TransCanada's Keystone XL:
Our Northern Gas Pipeline (NGP) friends will want to tune in today to Alaska legislative video conferences dealing with
1) AIDEA financing of an Interior Energy Project (10:15 ADT), and
2) Hilcorp discussing Cook Inlet gas/North Slope projects and operations (12 Noon, ADT)
Letter from a reader: Dave: Thank you very much for having provided the opportunity to present to the public the example of injustice that the Orange Hill Taking exposes. Your description of the “War On Alaska’s Future” is excellent. More here (2-24-15)....
Yesterday, we opined that, We continue to wish Alaska's new governor well, but hope there's not a screw loose somewhere....
Today we decided to further refine the story and that will take us another day.
In preparing to critique it, we urge our gentle readers to review yesterday's references and to those we add two more today:
1. Please review our earlier commentary, "It's Our Oil And We Are Sovereign, By Golly!"
2. One of our most astute readers is a natural resource investor from Down Under--not associated with the large Alaskan producing companies.
Being a private, individual investor interested in Alaska and being a firm believer in "due diligence" he has rigorously analyzed Alaska as an "investment climate" for several years.
Last night, our friend penned his own commentary (right hand column) which we appreciate his having shared with us.
His unsolicited, personal views may reflect a number of sophisticated investor views everywhere.
We hope that by honestly and publicly discussing these matters Alaska's new governor may yet become successful and and that the state can avoid any critical, politically caused, train wrecks. -d
A commentary written by our Australian investor friend to his friends and colleagues in Alaska (Please read in conjunction with our 3-1-12 commentary):
I was minded to put fingers-to-keyboard by your Governor’s recent comments on the Alaska LNG and Alaska Gasline Development Corporation projects (AKLNG and AGDC, Aka., ASAP).
They sounded very much like one hears all the time in developing nations: “We are the owners, blah, blah, blah."
Of course, he misses the point here: the State is the freehold owner but it has leased its rights to extract to others on a long term basis, sufficient for those others to book reserves and contingent resources in connection with those extraction rights.
In developing nations it is often easy to understand the motivations of the political leaders who say such things.
Their statements are usually a combination of not being well educated in international commercial and legal matters (and who can blame them) and because they see an opportunity to personally profit from a State’s resources.
I would strongly presume neither motivation applies to Walker, who no doubt is merely (i.e. in his own mind) undertaking a minor political tactical play in connection with appointees to AGDC, etc.
However, does he not realize that LNG projects compete on a global basis and although AKLNG has leapt up the league tables over the last 18 months, its chances of achieving FID are reduced by playing petty politics? (See our commentary on LNG global competition: 1, 2, 3 -dh).
It is of course a complete joke to think that the State of Alaska could by itself somehow “procure” (expropriate?) gas from the Producers and then sole fund, build and market its own LNG project. That's the sort of thing the Government of Mozambique might say.
Anyway, I expect the Producers to just sigh and get on with things - with however another minor reservation in the back of their minds.
(Signed by our Australian friend....)
2-23-15 We continue to wish Alaska's new governor well, but hope there's not a screw loose somewhere....
In tomorrow's posting, we'll explain why we struggle with the logic of recent public statements. -dh
Meanwhile, we urge our readers to carefully listen to Governor Bill Walker's words from his news conference last week.
Then, we suggest that our discerning readers fill in any blank spaces by absorbing Walker's message in his Saturday, Mat-Su Frontiersman Op-ed piece:
|From Sunday's Fairbanks News Miner comes this related Op-ed by Senate Resources Committee Chairman, Cathy Giessel (NGP Photo):
Walker sincerely shares the same goals as myself, my colleagues and the rest of the state: it’s high time we got our gas to market. But when it comes to how that goal is achieved, his proposed road is a funny one. (See Rhonda McBride's KTVA commentary below.)
The governor had originally on the campaign called the AK LNG Project fatally flawed, that Alaska didn’t have a big enough stake in the project. Then the governor said the backup plan was redundant, that money was being spent twice. Once in office, the governor removed three highly qualified members of the Alaska Gasline Development Corporation board, and told his commissioners on the board to not sign confidentiality agreements, all in the name of transparency.
In contrast to the producer-driven AK LNG project, my intention is that ASAP be market-driven, with Alaska in control. Using existing funding, the project will explore market opportunities and financing arrangements with potential buyers of Alaska’s gas and will be designed for both in-state and export markets. Working with the buyers, the project will develop a financing plan anchored with long-term contracts for purchase of Alaska gas.
What it comes down to is this: we will work with the producers to continue to develop the AK LNG project. With ASAP, we will work with gas buyers to secure the opportunities the market offers. Whichever project is first to produce a solid plan, and conditions acceptable to the state, will get the state’s full support. Or, perhaps the two projects could be combined at some point along the way.
