"Hmmm. Who to thank at Thanksgiving?"
Alaskans who don't want to learn the hard way better stop being so proud of their God given natural resources.
Talk of oil tax increases at a time of low oil prices is not a good Thanksgiving message to send investors, still contemplating an LNG export project and a few exploration/development projects.
Instead, Alaska might try maximizing its natural resource potential by treating investors who have cash to develop the State's resources, with courtesy and encouragement. An attitude check on the part of citizens who always want others to "do it my way", would be refreshing.
Alaskans could stop demanding "must haves" from energy and mining investors; instead, Alaska might try developing a reputation of being an inviting investment destination where a "deal is a deal".
Just as "hope is not a strategy", it's also true that good resource potential is no substitute for being competitive.
The article below describes what is happening to Calgary these days; hopefully this is not a sign of things to befall Alaska, but that is possible! Those of us who lived through the 80s remember with clarity what economic misery feels like.
In Calgary's case the world price of crude along with environmental opposition at every stage of development is responsible for the economic misery.
Alaska is even more dependent on oil revenue than Alberta and its big city, Calgary, but may be luckier; for, in spite of world oil and gas prices, our three large producers -- and their smaller colleagues -- are hanging in there as strongly as they can. Job losses are here but not to the degree other oil patches are experiencing...yet.
Thank our lucky stars.
Then, after we're through thanking inanimate stars, Alaskans would do well to give a little thanksgiving to the investors who have taken massive risks, endured massive tax and economic risks over the years and still are dedicated to a gas monetization project in the face of unknown risks ahead.
So, what better time of the year to say a word of thanks, both to the investors and to the Creator of the state's magnificent resource potential?
Credit where credit's due.
Unless we proudly persist in believing that it is we who deserve all the credit for Alaska's many blessings!
Calgary's Office Market A Bloodbath!
Vacancy is already at a five-year high in the city and rents are the lowest since 2006 after thousands of office jobs were cut. Energy company tenants have now begun to ask for rental relief and are offering subleases for as little as half the going rate, according to real estate brokers including Jones Lang LaSalle Inc. and Avison Young Canada Inc.
That’s before five new office towers with about 3.8 million square feet of space hits the market in the next three years.
“It is a bloodbath,” said Alexi Olcheski, an office-leasing principal at Avison Young from his office in downtown Calgary. “We’re at the highest point of fear and uncertainty now.”
In downtown Calgary, the vacancy rate jumped to 14 per cent in the third quarter, the highest since 2010 and compared with five per cent for downtown Toronto, according to CBRE Group Inc. Companies are subleasing a record 2.7 million square feet, the brokerage said. That doesn’t include as much as two million square feet of so-called “shadow vacancy” or space leased but sitting empty, which would push vacancy to 16 per cent, the most since the mid-1980s. More....
Our readers know that over the last year we have investigated and commented on the large risks accompanying large equity investments of public money into large energy projects.
The two of which we are most concerned, are the AK-LNG gas monetization project and the Interior Energy Project.
Under the 'Search Our Site' box, top right, readers can review these earlier commentaries by entering desired 'key words'.
Can Walker Find A Less Risky Way To Support Alaska's LNG Project?
A former Alaska Department of Natural Resources Commissioner (DNR) and other Alaskans sent LNG Project risk reduction suggestions (i.e. below) to Governor Bill Walker (NGP Photo) on November 3, 2015.
The letter was signed by former DNR commissioner, Harry Noah (NGP Photo), and four other prominent Alaskans, including former Governor Frank Murkowski (NGP Photo).
In the letter, the writers expressed concern about the level of risk the state was about to undertake in 'buying out' TransCanada's interest in the Ak-LNG project, during the special session which was convened from October 23th to November 5th.
The letter provided more than risk concerns about the enormous, Alaska LNG project, currently in a pre-Front End Engineering and Design phase (Pre-FEED). It also recommended the governor adopt certain priorities dealing not only with a reduction of risk that the state could lose hundreds of millions in public money.
Other suggestions included a focus on issues that could support ultimate success of the project, including the provision of fiscal security to the LNG project's producer-investors and giving the public much more information. -dh
Below is the full text of the letter, for our readers to review. We also provide this relevant, historical recording of a 2014 forum sponsored by Commonwealth North.
