MacKinnon: ASAP an accelerator for LNG

Eagle River Republican says goal to merge the projects; as Finance co-chair will look for capital projects with matching funds

Steve Quinn

For Petroleum News

The name may have changed, but the face will be a familiar one when the Legislature returns to Juneau in January and the Senate Finance Committee gets a new co-chair in charge of capital budgets.

It’s the newly married Sen. Anna MacKinnon, an Eagle River Republican. MacKinnon started serving in the Legislature in 2007 and quickly built a reputation as someone willing to not only do some heavy lifting, but serve on as many, if not more, committees than any of her peers.

MacKinnon closed out the legislative session in April serving on three key resource committees: TAPS Throughput; Resources and Finance.

While all of the committee assignments haven’t been released, MacKinnon draws an enviable assignment of overseeing the capital budget at a time when oil prices are hovering over five-year lows.

MacKinnon spoke to Petroleum News about what may or may not lie ahead for the state under current prices.

Petroleum News: Let’s start with the interim. Even as you’ve not been in session, steps have been taken toward advancing a gas line such as early permit applications to FERC and the Department of Energy for export permits. Is this how you envisioned the interim, as least as it relates to the gas line?

MacKinnon: Absolutely. We are cautiously optimistic that the past administration has hit their marks for timelines to advance a project and it’s our hope we will be in special session in October next year to actually have the next gate to go through so all of our partners would be committed to I think the number is $45 million to $100 million. It’s been a long time since I’ve looked into those numbers. This administration has handed off a project that is still the potential to go forward.

Petroleum News: What do you believe the Legislature can do to help the project move forward during the session or will it be too soon to really do anything? It doesn’t have to be bills; it can be education the Legislature, something that was one of your focuses the last few years.

MacKinnon: (Incoming LB&A chair) Rep. Hawker had this discussion at our last LB&A meeting and I suggested a gas symposium both on marketplace and the cost drivers for LNG projects and pipelines. Rep. Hawker is certainly aware of the knobs that will turn on this proposal. I think he’s amenable to that. We have new legislators coming in.

Not a lot, but a few and we need all of the legislative body on the same page with as much facts as they can have about existing markets, export licenses, the cost drivers, the challenges for Alaska and the cold climate that can be an advantage for LNG production.

Petroleum News: Speaking of educating the Legislature, was there a symposium with AOGA? So it’s ongoing?

MacKinnon: I think there are a variety of interests that are trying to make sure Alaskans as a whole understand the potential we have out there with this project. Many Alaskans have heard about a pipeline proposal for decades. I don’t want to speak for other people, but there may be a tendency to believe this is just another song and dance. This is not another song and dance. People have signed on the dotted line. We have money being invested by four independent parties, if not five - the state of Alaska, BP, Exxon, ConocoPhillips and TransCanada. So we have people spending money to advance a project. The ASAP line is very much an accelerator on the interest from my perspective, of the big three.

Petroleum News: Do you still believe the smaller line deserves consideration and further review?

MacKinnon: We have divided the tasks, as I understand it from the administration, of north and south. We are trying to decrease all possible duplications of efforts. The ASAP line has advanced much further than the LNG project. They just had a joint meeting in Seattle to talk about the project. ASAP actually has permits in hand. The idea is to merge the two projects into the most beneficial project for Alaska. The reason I believe the accelerator is there, with the ASAP line, is the big three are at risk: If we put in the smaller diameter, they will have to export through that line. They want the best possible return for their shareholders with the reserves they have banked. That’s what’s putting pressure, from my position, on the big three to stay involved in this project. So I do not believe it is a good idea to take apart ASAP. I think they are offering a valuable acceleration point as well as providing critical information. We have two different groups working on a similar project that at one point will be fused together just like a good seam on a pipe.

Petroleum News: Also during the interim, the oil tax debate seems to have eased with the voters upholding SB 21. Do you think that will make it easier for the Legislature to focus on other things?

MacKinnon: I would hope that the media as well as this administration on reviewing the components SB 21 would tell the public that we are under a better fiscal regime than we were under ACES. That we have more money coming into Alaska’s revenue stream than we did under ACES. This is exactly then scenario those of us who voted for SB 21 were anticipating, and that’s a dip in the price per barrel of oil. So we are protected better.

