There’s been a lot of talk about moving forward as quickly as possible to get Alaska a gas line. If you are watching any of the special session hearings, you’ll note that our legislators are continually asking about what the state has done to move the project forward.
They ask, because there is a road map to get the state to the next critical stage of AKLNG. In 2014, Senate Bill 138 (SB138) was signed into law with a massive bi-partisan super majority: 36-4 in the House and 16-4 in the Senate. This law provides a “checklist” of duties and milestones to be achieved in order to keep the project moving forward.
As the administration presents information about what they’ve been doing – legislators are attempting to clarify if their activity is indeed leading to results that will move the project forward.
A Flawed Roadmap?
Despite the overwhelming support in 2014, the Governor wrote in September that the process adopted by the bill “poses serious challenges.” When Governor Walker called for a special session, he wrote:
The project process adopted by SB 138 poses serious challenges that make AKLNG very difficult to progress in a manner, and on a timeline, that can maximize benefits to Alaskans.
Flawed or not, the bill is the law of the land. And it enjoyed overwhelming support in the Legislature and was signed into law little more than a year ago. Back in 2014, our leaders in Juneau thought it provided the tool kit, funding, and oversight needed to get us to the next step of the project.
When pressed, the only “flaw” that administration officials could identify was the lack of a withdrawal clause.
What Is Senate Bill 138?
Actually, SB 138 is the road map or to-do list to get to a FEED decision. Moving into FEED (Front-End-Engineering-and-Design) is the threshold moment to developing AKLNG. If AKLNG is Alaska’s top priority, shouldn’t we have a serious conversation about what’s next on the to do list?
SB 138 allowed the administration to work on AKLNG as described in the heads of agreement (HOA) signed back in 2012.
There are 9 project critical elements laid out by the HOA: (http://dor.alaska.gov/Portals/5/Docs/LNGDOCS/HOA.pdf)
- Gas Production Tax
- State Gas Share
- Payment in lieu of property tax (PILT)
- Predictable and durable contractual terms
- Eminent domain rights
- DOE Export license
- Permitting for construction of in-state infrastructure
- “A healthy, long-term oil business”
- Legislation “in the 2015 legislative session to clarify State regulatory authority
2 of 9
Of these 9 tasks before the state, two of these items have been addressed:
- A Department of Energy export license that was conditionally granted in May this year for the project to export LNG to countries with which the United States does not have a free trade agreement with.
- Eminent domain rights, allowing the project right of way powers on state land and through state park lands. These powers are necessary for the project to get access to land for building future pieces of the AKLNG project.
Good news, but what about the others? As important as a TransCanada buy out is, not one of these steps are able to be skipped. It seems like rather than checking things off the to-do list, we are adding more work to be done.
Right now there is a lot of talk about “leverage” and what’s best for Alaska. Shouldn’t we also be doing what we can to actually move the project forward?
The Alaska Dispatch News covered reports that Alaska Governor Bill Walker is asking the Legislature to approve an $840,000 salary and benefits package for an as-yet-unknown public employee to work on Alaska’s natural gas pipeline megaproject. The state budget currently puts $360,000 toward the position, according to a spokeswoman for Walker, Katie Marquette. Walker is asking lawmakers to approve another $480,000 for the job, for a total salary and benefits package of $840,000.
Alaska Public Radio Network covered the recent hearings in the Resource Committees that featured the Alaska Oil & Gas Conversation Commission. On Monday afternoon, the Senate Resources Committee met to hear about another crucial, if little-discussed issue: if you tap into North Slope supplies of natural gas at currently producing reservoirs, there will be less oil to develop in the future. That would be the result of an end to gas reinjection as gas is produced, leaving less pressure in the reservoir for development. The Conservation Commission is tasked with making sure the state’s oil and gas resources aren’t wasted, and it has to approve any plans to take gas from the North Slope – including for the Alaska LNG project. So far, the Commission has given approval.
Alaska Public Radio Network covered reports that Gov. Bill Walker has appointed state attorney general Craig Richards to the Alaska Permanent Fund Corp. board. Craig Richards is replacing Larry Hartig, who is commissioner of Alaska’s Department of Environmental Conservation. Hartig was appointed to the board in 2009. In addition, Angela Rodell, new CEO of the Alaska Permanent Fund Corp. starts work this week.
