Joe Thomas takes the long view

Fairbanks Senator wants targeted North Slope incentives, calls for aggressive approach on in-state gas line and Susitna River hydro

Stefan Milkowski

For Petroleum News

Sen. Joe Thomas of Fairbanks joined the Alaska Senate in 2007, landing a spot on the Finance Committee as a freshman legislator. He continues to hold that seat while also serving as co-chair of the Senate Education Committee.

Thomas, a Democrat and retired union leader and laborer, has made energy policy a focus. An early proponent of a Susitna River hydroelectric project, he helped win legislative support for dusting off old studies and moving the project forward.

This summer, Thomas was one of a dozen lawmakers traveling to Norway for a weeklong policy tour. At home in Fairbanks, he’s been preparing for another legislative session likely to be dominated by oil and gas issues. Thomas is no fan of Gov. Sean Parnell’s oil tax proposal, but says he is open to new incentives that reflect the changing nature of the North Slope development.

Petroleum News spoke with Thomas on Oct. 24.

Petroleum News: I gather you’ve been studying oil and gas markets around the world. What are you learning?

Thomas: I like to take a look at them. I don’t claim to be an expert on any of it. What concerns me is the changing nature of things, particularly the price of oil from the North Slope and its relationship to WTI changing somewhat dramatically around the beginning of the year. We’ve been about $20 over them, and we used to be fairly equal or a little below. And I really don’t quite understand what’s caused that change.

Petroleum News: That means Alaska ends up with more tax revenue, but it’s harder for producers to sell their oil?

Thomas: Well, I think they kind of control the market on the West Coast. It does mean more revenue for the state, but it might also be considered an artificial price. If we were down where we were before, we would be almost in that range where most people agree progressivity and the oil tax is not that big a problem. We’d be in the $80-$85 barrel range, where the progressivity is a little lower.

We need to be looking at the situation and be cognizant of where we’re headed and that everybody would like to make a little more money when the prices are high.

Petroleum News: Is there anything the state can do?

Thomas: I think people are focusing on the problem. I’m happy to see that BP, ConocoPhillips, and Exxon are all becoming a little more available for comment on what would take place. The real critical thing to me is what would happen with a lowering of the tax. What projects are there — since we have so much discussion about throughput — that were on the books that may not be on the books now? What projects would they be following through with that would actually increase throughput?

Petroleum News: You’re getting a better sense of that now from companies?

Thomas: Actually, at the Alliance meeting in Fairbanks about a month ago, (BP’s) Claire Fitzpatrick actually mentioned some projects that were potentials, and I think that’s productive to the conversation. The idea that you just lower the tax and hope for the best is not a sound business decision.

Petroleum News: What are your thoughts on the governor’s tax proposal?

Thomas: I’m not a real big proponent. I think we need to focus more on what the industry actually plans to do. Most people agree the credits are pretty good for exploration, but they may not necessarily be for things like heavy oil — and that’s 16 billion barrels of oil.

There’s another 7 billion barrels of light oil, and the extraction of that heavy oil is related to the light oil. (BP) has a plant up there and it is producing and I guess it’s even had a little more success than they expected. But if they plan to mix that oil (with light oil) to raise it and transport it, the sooner we get a handle on that, the more heavy oil we will produce more easily. So if there is an opportunity to help with that, then I think that might be worthy of tax credits as well.

Petroleum News: Pedro van Meurs says Alaska’s tax credits are too high, and that the state doesn’t do enough to incentivize heavy oil and natural gas. Do you agree?

Thomas: Yeah, I think so. The Senate wanted to take a thorough look at it. They thought it was a little hasty to just rush through a tax bill (hoping) everything would get better. I think we need to take a serious look at it, and some of the discussion, the idea of comparing Alaska to North Dakota and stuff like that — it’s such a different situation that it’s a little unfair to do that. You’re comparing us to a state where there’s relatively flat terrain, railroads crisscrossing the countryside, oil and gas and product pipelines.

You have several new players at Prudhoe Bay, which I think will be helpful. As we look at development at Prudhoe Bay, and what the new folks are doing, and the smaller fields coming online — even the big three admit that those smaller companies are better suited to that kind of development.