The forum included as moderator, the then Alaska Gas Pipeline Federal Coordinator, Larry Persily (NGP Photo-above-R); Harry Noah; energy writer Tim Bradner (NGP Photo-above-l); University of Alaska Economics Professor Emeritus Scott Goldsmith (NGP Photo-below l); and, former Alaska Utility Commissioner (RCA) Mark Foster (NGP Photo-Below R).
November 3, 2015 Letter to Governor Walker below.
11-8-15 Senate President Supports Alaska Governor Bill Walker's Move To Increase Equity Ownership In AK-LNG Project
ADN Op-Ed by Kevin Meyer , Alaska State Senate President. This past Tuesday in Juneau, the Alaska Senate endorsed (NGP Photo) Gov. Bill Walker’s request to buy out TransCanada's portion of the Alaska LNG Project, making the state of Alaska an equal owner in the largest integrated natural gas project in North America. . . .
|KTUU, by Austin Baird. How The LNG Project Could Affect Alaska's Future.|
It is a privilege to serve as Senate president during this critical time for Alaska. I am proud of the Senate's united role in the progress that has been made. I am glad to see the Senate aligned with the governor as he takes the next step forward for our great state. . . . I urge Gov. Walker to move forward with the confidence of an equal partner in the Alaska LNG Project, and to vote “yes” on Dec. 4. More....
Bakken.com by ADN's Alex DeMarban (NGP Photo).
With Shell job losses still looming and some projects stalled amid the continuing oil-price slump, Alaska’s petroleum industry and its related companies are struggling to adapt to the headwinds that threaten the entire economy.
“Don’t go out and buy a new motorhome,” suggested Kevin Durling, majority owner of Petroleum Equipment and Services, saying the consequences of slowing activity in the high-paying industry could ripple across the state.
More pain is lurking, many say.
“What we hear from our guys providing front-line (oil industry) support is that things are active, but come January or February it will be a whole different picture,” said Rebecca Logan (NGP Photo), general manager of the trade association, Alaska Support Industry Alliance.
The full impact of Shell’s decision to suspend its Arctic Ocean drilling campaign hasn’t fully hit the economy yet, she said. The company is still wrapping up its summer drilling effort, and job losses associated with many of its 400 office contractors and staff are yet to come.
One thing you heard over and over again during the special session was that the state of Alaska needs to start acting like a business. Here’s Rep. Lynn Gattis, (NGP Photo):
“If we’re going to be in business and participate with business, why wouldn’t we act like business?”
|Our Alaska BP friend, Julie Hasquet, notes the launching this week of, "BP's inaugural, Technology Outlook. Readers may obtain a copy here. -dh|
Our Washington D.C. friend with IER, Dan Kish, notes that House democrats have filed this bill targeting an Alaska oil & gas prohibition in Cook Inlet and the Arctic -- not to mention coal. Founded on the religious belief in a concept called, Global Warming, the bill (i.e. called the "Keep It In The Ground Act Of 2015") is being filed as in concert with other Paris Climate Change preparations by the U.S. President, including disapproval of the Keystone XL project. We assume Alaska's Congressman Don Young is on top of it. Unbelievable how so many could appear to love their country's economy, civilization, standard of living and culture so little. -dh
For gas pipeline and LNG export planners, the EIA reports: Winter natural gas futures prices are significantly lower than previous years
Calgary Herald/AP: Killing (TransCanada's) pipeline allows Obama to claim aggressive action on the environment....
Senator Lisa Murkowski says Obama Ignored Keystone Facts
Congressman Rob Bishop calls Obama, "...the most anti-energy extremist President the nation has ever had...."
Financial Post: President Obama’s first recognition of Canada’s new Prime Minister is an apparent slap in the face. In rejecting (TransCanada's) Keystone XL pipeline — which Justin Trudeau has supported — Obama has offered up yet another sacrifice to his presidential legacy en route to the climate melee in Paris. (See our commentary: "Killing Capitalism")
President Obama rejects TransCanada's application to build the Keystone XL pipeline, saying -- either misleadingly or stupidly -- that the project would not spur economic growth.
Alaska's Historic Week
Yesterday, we published an early, draft report of the recent special session of the Alaska State Legislature concerning the 'buy-out' of TransCanada's interest in the Alaska LNG project.
We should have waited for a later draft.
Dissatisfied with the result, we reworked it overnight, attempting to do better justice to a historic week in Alaska.
We hope that any reader who was disappointed with that first draft will scroll down or click back to read the newer, edited and shorter version.