Alaska Legislature News
Alaska Public Radio Network, Lori Townsend, October 26, 2015
Alaska Public Radio Network, Rachel Waldholz, October 26, 2015
Alaska Public Radio Network, Lori Townsend, October 26, 2015
Alaska Permanent Fund News
News Miner, October 26, 2015
Alaska Public Radio Network, October 26, 2015
Late Friday, Governor Walker announced that he was withdrawing the gas reserves tax from the special session. However, when the session began the next morning, the tax remained a focus of the Governor’s team.
On Saturday morning, administration members gave a briefing to legislators, media and the public in Juneau. They presented an overview of legislation regarding the state’s buyout of TransCanada’s share in the AKLNG pipe and Gas Treatment Plant. Hearings on that will occur in the House and Senate Finance Committees in the coming days. Headlamp will be watching.
Despite the gas reserves tax being pulled from consideration, however, the idea behind a tax continues to be a focus of the administration. Consultants for the Governor’s team started Saturday morning’s session with a discussion of principles for new potential gas taxes – among them, a tax on gas flaring and a tax on gas reinjection. Russia and Nigeria, countries with state-run oil and gas companies, were offered as potential examples where a tax was used successfully. Attorney General Craig Richards ended the briefing with his takeaway that “taxes could be used as incentives” to push the project forward at a faster pace.
Taxing a project into existence, however, is not a successful tactic, and Headlamp is searching for an example of where this has been done successfully, in countries or states that don’t have government run oil and gas companies. Uncertainty is the enemy of investment, and the threat of taxes does not appear to be a tactic that can be used helpfully amidst ongoing negotiations between the state and its producer partners to move AKLNG forward. In the coming days, this blog will take a look at megaprojects best practices. Stay tuned for more.
HB 3001 – the TransCanada Buyout – More money, more pipe, more control
The rest of the weekend’s focus was squarely on the state’s potential buyout of TransCanada’s share in the proposed AKLNG’s pipeline and gas treatment plant (GTP). While the House Finance committee heard from the administrations’ consultants on the financing issues involved with a buyout of TransCanada, the Senate Finance committee heard from budget director Pat Pitney on the financial details and their consultants, enalytica.
Both consultants addressed core questions: How will the state’s credit rating and borrowing capacity be impacted? At what cost will the state finance its share of the gas treatment plant and the pipeline? How can the state fund its share of these additional costs?
The divergent views from the administration and the legislative consultants suggest that there is more at stake with the TransCanada buyout than simply appropriating money and moving the Alaska Gasline Development Corporation into a new role on the pipeline and GTP.
The administration’s consultants concluded that a buyout of TransCanada would not impact the state’s credit rating or borrowing capacity, nor would it impact the state’s costs in financing its share of the AKLNG project.
The legislative consultants, warned, however, that other uncertainties were lurking in the decision. They noted that “the financial case for keeping or getting rid of TC is too close by itself to be persuasive especially given the uncertainties involved with a project at such an early development phase.”
Pointedly, the legislative consultants advised that other core questions be addressed during the special Legislative Session, including: Has TransCanada delivered on the state’s expectations for their role to date? Would TransCanada’s departure from the project impact current project timelines?
They also asked a key question: what happens to the ongoing workflow on the pipeline? Would key personnel with the engineering know-how from TransCanada stay on? Does Alaska have the right people to pick up the pieces from TransCanada in the short term?
All of these questions raise a critical one that has implications for our state’s economic future: Does the decision on TransCanada progress – or rather delay – the AKLNG project?
That, ultimately, should be the focus of Alaska’s leaders over the coming weeks.
Governor Bill Walker called the special Legislative session to address two issues: purchasing TransCanada’s ownership stake in the AKLNG project and implementing a new tax on natural gas reserves.
Trans Canada Buy Out: Can we afford this?
On the TransCanada buyout, the issue ultimately boils down to what’s actually in any agreement. On one hand, the idea of taking over management of the state’s 25 percent stake in the gas treatment plant (GTP) and the pipeline seems like a good idea: as it means more revenue for Alaska. On the other hand, with its 3+billion dollar budget shortfall, Alaskans should be asking can we afford the potential price tag of more than $108 million as oil prices continue to plummet? Additionally, have all of the risks to this investment been investigated?
The administration and the Legislature should work on finding a responsible solution to the budgetary shortfalls that considers what’s in the best interests of both the state’s short- and long-term needs.
Gas Reserves Tax: bad idea then, dangerous idea now.
