McGuire focuses on Alaska’s Arctic role

Anchorage Republican wants to see public-private infrastructure development to allow state’s economy to grow based on its location

Steve Quinn

For Petroleum News

Alaska Sen. Lesil McGuire says she is relieved the oil tax debate is of the past and is encouraged by progress being made toward building a natural gas pipeline and LNG export facility.

With those items off the lawmakers plate - at least for the upcoming session starting January - the Anchorage Republican believes the focus should be on the Arctic, be it policy, research, resource development or a broader economic development.

McGuire is co-chair of the state’s Arctic Policy Commission, which has one more meeting in November before finalizing a report for the Legislature in January.

McGuire says the work shouldn’t stop with the report. Rather, it’s a chance for Alaska to establish itself as a leader before the United States becomes chair of the Arctic Council in April.

McGuire gave Petroleum News a look back and a look ahead on all of these topics.

Petroleum News: Let’s start with a look at what’s happened during the interim dovetailing off legislation, with oil tax issue off the table for the foreseeable future, so you think the Legislature can move forward unencumbered?

McGuire: Yes I do. I was one of the lawmakers fairly active in the dialogue encouraging Alaskans to allow SB 21 to move forward. I talked openly to Alaskans about the fact that ACES had seven years to move forward and had been unsuccessful in the goal of creating a competitive environment for Alaska to reassert its place as one of the leading regions to invest in oil and gas projects. I was thrilled to see that Alaskans - albeit narrowly - put their trust into the legislative and executive branch.

You will continue to see with every move by the companies there will be an interpretation by both sides. I hope there will be a settling here in the next couple of years that ultimately benefits Alaska. It’s been my premise that the more profit any government takes from any business - whether it’s an oil business or a tourism business or a business that grandma has in arts and crafts - the less opportunity that business has when competing against others. The less competitive it can be in the global market place.

So my hope is SB 21 will move forward and continue to bear fruit and take us into the next 50 years of success in Alaska’s economy. Part of the message that I was trying to get forwarded is, it’s not just important for the oil left to recover in the Arctic and the mainland area with heavy oil and shale, but it's also important in natural gas. The signals that you send to places like Japan who are looking to us for the next 20 or 30 years of their country’s energy security is very important.

Right now our government is sitting down with them actively in LNG negotiations. In the wake of their natural disasters, they are trying to find some energy security. If that vote had gone the other way, it would have been difficult to explain to the leaders of their country about how we make decisions. That’s an important thing as a leader in the energy sector.

Petroleum News: You have the competitiveness review board, which was a priority of yours. What value can it bring to the state as it monitors any success SB 21 has moving forward?

McGuire: My hope is that it will bring a lot of comfort, education and information to the dialogue moving forward and raise the level of trust between the oil industry and Alaskans. I brought it up with a lot of Alaskans I talked to as an important topic that was missing. This competiveness review board was modeled after the exact conversation that Alberta had with its people, its elected officials, its industry when they adopted a similar taxation policy as oil prices rose to $147 a barrel globally. Their elected officials also enacted a windfall profits tax very similar to Palin’s ACES policy. It backfired with industry. What happened was industry pulled up stakes and moved to Saskatchewan. Alberta formed a competitiveness review committee right away to assess what they could do to their industry alongside reducing the taxation to more competitive levels.

So I think this will be something that will be enduring and a part of Alaska’s policy making that’s been missing. If we want to be the very best - right now we are No. 4 in the U.S. scheme - at oil and gas economics, and attracting those companies, you ought to know what it means to be the best. It’s more than fiscal policy. We’ve tasked this group the first year with looking at regulation. We want to find out how long does it take to permit a well. We’ve heard complaints that it takes a lot longer than Texas, a lot longer than California, a lot longer than North Dakota. If that’s true, then by how much and what are the hang ups? Is there an opportunity to create a better system that is still environmentally sound?

Then there are access issues. We’ve heard some independents, who were also for SB 21, have said that getting access into the Prudhoe Bay unit area has been a challenge. Let’s find out about that. I think having the competitiveness review board report back to the Legislature is very important. My frustration has been that we have addressed oil and gas taxation issues through a political lens. That’s unhealthy. So having a commission that’s tasked to show us how does Alaska want to position itself to be the very best most competitive place with our best partner - our best partner - that has paved the way for new schools, PCE opportunities for rural Alaska, new roads, new fire stations. All of those things have been made possible by the partnership with the oil and gas industry. That’s a fact.