We thank the several dozen readers who provided helpful comment during the special session and, as always seek the guidance of those wiser and more knowledgeable than we, as daily reports are submitted into the archives of Northern Gas Pipelines for future study and reference by industry, government, academia and the news media.
Respectfully and warmly,
P.S. New Special Session Reports and References:
- Juneau Empire: Walker Signs Bill
- Alaska Journal of Commerce
- SF Gate
- Alaska Journal of Commerce
- Houston Chronicle
- Petroleum News Alaska
- The Republic
SUPPORT HILCORP WITH ITS ALASKA NORTH SLOPE LIBERTY PROJECT ELECTRONICALLY -- OR IF YOU LIVE IN ANCHORAGE, PLEASE RESERVE MONDAY NIGHT TO GIVE A FEW SENTENCES OF ORAL SUPPORT!!!!
WHO: Hilcorp’s Liberty project
WHAT: Needs public comments in support of development
WHEN: Mon., Nov. 9, 2015, Between 7-10 p.m.
WHERE: Embassy Suites Hotel, 600 E. Benson Blvd., Anchorage
WHY: We need responsible resource development and the investment dollars they bring to Alaska
MORE INFO: www.libertyprojectak.com
As the Liberty Unit Operator, Hilcorp Alaska, LLC is currently pursuing all of the necessary permits and authorizations to develop the Liberty Reservoir. One step in this process is the preparation of an Environmental Impact Statement (EIS). During this time, the Bureau of Ocean Energy Management (BOEM) will hold public scoping meetings throughout Alaska to analyze the potential environmental effects of Hilcorp’s Development and Production Plan (DPP). Please consider attending the local scoping meeting and making these points:
Based on proven technology currently being employed in the Arctic…
Hilcorp will utilize the construction and operational technology perfected at Alaska’s other offshore facilities. It’s proven to be a safe and effective means for oil & gas development in the Arctic.
Artificial islands in the Alaska Beaufort Sea date back to the mid-1970s. In the last 40 years, eighteen (18) islands have been responsibly constructed for exploration and development of oil and gas off the coast of Alaska. Like Liberty, the majority of the artificial islands were constructed in shallow water depths less than 20 feet.
Alaska has a 30-year record of safely operating offshore in the Arctic. Endicott, the first offshore development on the North Slope, has been in operation for almost three decades, and now there are three other offshore fields in production: Northstar (2001), Oooguruk (2008) and Nikaitchuq (2011).
More oil in TAPS…
The Liberty oilfield contains one of the largest potential sources of new light oil production on the North Slope, with an estimated 80-130 million barrels of recoverable oil.
Development of Liberty will help offset declining light oil production on the North Slope and contribute to increasing the life span and efficiency of TAPS.
New oil is needed to keep the pipeline operating efficiently now that throughput is less than 25 percent of capacity. An additional 60,000-70,000 BOPD from Liberty will be an important addition to keeping the pipeline operational for decades to come.
As the first Outer Continental Shelf oil project in the U.S. Arctic, Liberty will provide important tax and economic benefits to the federal government, State of Alaska and North Slope Borough. It will generate construction jobs – primarily for Alaskans – and good-paying permanent jobs. It will create business opportunities for many Alaska businesses.
More information about Liberty can be found at www.libertyprojectak.com
To comment, or to review comments, go to www.regulations.gov and enter “BOEM Liberty” in the search field or BOEM-2015-0096. Comments must be received by 11:59pm Eastern Daylight Time on November 17, 2015.
Hilcorp’s Liberty DPP can be viewed at: http://www.boem.gov/Hilcorp-
The Courier: Clean Line station preferred in Pope
The converter station represents a direct investment of over $100 million in Arkansas, according to David Holt (NGP Photo), president of the Consumer Energy Alliance — a group which stated on its website it provides the energy consumers with sound, unbiased information on U.S. and global energy issues.
Electric Light & Power: VIDEO: Plains & Eastern Clean Line transmission project moves forward
David Holt, President of the Consumer Energy Alliance said, “Modern infrastructure projects like the Plains & Eastern Clean Line are critical to ensuring an affordable, reliable power supply for energy consumers here in Arkansas and across the Southeast United States. This project will not only deliver low-cost clean energy to Arkansans, but will create jobs and manufacturing opportunities here, as well. We are pleased to see this critical infrastructure project come closer to fruition.”