Given our financial situation, we can no longer afford to stand by and wait while Alaska’s future is decided in the boardrooms of international corporations that have competing global interests. (Also reference: FuelFix, Alaska Dispatch, Alaska Native News. -dh)
Governor’s actions on natural gas raise concerns for Republican majority
...the governor did an about-face on a project he had campaigned against — the Alaska Stand Alone Pipeline project, known as ASAP, or the “Small Line” — as opposed to the “Big Line,” the Alaska Liquefied Natural Gas project, which so far has been the main focus of getting North Slope gas to market for both in-state use and export.
Alaska Journal of Commerce by Andrew Jensen. The $8 million exacted from ConocoPhillips in order to receive its permit to construct the Greater Moose’s Tooth-1 project in the National Petroleum Reserve-Alaska is a rather elegant combination of old school protection rackets and third world government kickbacks.
News Miner. HB 119, from Rep. Andy Josephson, would require the commissioners of Natural Resources, Environmental Conservation and Fish and Game independently find that an applicant has proven beyond a reasonable doubt that a large-scale metallic sulfide mine within the watershed of the Bristol Bay Fisheries Reserve would not constitute a danger to the fisheries.
2-20-15 Alaska Gasline Board Appointees AND More On Fairbanks Gas LNG/Transportation/Distrbution Project
Yesterday, Alaska Governor Bill Walker appointed three new board members to the AGDC (Alaska Gasline Development Corporation, aka. "ASAP").
Video: note sound volume low in beginning, becomes normal after a few minutes.
STATUS: Interior Energy Project (Government project to establish a new, natural gas LNG / transmission / distribution system for Fairbanks Alaska.)
Here is our "links page" to the IAP for quick reference.
On February 12 we had become confused about status of the multi-hundred million dollar government program to provide one Alaskan community with low cost energy.
Since a previous administration had tried and failed to make such a project financially feasible, we wondered how a different administration would use the same agency (AIDEA, Alaska Industrial Development and Export Authority) to reinvent the project in a way that might serve the broad public interest.
We also include a reference to the regulatory docket, containing a full array of background information.
AGDC is the governmental corporation charged with building a small in-state gas pipeline down from the Alaska North Slope to South Central Alaska. It would serve consumers from the Interior community of Fairbanks to the largest population in the state, centered in Anchorage. The AGDC also serves as the state's representative to the larger, Alaska LNG project supported by TransCanada (i.e. of Keystone XL and Energy East fame), ExxonMobil, ConocoPhillips and BP. Most experts believe that only one of the projects will be built and that the AGDC project serves as a 'back up' project to serve consumers and provide smaller export volumes in case the larger project is never built.
The new AGDC board members replace three appointees of the previous Parnell administration whom Walker fired upon taking office.
During this video press conference, our readers will note that the qualification Walker most heavily counted on was the qualification of being an "Alaskan" (While the popular and provincial word, "Alaskan" refers to a fact of citizenship, it also connotes an emotional reference that, in this case, apparently substitutes for educational and professional credentials). This is an important reflection to investors, international trading entities and the federal government of the new governor's philosophy of governing.
Below is the text of yesterday's news release issued by legislative leaders whose original law created AGDC.
We will leave the video and press release record for our readers to digest. (Segments below, See the full release here....)
Thursday, February 19, 2015, Juneau, Alaska – House Speaker Mike Chenault (NGP Photo-R) and Representative Mike Hawker (NGP Photo-R-below), architects of the legislation creating the Alaska Gasline Development Corporation, urged a diligent review of the qualifications of three new board members appointed today by Gov. Bill Walker. The three appointees are former state Senator Joe Paskvan, a Fairbanks lawyer; former state Senator Rick Halford of Dillingham, a retired pilot; and Hugh Short of Bethel, a businessman and former mayor.
“AGDC’s original board members, some with international pipeline expertise, were a tremendous asset to AGDC,” Hawker said. Along with directing the organization, the public members added value by serving on subcommittees along with AGDC staff on commercial, engineering, and governance topics.
AGDC is not the only state corporation/entity to require specialized expertise in board members. The Alaska Aerospace Corporation, Alaska Housing Finance Corporation, Alaska Industrial Development and Export Authority, Alaska Permanent Fund Corporation, and Alaska Railroad Corporation statutes all require certain qualifications in board members.
In the case of AGDC, the presence of two cabinet-level commissioners on the board, not their designees, is designed to ensure the board as a whole considers the broader interests of the state and of all Alaskans in directing the organization.
