, for that matter — to build a pipeline to move the region’s vast natural gas reserves to market.
“Let’s think outside the pipe a little bit,” he said. “I’m tired of waiting on Congress.”
Gov. Frank Murkowski and the producers are waiting to see if Congress includes as part of a national energy bill sufficient tax credits and other incentives for an Alaska natural gas pipeline stretching from the North Slope to Alberta, where the line would connect with the grid to Chicago and other North America markets.
The Murkowski administration favors the $20 billion, 4.5-billion-cubic-foot-per-day pipeline to mid-America over the smaller 2 bcf per day LNG project, as do the major North Slope producers.
“Why in the hell would we preclude either option,” Whitaker said, stating his belief that there is enough North Slope gas to supply both an LNG project and a pipeline to mid-America. Whitaker critical of politics The three-term House member said the major producers exert far too much influence on Alaska politics, including the governor’s office.
The call for a special session is the latest in a long series of public debate over the state writing the checks and taking the risk of building, owning and operating a pipeline to Valdez to sell LNG to California or perhaps East Asian markets. The most recent round started when voters last fall approved by an almost 2-to-1 margin the creation of the Alaska Natural Gas Development Authority, with the job of determining whether such a state-owned venture would be economically feasible.
Though supporters of the ballot initiative wanted $3 million for the authority’s first year of operations, legislators and the governor gave the board just $150,000. Whitaker, a strong supporter of the initiative, had tried to get a $1.5 million appropriation but was overruled by his colleagues.
Murkowski waited until June — seven months after voters approved creation of the authority and three weeks after the legislative session adjourned — to name its seven board members.
Then, in August, the authority’s chief executive officer, Harold Heinze, announced Alaska had a chance at supplying LNG for Sempra Energy’s proposed terminal on Mexico’s Baja Peninsula. The terminal, scheduled to open in 2006 or 2007, would supply gas to Southern California.
Although there is a long list of obstacles to overcome, the state gas authority — and some legislators — believe Alaska should try for the Sempra contract, which means spending money on planning and cost estimates to determine if the state can supply gas at a competitive price. Alaska an underdog for contract Sempra, however, has been honest in telling Alaska it is an underdog in the race for the supply contract. The company is talking with several other potential suppliers, none of which need to construct an expensive 800-mile pipeline through the arctic to bring their gas to tidewater.
“If I had to guess I’d say Sempra is trying to see whether we’re real and trying to use us as bargaining against Indonesia or other players,” Croft said. “You’re right, it’s probably a long shot,” he said, but adding that Alaska could gain experience by joining the bidding for the Sempra contract.
In addition to needing a long pipeline, the gas authority also would need a fleet of U.S.-flagged tankers to carry the LNG to the West Coast. It’s been 20 years since a U.S. shipyard has built an LNG tanker, and industry officials say it could take five years to design and construct the ships. The authority also would need to find financing for the entire project, estimated at about $12 billion.
The authority has the power to borrow money, and Croft suggested it could issue revenue bonds for 70 percent of the cost and repay the debt with proceeds from the operation. The other 30 percent, he said, could perhaps come from state general obligation bonds, which would require a vote of the public and would be repaid from future state revenues.
The authority also would need to strike a deal with North Slope producers to sell their gas production to the state for resale to Sempra or to sell directly to Sempra.
Croft and Heinze agree it’s likely the state authority could not be ready to supply Sempra by its 2007 in-service date, in which case the authority could buy LNG on the world spot market to fulfill its contractual obligations to Sempra until Alaska could supply its own gas.
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