Coastal Observer: Politics: Offshore drilling opponents see victory in city election
Voters in the city of Georgetown elected three Democratic candidates to City Council this week after members of a local environmental group campaigned for them on the basis of their opposition to offshore oil drilling in the Atlantic. Democrats Al Joseph, Sheldon Butts and Clarence Smalls soundly defeated Republicans Richard Powers, Lee Padgett and Tom Winslow.
Washington Times: Obama, TransCanada say little about likely doomed Keystone pipeline
Twenty-four hours after claiming authority to make the final decision on the Keystone XL oil pipeline, the Obama administration said little about the issue Thursday, even as it looks increasingly likely that the project will die at the hands of the president.
The Hill: Dems to Obama: Reject Keystone before Paris
Democrats and environmental groups are ratcheting up pressure on President Obama to reject the Keystone XL pipeline now, ahead of major international climate talks in Paris next month. After a week of action on Keystone, Democrats say that denying the project before the conference would send a powerful — if symbolic — message about the United States’ resolve to combat climate change.
Reuters: Fed's Harker says Marcellus natural gas boom likely has peaked
The U.S. natural gas boom centered on the Marcellus shale fields has probably hit a peak for now, Philadelphia Federal Reserve President Patrick Harker said on Thursday. "The robust natural gas drilling that carried this region through the worst of the Great Recession has likely plateaued in the past few years," Harker said in prepared remarks to be delivered in Philadelphia.
Reuters: U.S. shale producers see big budget cuts for 2016
U.S. shale oil producers, having slashed fat from 2015 budgets after a 50-percent drop in crude prices, risk cutting to the bone next year as they pare spending further and get ready for a prolonged downturn. Top shale companies including Devon Energy Corp, Continental Resources Inc and Marathon Oil Corp this week released preliminary 2016 plans for capital spending that may fall by double digits.
Wall Street Journal: Oil Slump Forces Deep Cuts by Service Providers
Oil-field service companies are slashing costs amid an industry-rattling fall in crude prices, and no cut is too small—such as using white paint instead of yellow on underwater equipment. “It’s not big money,” said Hallvard Hasselknippe, president of subsea at Technip SA, noting that adding pigment to make the industry standard yellow paint is more expensive. “There are many examples like this.”
Fuel Fix: China keeping an eye on surging U.S. oil and gas production
The United States’ energy renaissance is catching attention in Beijing, where Chinese leaders view the phenomenon as “a double-edged sword,” according to a white paper from the free-market group American Council for Capital Formation. “China trusted the United States more when U.S. oil import dependency was higher and Washington actively sought increases in global oil production, a mutually shared objective,” writes George David Banks, executive vice president of the group.
Houston Chronicle: Bleak results continue for oil companies
More oil companies Thursday reported the bleak financial fallout from a crude price drop in the third quarter, even as the price of a barrel continued a fairly steady streak into the final three months of the year. At least three Houston-based independent oil producers reported third-quarter losses.
E&E News: Gulf of Mexico is bright spot for otherwise depressed industry
Offshore drillers appear to be muddling through the oil price bust. Production continues to rise in the Gulf of Mexico. Discoveries have been reported in new and mature offshore provinces. And offshore drilling may perk up again in Canada and elsewhere, even with oil prices in the doldrums.
OilPrice.com: Obama Admin Throws Alaska an Oil Lifeline
On Oct. 22, the U.S. Bureau of Land Management (BLM) gave the go ahead to a drilling plan in the National Petroleum Reserve in Alaska (NPR-A), one of the last ditch efforts to keep the Trans Alaskan Pipeline from running dry. ConocoPhillips has plans to drill the Greater Mooses Tooth Unit (GMT-1), which could result in the first oil and gas production from federal land in the NPR-A.
E&E News: Alaska poised to gain equal share in LNG megaproject
The Alaska Legislature this week opened the door for the state to become an equal partner with three major oil companies on a multibillion-dollar venture to commercialize Alaska's abundant North Slope natural gas reserves.
Juneau Empire: Arctic drilling complaint clears Legislature
After passing a landmark gas pipeline deal, the Alaska House approved a formal complaint against the Obama administration’s decision to cancel oil and gas lease sales in the Arctic. Unlike the gas pipeline bill, which passed unanimously in the House, the Arctic complaint broke mostly along majority/minority lines as it passed 27-12, with one representative absent.