Could we be protected more? Yes. This is the compromise that we were able to reach with the majority in the Senate and the House. I don’t anticipate any additional review right now, but that’s not to say if something doesn’t need to be tweaked - we want to make sure we have wildcatters able to come to Alaska and participate. But we also want to make sure those who can actually bring production on line are working under economic conditions their shareholders will invest in.

Petroleum News: Speaking of low oil prices, obviously we are there. Do you think these prices bring a dose of reality to just how volatile our state’s economy really is?

MacKinnon: It certainly reflects reality. Yes, it is a reality that the price of oil is volatile and that we as Alaskans don’t control our economy and that it’s a global market.

And you know I’ve been saying for years how the (high) price was masking the decline of production. When I asked if people wanted more money in education, I asked them to please find ways now to start looking at ways to deliver education that might require less funding: We were trying to be anticipatory of a drop in prices. All of us want to invest in education so those teachers and those children are supported in the best way possible.

This is certainly a cold, hard look at what can happen when OPEC and Saudi Arabia can produce the same amount of energy as the United States becomes a net exporter.

Petroleum News: You have a new administration and there are appointments that have upset your colleagues in leadership in the House and Senate, and they speak squarely to resource development. Could this be a big hurdle to clear early on?

MacKinnon: I think there are some old wounds out there and gentlemen need to come together - and by that I mean male and female - but we need to have a frank conversation about a variety of past comments that have been made and we need to get past that. People are elected by a variety of different interests across our state. What I learned early on in a partisan body, you should not judge people by a letter next to their name but by the quality of conversation that they have and the people they represent. People from the general public can throw any kind of stone that they want against an elected official. In the end, everybody I’ve been elected with and appointed by the governor, want to do what’s best for Alaska, and they would just choose to get there a different way. So I think we need to get together as a Legislature and as an administration and try to go forward with the best interest of Alaskans in mind. I believe the Legislature will do that. I believe we need to establish trust in how we behave between the Legislature and the administration.

Petroleum News: You folks had a meeting with the governor not too long ago. Was it a good first step?

MacKinnon: I met with the governor and (Chief of Staff) Jim Whitaker and have seen him on occasion since then, so yes. He spoke with the Senate majority earlier in December. Gov. Walker is doing everything he can to be open and transparent. As an elected official and constituent of Alaska, I appreciate that. What’s less apparent is actual direction of what needs to be accomplished.

I know any governor would have a huge issue going from $115 a barrel budget down to a budget that’s closer to $70 a barrel. Even a seasoned governor would have difficulty with that. The people of Alaska and the Legislature are looking for Gov. Walker to lead with specific direction. I just don’t think his sea legs are there yet.

It’s just because of the dive in oil prices and the immediate need to focus specifically on the finances and how we invest those finances. I don’t want my comments to be considered derogatory because they are not intended that way about Gov. Walker at all. Anyone would be facing a difficult time right now.

I believe Gov. Walker will step forward and not panic. A path will emerge. It will just take a little longer because he’s brand new. He doesn’t know all the toggles and the points that can actually turn. I think he made some promises on the campaign trail that might not be realistic now because of the price per barrel of oil.

Petroleum News: Speaking of finances, you’re now the co-chair of finance...

MacKinnon: I am. What a great time. I’m the capital budget chairwoman who has no money.

Petroleum News: So how do you view things now? You’ve viewed bills as a member of Finance, Resources, the TAPS committee and as the LB&A chair. Now, you’ve got a broader look. What do you think changes having the perspective as Finance co-chair?

MacKinnon: The way I do business will not change. But I’m in control to make recommendations to my caucus and that seems a bit different.

They have placed a great deal of confidence in me to look at all the options and bring those options strategically back to the caucus for direction. So what I’ll be looking at in the capital budget as chairman is first is there matching money for any of the request being made? Why is the project in the state’s best interest? Why should the state be involved in financing the project?

Those are critical issues as well as public health and public safety. Those are the biggest hurdles that I will discuss with my caucus to see if they can support me in that direction. Smaller grants for individual community projects are possible but improbable. I want people to make their requests but really what I would like to do is lower the expectations of all Alaskans about a large capital budget. I believe that is highly unlikely, that we are in alignment with Gov. Walker’s administration and former Gov. Parnell’s administration.

We have two different budgets that we pass forward; the operating, which is supposed to be sustainable; the capital budget that when we have years when oil prices are high, we are able to invest more in rehabilitation of buildings and maintenance programs.