Petroleum News: On to other legislative follow-up, what are your thoughts on the LNG export facility and pipeline developments since adjourning? Is this the progress you hoped for?

McGuire: I am excited. They are in pre-FEED (Front End Engineering and Design). In my 14 years, this is the furthest we’ve come. I said this during a couple of the final hearings and I think you’ve finally seen as good as a balance as you’re going to get. If I were to have a blank sheet of paper and I were able to write out what I would like to see for a project what would it look like, number one I would like to see Alaska have an equity share. Ten years ago, I don’t think that was a good idea politically. I remember discussing the idea and having constituents coming back at me and saying, “What do you think this is, Lesil? Russia?”

I think that we’ve come a long way in our thought process. Alaska having an equity share is very important because it helps with alignment. It helps Alaskan lawmakers understand what the risks are, how tariff making is done, what it means to invest in a project of this magnitude. The other part of it as well is that it brings return to Alaska. I think Alaska has to start thinking about projects in a different way.

Alaska has a tremendous amount of money socked away. Billions. By the time you have billions, you need to start thinking differently.

It’s not about these smaller projects where you are getting X millions. You need to start thinking like a big investor. That’s what we benefit our children and grandchildren. This makes us more of a more sophisticated actor.

The next part was having the big three coming together. Next was TransCanada. I was not a fan of AGIA. I felt it was forced. I thought it was artificially created. I didn’t like that we’re giving away half a billion dollars. It wasn’t a natural partnership. But in this instance, I do like having TransCanada as a partner because I think the alignment is good for Alaska. They have the same interest as we do. They are not a producer. They are a shipper.

Looking at Alaska’s interest of keeping the basin competitive, we want more people to explore for gas. We want to bring in the Armstrongs and the Repsols. We want them to explore and feel welcome to come in on that line. While it’s a contract line and not a common carrier line, having TransCanada on the partnership is going to lean on it being a common carrier. So I think it’s as good a partnership as it’s going to get.

Petroleum News: So with those two heavy-hitting items off the books, at least for next session, could discussions on Arctic research, policy and development take a lead?

McGuire: I think it’s going to have an even bigger role than it’s ever had. In the spring the United States is assuming the chair of the Arctic Council and the president has finally appointed a team of ambassadors to the Arctic in Admiral (Robert) Papp and Fran Ulmer. You are finally starting to see - finally - the government saying, yes we are an Arctic nation and we are because of Alaska.

It’s also reminds me of how our country has done things. We are behind the power curve sometimes. We are innovators, but we are also not big planners. We are not Sweden and we are not Asia planning 20 or 30 years ahead.

It’s one of the biggest reasons why our commission will matter. It’s starting to matter to the rest of the United States. What you’ve seen, like any commission on a new subject, Bob (Herron) and I have sort of shaken down the main issues. It took 26 of us from all of the different spectrums on the subject matter to get into that room, try out the hardest arguments on the far end, then synthesize down the main points into about 20 percent of where you think Alaskans are going to care and where we can accomplish things.

Now what remains in what the Legislature can do in partnering with the feds and the coast guard, to develop the infrastructure, to attract private sector interest, to actually accomplish something? The question remains whether or not we are going to push forward with a private-public sector commission or a legislative commission. I’m pushing to keep it the way it is. I prefer to have private-public dialogue. I think it works. It raises the level of conversation and the level of relevance.

That’s not to say the committees we have in the Legislature don’t take in private sector testimony. Obviously they do. But when you’re talking about shipping routes, fishing, maritime assets, drilling, I’m in favor of keeping it the way it is and moving forward with the group that we have. I don’t think there is enough subject matter in the Legislature with just the committee of just lawmakers looking at the topic.

I think it’s absolutely the hot topic versus five or six years ago when I was president of PNWER (Pacific Northwest Economic Region), talking about it and people would say, that’s interesting Lesil, let’s talk about something else. They would pat me on the back and say that’s cute, I’m glad you’re studying the Arctic.

Petroleum News: So what can the Legislature do - and the executive branch - to advance the state’s status on Arctic policy, research and development?