Breitbart: Shock: Jerry Brown Used State Experts to Seek Oil On Family Land
California governor Jerry Brown used state experts to prepare a 51-page report on the prospects for oil development on his family’s private land in Northern California, according to an Associated Press investigation released early Thursday morning.
Seattle Times: Washington state joins legal fight to defend Obama climate plan
Washington and Oregon have joined a coalition of 18 states to defend President Barack Obama’s plan to slow climate change by reducing greenhouse gas emissions. They are opposing lawsuits filed last month against the Environmental Protection Agency by 25 mostly Republican states and allied industry groups.
KDRV 12: Oregon Joins Legal Fight to Defend Obama Climate Plan
Washington and Oregon have joined a coalition of 18 states to defend President Barack Obama's plan to slow climate change by reducing greenhouse gas emissions. They are opposing lawsuits filed last month against the Environmental Protection Agency by 25 mostly Republican states and allied industry groups.
Denver Post: CSU study says oil and gas water contaminants low in DJ Basin
A new Colorado State University report says there is no evidence water-based contaminants are seeping into drinking-water wells over a vast oil and gas field in northeast Colorado.
The Coloradoan: Colorado’s ozone fight could drive up costs
Larimer County is one of only 14 U.S. counties headed for the Environmental Protection Agency’s ozone blacklist in 10 years. The EPA adopted a new ozone pollution standard of 70 parts per billion last month, prompting cheers from many fans of smog-free skies but triggering a unique challenge for Northern Colorado, which is still out of compliance with the 75 ppb ozone standard adopted in 2008
Midland Reporter-Telegram: Comptroller: Saudi Arabia leaders “gambled and Texas won”
In June, Midland broke its streak where the sales tax collections were higher each month than the same month the year before but the economy is not all doom and gloom, according to Texas Comptroller of Public Accounts Glenn Hegar.
The Times-Picayune: St. Tammany fracking fight heard by appeals court in Baton Rouge
The protracted controversy over fracking in St. Tammany Parish returned to the courtroom on Thursday (Nov. 5) where attorneys presented oral arguments to the 1st Circuit Court of Appeal in Baton Rouge and answered questions about how much control the state and individual parishes have when it comes to oil and gas drilling in Louisiana.
The Register-Herald: Council to mull support for banning fracking waste
Local geologist Brandon Richardson, on behalf of the Fayette County Headwaters Defense group, asked Fayetteville Town Council at Thursday’s meeting to pass a resolution in support of the Fayette County Commission passing a county-wide ordinance to ban fracking waste disposal.
The Vindicator: Anti-fracking proponents snubbed by voters again
Why won’t the advocates of the absurd proposal to ban fracking in the city of Youngstown just go away? Because like all other self-appointed protectors of society, they can’t fathom not being embraced by a majority of the public. And so it is that the leaders of FrackFree Mahoning Valley are contemplating a sixth attempt to pass a charter amendment that would prohibit the use of fracking to extract oil and gas in the city of Youngstown.
Harriot Patriot-News: For a cleaner future, Pa. needs to focus on natural gas and nuclear energy: J. Winston Porter
President Barack Obama's new Clean Power Plan, which calls for a 32 percent reduction in carbon emissions from our power plants by 2030, places too much focus on solar and wind power. That's unfortunate since natural gas and nuclear energy must play the lead roles in meeting these carbon emissions targets.
Saint Peters Blog: Today on Context Florida: Fracking, U.S. Therapist General, delayed justice and the latest Salt Shaker Test
Sarah Maricle Ayers warns that Floridians should weigh facts on fracking before banning its benefits. The exciting energy frontier that hydraulic fracturing represents is one of the best-kept secrets in Florida. The process consists of blasting a water, chemical, and proppant solution under high pressure to create fissures in rocks, which then allows the release of the oil and hydrocarbons locked within.
CANCELLATION OF EXISTING LEASES.—Notwithstanding any other provision of law, not later than 60 days after the date of enactment of this Act, the Secretary shall cancel any lease issued under section 8 of the Outer Continental Shelf Lands Act (43 U.S.C. 1337) on or before the date of enactment of this Act in the Beaufort Sea, Cook Inlet, or Chukchi Sea.
On 10-29-15 we circulated this 'email alert' that resulted in several citizens and a few lawmakers asking, to the effect that, "Well Mr. Smarty Pants, if you're so bright how would you handle this situation?" (Actually, they were much kinder than that, and we only bring it up because reader questions were the reason we created this review.)