The three fired AGDC board members were:
- Al Bolea of Big Lake, brought insights into governance and the oil and gas industry through his former roles as a BP executive; chairman of Alyeska Pipeline Service Company, and CEO of Dubai Petroleum in the United Arab Emirates.
- Drue Pearce of Anchorage, brought a wealth of expertise in federal rules related to permitting, a deep history of Alaska oil and gas development, and a comprehensive understanding of Alaskans’ needs through her former roles as a state senator; the Department of Interior’s Alaska advisor; and the federal coordinator for Alaska natural gas transportation projects.
- Richard Rabinow, of Texas, brought decades of experience in major pipelines, through his former work as President and CEO of Longhorn Pipeline Partners; as President of Exxon Mobil Pipeline Company; chairman of the Association of Oil Pipe Lines; and membership on the TransAlaska Pipeline System Owners Committee. See the full release here....
Our Friday IEP Commentary:
On February 12 we had become confused about status of a revised, multi-hundred million dollar government program to provide one Alaskan community with "low cost energy".
Since a previous administration had tried and failed to make an Interior Energy Project (IEP) financially feasible (i.e. for the Interior Alaska community of Fairbanks), we wondered how a different administration would use the same agency (AIDEA, Alaska Industrial Development and Export Authority) to reinvent the project in a way that might serve the broad public interest.
We were further confused about how the state could be considering such a huge new spending venture (i.e. even with funds obtained by an "Independent" public corporation of the state), when:
- it had already invested hundreds of millions of dollars into two gas pipeline projects that would flow gas right by the Fairbanks community, if built, and
- its operating budget, 90% dependent on Alaska North Slope (ANS) revenue was operating billions of dollars in the red, even before last year's 50% oil price drop, and
- its remaining savings accounts after this fiscal year will add up to approximately $9 billion, when the unfunded liability of the State's personnel retirement system is almost $10 billion, and
- when Alaska is the highest per capita debtor state in the nation, and
- Alaska is the highest per capita spending state in the nation, and
- the oil price drop is likely to guarantee a continued drop in ANS production upon which the state's government and economy are based.
Those realities pretty much beg for citizens to ask of their government, "Why are you undertaking any huge, new spending program -- no matter how well motivated it may be -- when the state simply cannot afford any new expenditures or risk?"
Since the logic defied our analysis, we sent questions to AIDEA. Some were admittedly better than others. As a former regulatory commissioner we posed some questions that may have been important, but without fully understanding all of the history and nuances. As a former oil industry executive and consultant to many of the large companies operating in the state, we asked several questions. And as a grandfather whose kids will end up inheriting the result of our state and national governmental decisions, we had questions, and still do, about the intergenerational equity of Alaska's rather cavalier, decades-old pattern of deficit spending.
So, please ignore the questions you find unhelpful and, please, feel free to send us your own questions which we will append to this commentary for reference of decision makers.
NGP February 12, 2015 Questions to AIDEA Below (slightly edited for this viewing) - AIDEA escaped answering our query and questions in this way
|Note: Yesterday we received a copy of Harvest Alaska's position, provided here for your review. Harvest seems relatively unconcerned about the transfer of LNG facilities directly to AIDEA, believing that AIDEA is bound by a sale and purchase agreement. Their greater concern probably rests with an Attorney General position to which the letter refers.|
2. Did the Administration ask AIDEA to change the focus from North Slope Gas to Cook Inlet gas? Does AIDEA believe Cook Inlet reserves -- as suggested in FNG's TA -- can now support both South Central Alaska and Interior demand? In the event that the new, Interior demand causes gas shortages or higher prices in South Central Alaska, is AIDEA comfortable with the obvious necessity of importing LNG (i.e. in the event a large ANS gas pipeline is delayed or found to be infeasible under prevailing market conditions)? How does AIDEA see the RCA process affecting its own project planning (i.e. the June 1 deadline for a final TA order)? Does AIDEA plan to involve Harvest Alaska in its planning process? Please explain.
|Since we are no longer privvy to the inner workings of the Regulatory Commission of Alaska (RCA) we asked one of the most foremost regulatory attorneys for a quick summary and links. His response is here....|
4. While state statutes allow for 'self regulation' of a municipal utility, does AIDEA see any value in having a more objective third party like the RCA economically regulate the FNSB utility--other than a local elected officials and/or a board of political appointees?
13. Since GVEA will, hopefully, be a major base load customer, how has AIDEA addressed CEO Cory Borgeson's concern expressed in a Journal of Commerce interview that, "As to whether or not AIDEA should look to Cook Inlet for a gas supply, Borgeson said the low wholesale cost of North Slope gas is hard to overcome." Has AIDEA acted to respond to that concern?