On the gas reserves tax, this issue was soundly rejected by Alaskans the previous two times it was considered in the last 13 years. There’s much still to be learned about the governor’s proposal, but from what he’s said publicly, this move appears to be a gambit for more ‘leverage’ in the negotiations with the other partners in the Alaska LNG project.
The governor continues to say he wants to work with the partners and is committed to this project, but a punitive new tax doesn’t get us there. It’s been tried before, and failed.
Let’s look at the details of previous attempts.
Jim Whittaker, chief of staff to the governor wrote the original gas reserves tax legislation in March 2001, when he was serving as a state representative. Mr. Whitaker withdrew that bill in May 2002. Mr. Whitaker tried again in 2006 as mayor of Fairbanks, to take the issue directly to the people of Alaska through a ballot measure. That measure failed 66 – 34 percent, and was universally panned by Alaskans from Barrow to Kenai.
Should we expect anything different in 2015? Until we see the actual legislation, we can’t answer the question. If the tax is similar to the 2006 ballot initiative, then, it’s nothing new, just the old idea wrapped up in new packaging. The governor may not be aware that this will hinder negotiating a deal rather than being a help to negotiations.
To his credit, this governor has shared our vision of exporting Alaska’s gas, and creating jobs in state. Working with the Alaska LNG partners to advance that project is in all our collective best interests if we’re going to get the economy growing, the budget deficits closed, and protect our futures.
Shell Operations Cease In the Chukchi Sea As Regulatory Environment Becomes More Murky; DOI Cancels Lease Sale
As the Polar Pioneer pulls out of Dutch Harbor for the last time in the foreseeable future, we are left to wonder what untapped resources, jobs, and future is being left behind in Alaska?
Unfortunately the decision for Shell to withdraw isn’t cut and dry. We can’t point to a lack of oil to blame for this loss. In fact the USGS believes there still remains up to 23 billion barrels of recoverable oil in the Chukchi and Beaufort seas, where Shell maintains leases through the 2020s. So why pull out now, after spending $7 billion?
Shell said though the Arctic remained important for the company, the recent results were disappointing, and there were still issues with regulation to deal with.
Even though no decisions have yet been made about Shell’s Alaskan workforce, spokeswoman Megan Baldino said the pullout would mean “lower staff” in the future.
We must make sure that Shell is not the first domino. Instead it’s a wakeup call for our state officials; just as quickly as a rig can appear, it can just as easily sail away.
Breaking News: On top of Shell’s departure, DOI today announced that it cancelled planned lease sales for 2016 in the Chukchi Sea and 2017 in the Beaufort Sea, using Shell’s departure as a main reason.
As many as 500 Alaskans will no longer be contracted this winter for work on the Slope according to an Alaska Dispatch News report.
Repsol and Armstrong Oil and Gas have decided to “strategically re-align their interest” in the Colville River Delta, even though two exploratory wells resulted in a “significant” discovery, according to a statement from Armstrong.
But this is just the tip of the iceberg.
A realignment and postponement of drilling activities isn’t just impacting the 500 Alaska families now without work this winter. It’s impacting many more than that.
A postponement of exploratory drilling is a delayed shipment that now sits in a warehouse all winter, it’s a logistics company without work that was once guaranteed, it’s suppliers now faced with surplus inventory.
Too often the real cost to business owners and employees within the supply chain aren’t even thought about. These projects are real work for thousands of Alaskans across the state, on the Slope, in the Interior, and in the Tidewater. When one of us is affected, we are all affected.
Negative Credit Outlook for Alaska Should Put the State on Notice: Get It Right Or Risk Losing It All
The facts are simple, the state needs credit in order to do business. But right now as oil prices around the globe continue to slide, there is less and less of a cushion to hide behind.
Standard and Poor’s Ratings Services lowered the outlook for Alaska from stable to negative back in August. And now, our lawmakers only have one year to fix our fiscal situation before the downgrades accelerate.
So what does this mean for us?
Unfortunately it’s not a good situation, with not much time to fix. Without good credit, the state faces a significant challenge to attract creditors, which make it possible for our state to invest in large scale infrastructure projects, be it roads, dams, or even mega-projects like AlaskaLNG.
Right now we’re at least $3 billion in the hole. And how are we paying that? From the Constitutional Budget Reserve? At this rate, even that won’t last long. Which leaves us only with access to the Earnings Reserve of the Permanent Fund . By the time that would be approved legislatively or by a vote of the people, we would be a long way down the rabbit hole.
So we’ve got a choice to make. Fix it now, or risk our economic future.