While we never claimed to be anything other than an observer, we emphatically never claimed to have a claim on "what's right". In fact, we will restate to our gentle readers right now that we have more reason to be humble than most of the people we interface with daily.
That is why we always invite reader corrections to any of our statements of fact; our highest priority is maintaining accurate gas pipeline information spanning half a century so that our archives may continue to benefit industry, government, academia and the news media for years to come.
However, we do hope that our career, can be made useful to our readers, along with our experiences in industry-government interaction going back to the beginning days of both TAPS and gas pipeline and LNG projects...and our personal interaction with all of Alaska's post-statehood governors except one.
In that spirit of humility, we have observed the special session proceedings. We have been very respectful of both House and Senate Democrat and Republican Members, and the many witnesses appearing before them (with minor exceptions).
We earnestly believe that while everyone in recent days has been 100% focused on best concluding the relationship with TransCanada, our service is to offer counsel regarding the medium and longer term future and Ak-LNG's role within other state budget concerns.
We have no advisor or supervisor or editor to assist with our work. We are truly independent. That liability is freely admitted. We thus hope that in spite of our own failings, readers will benefit with a series of snapshot viewpoints they may never before have considered.
Your indulgence and readership are deeply appreciated.
Background as we view it:
This review of the "November 2015 Special Session of the Alaska State Legislature" is designed to both comment on the result and provide insight into the challenges of state ownership that await this and future governors, legislators, citizens and industry representatives.
As the special session called by Governor Bill Walker ended this week, we did not oppose the Legislature's decision to approve certain appropriations. The appropriations allowed the governor to reimburse TransCanada (TC) for its expenses to date, plus interest, to "buy out" its participation in the project and to fund state operations and contributions to Ak-LNG's ongoing, pre-Front End Engineering and Design work (Pre-FEED).
If TC had remained engaged the state would have been obligated through agreements made by previous administrations to pay more than it would under the current arrangement (i.e. The 7.1% interest rate paid to TC is significantly higher than the state could now get via its own financing).
During current, special session hearings, legislators discovered that:
- there appear to be no single line of authority or clearly delineated organization chart illustrating management of Alaska's equity interest; overall state coordination of Ak-LNG project participation is unclear and could threaten project efficiency.
- the Administration seemed to be contradicting its long-vaunted claim of "transparency" when denying transparency to the Legislative branch of government by:
- not providing a full data packet to Members when the special session was called, even after repeated requests, and
- not communicating the full extent of major project roadblocks -- caused by the administration -- associated with its position on confidentiality agreements (CA), a withdrawal agreement format and commercial gas sales agreements, and
- not communicating that the AG had influenced the Alaska Gasline Development Corporation (AGDC) board to approve creation of two subsidiary corporations and the reasons therefore, and
- the AG refusing an audience with the House Judiciary committee earlier this week, causing a cancelation of the meeting, and appearing to being evasive as he participated in other meetings.
We believe Legislators and citizens as well, were comforted in part by knowing that the four Ak-LNG members will vote on whether to go forward with the project's 2016 work plan on December 4 -- and that takes a unanimous vote.
Accordingly, we believe that may begin to ponder longer range questions:
- As investment decisions begin to require more and more cash outlays, should the state continue supporting a high risk venture that could be justified by high profits in a future robust, world LNG market?
- Or, should the state be satisfied with royalties and taxes from the project while avoiding risky equity gambles in highly technical, competitive pipeline, LNG, and gas sales industries whose unpredictable business environment is exacerbated by fickle energy prices, incredibly intense competition, volatile world economies and high costs?
- (Note: While legislators, industry and the governor seem to be fully supportive of the first alternative right now, we truly hope that this review in some small way assists well-studied Alaskans and aficionados of the state to draw their own conclusions, enabling them to better compare the high risk/low risk options. We also acknowledge the importance the Ak-LNG producers place on having the state government at its side as the project moves forward @ 4:19:04. Indeed, one should seriously question whether or not they would wish to continue the project at this time without the state's 25% equity participation.)
Project crises could result in delays, unanticipated expenditures and large controversies that prevent lawmakers and the governor from competently carrying on the traditional responsibilities of office. Examples of such project crises include:
- Constant controversy time spent debating issues like confidentiality agreement (CA) requirements, withdrawal agreements and "completion" of commercial gas agreements. All of these are current issues elevated to a controversial level by the Administration, to the possible detriment of project "alignment" which all parties claim they must have to be successful.