McGuire: We’ve got to put a policy in place. That’s one of the things you’ve got to do to establish a level credibility. We’ve got to start moving forward with an infrastructure funding package and what do we want to see happen. It’s going to mean partnering on some kind of deepwater port. We are going to have to create some level of funding to be able to draw in private sector partners that want to help create assets in the Arctic. We don’t have any. Russia has 36 polar class icebreakers. They have ports all along the northern sea ridge. They are attracting tourists. They are attracting shippers.

They are building an Arctic economy for their future. We are not. That is something the Legislature is going to have to engage in a meaningful dialogue the way we have about commercialization of North Slope gas. It’s been quite deliberate. This Legislature needs to sit down and decide that we are an Arctic state, we are what makes this country an Arctic nation and we want an Arctic economy. We will benefit from an Arctic economy. That’s going to take a proactive, meaningful engagement in that process: the creation of assets, the creation of a deepwater port, the partnership with AIDEA in attracting some $100 billion worth of private capital. It’s currently going into the Russian Arctic, the Icelandic Arctic, the Swedish Arctic, the Finlandia Arctic. It’s going into the Arctic, just not our Arctic.

Petroleum News: So your priorities are infrastructure?

McGuire: Yes: Infrastructure. All the companies want to come, but they are nervous about setting up shop because there are no infrastructure assets currently. Think about that. That is the number one thing a company looks at. In that regard, we are like a third-world nation. We are compared to other places in the world that are third-world.

It’s not because we are unsophisticated as a people. It’s simply because we do not have assets. If you are going to pull your giant boat into a harbor, you are not going to be able to do it until you reach Dutch Harbor. And oh by the way when you get there, you may not have a spot because that boat harbor is already full.

I’ve been to places like Iceland and I’ve heard people from the Guggenheim who say there is no brighter economic prospect on the earth than the Arctic. This is it. The Arctic is the economic future so if Alaska wants to be part of that, we have to catch up and we have to partner.

Petroleum News: So getting back to the Arctic Policy Commission, what work remains as you head into session?

McGuire: We need to put a policy in place. We need to put money into an infrastructure partnering fund. I can tell you what I’d like us to accomplish, but there will be a lot more to come. At the very least, I want Alaska and the Legislature to start thinking Arctic. It’s a new way of thinking about Alaska’s future. It’s the most exciting thing, as exciting as the prospect of marketing North Slope gas, maybe more exciting because it’s more comprehensive. It’s a new way of thinking about Alaska’s future. Our children and grandchildren, there won’t be anything about their lives that won’t be Arctic related. Think of all the shipping possibilities and the tourism possibilities. If you want access to a new good, you’ve got a wonderful opportunity. That’s been a challenge for Alaska - our location on the map. Then suddenly, there we are.

Petroleum News: What’s it going to take to get past all of these lawsuits to have safe development on the Arctic?

McGuire: Leadership. We need leadership. We have people at the federal level, including Lisa Murkowski, and other partners in the United State Senate, who understand the importance of developing the Arctic for United States energy security. One of the things I would like to continue to educate people about with regards to energy policy. We do it best. We do it safely with a small footprint. We are a nation that should take care of itself, and the Arctic is the best way to do that. The more we have leaders like Lisa and Mary Landrieu in the Senate Energy Committee pushing that through, I think we succeed. I think science and research is important in putting us on the front of the debate in showing that we are picking the right places to develop, and we are working with the Native communities to determine where the whale migration patterns are taking place.

The Burger prospect alone has the potential to push through 1 million barrels a day through TAPS.

Petroleum News: So that’s on the policy side, what about the industry side with Shell having its setbacks? What do they need to do?

McGuire: I think they need to enhance their maritime policy. From the beginning that’s been their weakness. I’ve been spending time talking to (Shell’s) Pete Slaiby and Edison Chouest about developing a new arm of Shell. If you look at what happened with BP in the Gulf of Mexico, large companies get good at what they are doing, and they have a lot of subcontractors. When you get that big, you run the risk that there is an accident waiting to happen in a sector that’s not your expertise. My belief is the obvious weak point is the maritime arm. I think what they need to do is bring the best people on the earth who know maritime shipping, and bring them on. Then bring in Edison Chouest and Harvey Gulf - those are the two best companies I know of who do that kind of work in the United States - and have team meetings, talk to them about operating in Arctic waters and come up with a new strategy. Then announce that strategy, to the president and all the powers that be, then move forward.