Even though Pioneer, Repsol, and ENI are big companies, they’re still relatively small. But I think those people will be the developers that hit those smaller pockets.

Petroleum News: Do you have ideas for incentives for heavy oil?

Thomas: I wish we’d put more money towards the development of the process in an Arctic climate. There’s lots of heavy oil around the world, but in many places, they’re steaming it, and that’s probably not practical at Prudhoe Bay.

There are other things I think about, but I’m not sure how practical they are. I’d rather listen to the (industry) experts and see the projects that Conoco, BP, and Exxon would like to move forward with.

Petroleum News: Do you think the tax rate is too high?

Thomas: I don’t know that it’s necessarily too high because there are a lot of other places in the world where the taxes are similar. The credits do make quite a difference.

They do a lot of upfront investment in Norway. They do seismic, which is helpful, and then they stay invested. I think it would be better for us to be more of a partner with the industry. If we’re simply a regulator and a recipient of royalties and taxes, then I think we don’t have as close a tie to the industry and the resource as we should have.

Thomas: Yeah, I think that’s important. In (Norway’s) case, with their partnering with other people and having their own oil industry, they’re injected in the process from beginning to end. It doesn’t mean they cast environmental issues aside, but they know what they’re doing and they move forward.

Petroleum News: At the Alaska Stand Alone Pipeline meeting this month in Fairbanks, you seemed worried that a gas find in Cook Inlet would leave Fairbanks without a gas supply. What’s your concern there?

Thomas: I’m concerned that if the purpose of a gas line is more to make sure Southcentral has a supply of gas, and if the jack-up rigs coming in to Cook Inlet find gas, will there be the same emphasis put on building a gas line from the North Slope to Southcentral? (If not), that should be part of the discussion. It would be a horrible thing to wait until 2015 or 2016 to find that out that’s the case, and, oh, now we’re not going to build this line.

Fairbanks and other parts of the state are waiting for cheap energy, which that gas could supply, (with) Anchorage saying, That’s fine, we’ve got our gas, why do we want to build an $8, $9, or $10 billion pipeline now?

I see it as an infrastructure project. It’s for the state of Alaska, plus export — probably a great deal of it to begin with and then slowly that demand would be soaked up in the state as you build a gas-to-liquids plant or you fired up more electrical production or sold gas to the mining and resource development folks.

I see it as an extremely important project either way. If the big line’s not going to be built because it’s challenged by gas outside Alaska, then we certainly need an in-state line that provides cheap space heat and power.

Petroleum News: It sounds like you want a commitment to go ahead with a gas line even if gas is found in Cook Inlet.

Thomas: That’s right. I would like to see that made based on a market, and I think we are not really looking for a market. There’s talk of coming from the East Coast of the United States to Japan. That’s three times further than from Valdez or Nikiski.

Petroleum News: Do you think the TransCanada/Exxon Mobil line under the Alaska Gasline Inducement Act (AGIA) has a chance?

Thomas: I think that one’s really in tough shape. There’s shale gas in Indiana, Michigan — everywhere surrounding that market.

Petroleum News: They did say they would go to Valdez if shippers wanted.

Thomas: I think ultimately it would have been good to change AGIA’s focus and get with TransCanada and have serious negotiations about building the pipeline to Valdez or Southcentral.

If we’re prepared to spend $8, $9, or $10 billion on a 24-inch in-state line, why not have those serious discussions with TransCanada and Exxon about building the line there?

Petroleum News: You’ve been a champion of a Susitna River hydro project. How’s the state doing there?

Thomas: I think they’re moving forward well. They did hire a project manager. I think that’s a big step forward. I encouraged that. They do need to hire up some expertise — the Alaska Energy Authority is a relatively small organization.

I hope they can speed up the timeline a little bit. I think they can, particularly if they get people in place that are focusing on that project.

Petroleum News: How would that project affect the economics of a gas line? Wouldn’t demand for gas drop considerably, making tariffs higher?

Thomas: I think the two almost complement each other. I see (Susitna) as the producer of electricity, because hydro is so much more efficient. We should use our gas for residential and commercial and industrial development, resource extraction.

I don’t think anybody’s going to do it for us. I think we have to take the bull by the horns and say, OK, we’re going to build these two projects. This is going to move us dramatically forward.