- Having an unpredictable state partner insist at the "last minute" on big expenditures benefiting its equity interest injects an element of uncertainty. For the state, it carries with it the obligation to be the "cost payer" for 100% of the increased project costs that it "causes". One of the most well recognized pipeline and utility rate principles is that the causer of costs pays the costs. Following this principle, the state should pay, as the governor has said, for his desire to 1) "study" a 48" pipeline model as compared with the 42" case that has already been studied to death -- at great expense. 2) The state should also pay for the six month delay that the governor's 42" vs. 48" request may already causing. If the state's expenditure should prove that the 48" model benefits all parties, we can imagine all parties at that point freely agreeing to share the study costs. However, if the 48" model study reveals higher costs, the state should continue to bear all of those higher costs--thus negatively affecting net revenue the state might otherwise enjoy until future gas producers are capable of taking up the slack in capacity. Since the state justifies the 48" model on the thesis that it encourages more North Slope gas exploration by those who are not equity owners of Ak-LNG, that is a value that could accrue to the state and a new royalty/tax payer but not the other three equity owners. Accordingly, the state should also be prepared to shoulder other costs of the governor's 48" idea: 3) the additional cost of materials, labor and overall construction; and 4) the additional cost of operating any spare capacity in a 48" line that is, in essence, reserved by the governor for unknown future gas owners; and, 5) the cost of connecting any new gas shippers should be borne by the new "cost causers", not the existing 4-member consortium.
Unintended consequences. All of our respected elected and appointed officials mean well, "intending to represent the good people of the state of Alaska". However, while we cannot imagine or fully describe all possible unintended consequences of government attempting to control both its obvious and subjective interest in a free enterprise project, we have already articulated a number of traps and snares in earlier Northern Gas Pipelines commentary. All of these, and more, could require a significant amount of elected official time. As a refresher, here are a few of those possible traps and snares:
- Existing and future governors and legislators seeking to pressure the three private consortium members into accepting project expenses that do not benefit their shareholders. This dangerous possibility is created when one's peer, one's "aligned" partner is also one's regulator, one's royalty landlord and one's tax master.
- Elected officials "recommending" that AGDC talk with certain contractors about their capabilities--thus indirectly undermining AGDC contracting policies.
- Alaska elected/appointed officials in Juneau or Washington D.C. "recommending" employees/executives for AGDC consideration, thus attempting to influence employment practices that may corrupt established, fair hiring practices.
- Should AGDC be prohibited from hiring family and recommended friends of elected officials as a way to protect against the application of undue or even subtle influence? Members of the legislature work for private Ak-LNG affiliates; should legislators be permitted to work as employees or contractors for Ak-LNG, a public agency whose budgets and policies they control?
- Should the legislature, in this unique circumstance, create a "wall of ethical separation" between state officials and Ak-LNG's AGDC and private participants?
- Should AGDC, as Anchorage's ML&P has done in the past, purchase expensive "tables" or "tickets" at public events and invite elected/appointed officials to join executives at the event?
- Under what conditions should AGDC employees/spouses/families be given special treatment at public expense as private companies do at private expense (i.e. Christmas parties, birthday parties, retirement parties, summer BBQs, undocumented compensatory time, company vehicles, etc.? Can AGDC operate as a 'business' member of Ak-LNG under traditional state human resources policies? Should it? Do citizens want AGDC to become a "sponsor" of various community non-profit or government events, at public expense? Should AGDC use public funds to support member or board involvement in various community non-profits?)
- Should AGDC, acting as a 'business', develop community relations, stakeholder and public relations programs that result in the transfer of public money to private beneficiaries (i.e. travel, food, entertainment, scholarship programs, gifts, logo items, etc.).
- Should public meeting laws apply to AGDC 'business meetings and practices'?
- Should decision makers review the application of freedom of information requests to AGDC's public and confidential communications, especially when they could negatively affect private members of Ak-LNG?
- And, on, and on, and on....
Conclusion. We believe that for all these and many other compelling reasons, Alaska's elected officials should consider taking the following steps.
- Complete the buyout. We do not oppose the buyout of TC's participation in Ak-LNG. It might have been done differently. (i.e. One could have proposed amending, for robust committee discussion and debate, conditions the administration must meet prior to executing the buy-out. Those conditions might have eliminated many of the legislative concerns raised during the special session. The concerns included lack of an effective AGDC chain of command; role of the AG in AGDC business; confidentiality agreement regulations acceptable to Ak-LNG's private participants; conflict of interest rules and any other employee or agency practices that could or should deviate from state statutes and regulations. Of course, in committee these could be shown and agreed upon as related to the Governor's call.)