Those are long-term projects where sometimes it may be unclear to the general public that we started a project five years ago and they see construction in a year, even though finances are dipping. We are having to draw from savings to finish those projects. There is a lot of lead time on capital projects so the timing on the capital budget isn’t as immediate as the operating budget.

Petroleum News: Speaking of capital projects, the LNG export project is certainly long term. How do you stay focus on an investment when you are looking at these prices?

MacKinnon: I think that two things come to mind. First, I don’t think that we’ve had long-term dips because it harms the entire world, not just a particular country or state. So while OPEC does things at times to see how much control they have on price in the market with production, the dip as I understand it hasn’t been in excess of years.

It has been several years, but I think back to $9 a barrel during the Murkowski administration and the plans they put forward, trying to meet the budget shortfall. Our dilemma is akin to that in some ways. By that I mean we don’t want to over react. I think that we want to have a firm hand on the steering wheel and we want to say yes, it’s snowing outside, the roads are more difficult to pass on. You know what the roads are still there.

We still have oil pumping. We still have production. And we anticipate a more stable line of production because of the changes that we made to the oil taxation system. Yes, we need to watch our reserves very closely. I think Gov. Walker as well as the Legislature want to make sure we have the reserve available to advance our portion of a natural gas pipeline. We don’t want, in my opinion, to watch the reserves so close that we take a $3.5 billion cut this year.

I think that would be detrimental to the economy. It would put Alaskans on the unemployment line. That is not something that I support. I absolutely support a sustainable budget. But to take our budget down by $3.5 billion in one year is unrealistic. Gov. Murkowski had a great deal of difficulty in $300 million for three years. This Legislature to step ourselves down, if we were in a three-year cycle, we would be looking at over $1 billion per year.

As we take that first bite and take that capital budget down to bare essentials, and I’m not saying it will come out bare essentials, but that’s my expectation right now. As the price per barrel goes up certainly other projects can be under consideration. Those decisions will be made after we see the spring revenue forecast.

I think that it needs to be gradual. We need to take steps that consider the best finances for the state of Alaska in the form of investment and the in form of expenditure. We absolutely have to - must have - a reduction in the operating budget. The current budget is not sustainable under future projections of both price and production.

Petroleum News: So in other words it’s not time to panic, but it’s serious.

MacKinnon: Exactly. We need to be cautious and we need to understand the reason we banked - and I’ve been part of that banking since 2007 - and paid off past debt from when we borrowed from the Constitutional Budget Reserve. So we paid back all of our borrowing from the past and added savings.

The reason revenue sharing is on a three-year flattening cycle if we didn’t have money is because we understand the volatility of oil prices. So we need to be very careful and deliberate. The revenue sharing, there are larger cities that have the ability to tax to take care of that fluctuation. There are smaller, rural communities that don’t have those same resources available to them.

It wouldn’t surprise me to see the Legislature look at that formula and recognize there are rural communities where that revenue sharing is, and you might have community health aides, or the volunteer fire departments that need help. There are different abilities in Alaska to address the revenue shortfall. If there is a withdrawal of state funds somewhere, I believe the Legislature wants to make sure individual communities aren’t inappropriately or adversely affected by the withdrawal of money on particular things. There is support that if there has to be cuts, they would have to be experienced by the entire population and not by rural Alaska over urban Alaska. By pulling back, that reflects an equitable reduction thread as well as equitable investment.

Petroleum News: Now I want to delve into an area I know is not your specialty, but at some point it will be on the plates of every Legislature. That’s the Arctic and how the U.S. will serve as chair for the Arctic Council. What’s your take right now on the priorities for the Arctic?

MacKinnon: First Sens. (Lesil) McGuire and (Cathy) Giessel have been very involved from our side and Rep. (Bob) Herron, so I think it’s an exciting time for Alaska to turn the continental U.S.’s head to the north and understand we are part of the Arctic discussion because of Alaska. And I hope the sitting administration will help an Alaskan be a chairman of that conversation, that an Alaskan would have insight that someone in D.C. might not have. We need some understanding at the general government level, the federal level, that Alaska is unique. Sometimes I think the challenges to that uniqueness get lost - challenges of geography, challenges of weather, the challenges of transportation. Those are all challenges the Arctic will highlight and that you need to have resources.