- Auction Alaska's equity interest to a qualified buyer. In view of the above, one could imagine sincere consideration being given to arranging a date certain (i.e. or, an appropriate time in the "stage gate process"), by which the state could conduct a world-wide auction of the state's entire equity interest in the Ak-LNG project under terms and conditions acceptable to both the Legislature and to the three private participants in Ak-LNG. If adoption of this sort of process is considered, it might be done only after passage of an acceptable constitutional amendment guaranteeing the private participants an adequate degree of fiscal certainty. Thus, any "alignment" issues affected by a sale of the state's equity could possibly be ameliorated. But in our view, this could only happen if the private project participants felt sufficiently comfortable with a new alignment of interests enabled by the constitutional guarantee of fiscal certainty .
Shedding Ak-LNG equity over time could permit the governor and legislature to focus all their energies and talents on the pressing problems of a state facing immediate fiscal crisis:
- an operating budget with a $3-4 billion annual deficit
- a disinclination to make significant spending cuts leading to a sustainable budget
- available savings to subsidize such a deficit for only another 2-3 years
- a current unfunded employee pension liability that is several times greater than the annual deficit
- an annual deficit that could expand to 90% of the current operating budget if the Trans Alaska Pipeline (TAPS) should fail. The hot oil pipeline now operates 3/4 empty, is losing throughput at a rate of 5-7% annually, and is vulnerable to a catastrophic shut down -- especially during a cold winter. TAPS over its life has already experienced a number of unexpected shut-downs resulting from maintenance, man-caused and force majeure events.
- If the TAPS should fail, it could affect the future of the Ak-LNG project, since producing Alaska North Slope (ANS) gas is enabled by both the production of oil and the extensive and expensive array of production and service facilities already existing there.
- 90% of Alaska's operating budget originates with oil & gas tax and royalty income, mostly from the ANS. Even if an LNG project becomes reality by 2025, the income it would generate would come too late to support a more immediate, significant loss in TAPS throughput. The volatility of the LNG market and the now-accessible world-wide reserves of shale oil and gas contribute to a prudent view that the state should not now be counting on any particular income from a gas project. Before counting its eggs, the state should wait until 20-year "take or pay" contracts are safely secured before an Ak-LNG final investment decision (FID) is made. Even then, in the final stretch, there is the potential for unknown and extremely dangerous delay and project completion risks. Perhaps the state legislature and governor should have a discussion and perhaps even call for a public vote confirming the public's risk-avoidance preferences.
- Decisions about state budget spending cuts/increases will be difficult and demanding enough. Inserting into the schedule of elected officials the overwhelming, additional burden of minding Ak-LNG equity exigencies will cross all legislative, executive, political, public relations, cultural, logistical, geographical and legal boundaries, and officials should be prepared for that.
- Controversies surrounding additional taxation or the Permanent Fund or Sovereignty Funds will introduce overwhelming challenges into a life for elected officials of perpetual crisis.
Dave Harbour, publisher of Northern Gas Pipelines, is a former Chairman of the Regulatory Commission of Alaska and a Commissioner Emeritus of the National Association of Regulatory Utility Commissioners (NARUC). He served as NARUC's official representative to the Interstate Oil & Gas Compact Commission (IOGCC).
The former Army officer is past Chairman of the Alaska Council on Economic Education, former Chairman of the Anchorage Chamber of Commerce, and past President of the American Bald Eagle Foundation and the Alaska Press Club. He is Chairman Emeritus of the Alaska Oil & Gas Congress.
Harbour has served as a public/government/external affairs manager for three gas pipeline companies and an oil company and has owned several small companies in Alaska.
He has addressed or chaired dozens of oil and gas conferences throughout the United States and Canada and hundreds of his editorials and articles have appeared in newspapers, magazines and electronic media throughout North America.
Harbour holds a Master of Science Degree in Journalism-Communications and is an accredited member of the Public Relations Society of America (APR).
Opinions or viewpoints expressed in this webpage or in our email alerts are solely those of the publisher and are not intended to -- and frequently do not -- reflect the opinion(s) of any affiliated company, person, employer or other organization that may, in fact, oppose the views stated herein. -dh