RCA Re: IEP LNG Sale Process
Since we are no longer close to the RCA's regulatory process, we asked one of the state's best respected regulatory attorneys to summarize the regulatory aspects of a proposed sale of LNG assets to Harvest Alaska, a Hilcorp affiliate.
Docket U-15-002 is FNG’s application (through Tariff Advice Letter TA37-514) for approval of a LNG supply agreement (LSA) with Hilcorp’s subsidiary, Harvest Alaska. The LSA is conditional upon the AG’s approval and upon the closing of the sale of the Pt. MacKenzie liquefaction plant and related assets from Pentex (FNG’s parent company) and Titan (FNG’s sister company) to Harvest. Attached to this email is FNG’s TA and the RCA’s Order No. 1 opening the docket. The link to the RCA web site for Docket U-15-002 follows: http://rca.alaska.gov/RCAWeb/
The liquefaction plant was transferred last year from FNG to Titan for no consideration, and is now being transferred from Titan to Harvest for undisclosed consideration. FNG has not requested, nor has the RCA approved, the recent transfer of control of FNG, the transfer of the plant to Titan, or the transfer from Titan to Harvest.
AIDEA politely answered our query and questions this way:
Good Afternoon Dave,
Please see the attached public documents. These should answer your questions.
BP and Commonwealth North: Two economic reports offer "Good News for Alaska"
Commonwealth North hosted its 9th annual Alaska Assets Review on February 18. The program recognizes that as shareholders of “Alaska Inc.” the citizens of Alaska need to be informed about how the assets of their company are performing. This year Northrim Bank President and CEO Joe Beedle (NGP Photo-L) and former Lt. Governor Mead Treadwell (NGP Photo) presented the performance review. Read full report....
BP’s Annual Energy Outlook also appeared this week; it has become one of the most reliable sources on the topic of the future of energy. According to this new edition of the BP Energy Outlook 2035, global demand for energy is expected to rise by 37% from 2013 to 2035, or by an average of 1.4% a year. (Our continuing question is: with greater worldwide shale production will Alaska cultivate a competitive investment climate benefiting the marketing of its remote natural gas and oil reserves?"
Reader reaction to our Tuesday column, "If I were President....", from retired Executive Director of the Alaska Oil and Gas Association, Bill Hopkins: "Dave Harbour for President! Love your executive agenda, Dave. GO, trooper!" Our readers will be relieved to know that we respectfully declined Bill's nomination. -dh
Alaska's Interior Energy Project (i.e. IEP, natural gas to Fairbanks area. Follow Legislative action.). Below we have the copy of an opinion expressed today by Ray Latchem, Alaska's longtime expert LNG entrepreneur. We believe the momentum behind Governor Bill Walker's (NGP Photo) revised IEP created during Governor Sean Parnell's (NGP Photo) administration is almost unstoppable at this point.
We do wish, however, that other creative ways of inducing the private sector to take on a similar project had not been so easily dismissed by decision makers. (See our IEP update page.) -dh
... consider adding an alternative move the governor could take that would achieve the goal of lowering energy prices in Fairbanks without costing the State a dime....
Instead of spending cash that's in short supply, make some Prudhoe Royalty gas that is abundantly available for free if someone will move it south to Fairbanks.
The Governor and legislature can do this without costing the State anything. This is how several Middle East LNG plants got started; the states made the gas available for cheap. It draws developers.
AIDEA has already spent the money to build the gravel pad for the LNG plant on the Slope. Let them contribute this to the effort. There are a couple of other improvements they could add to make it more attractive.
|Latchem raises a valid point; more demand and less supply results in higher prices. Note that South Central Alaska consumers have likely paid hundreds of millions more than necessary for Cook Inlet natural gas as the result of a short sighted and tragic 2006 decision by the Regulatory Commission of Alaska that rejected Henry Hub pricing as a basis for CI gas supply agreements. Alaska decision makers should put more emphasis on the counsel of experienced Alaskan energy players like Latchem. (Link to earlier Latchem correspondence re: IEP. -dh|
Another issue that needs discussion is Cook Inlet gas. It is trading at multiples of HH pricing. This actually costs South Central $MMs. Adding additional Interior energy loads to this market will only reinforce the gas pricing relative to competing oil, rather than gas on gas like HH. If the State encourages CI gas to go to the interior, they are in effect costing Anchorage a lot of money. When this becomes public in Anchorage, the notion of tapping Prudhoe gas for free to Fairbanks will be quite popular. Whisper this into the Governor's ear. Anybody doing anything with PB gas should be given a metal.
I didn't agree with SB23, but now that it passed and more than $15MM has been spent, they need to seek competitive bids to finish the supply chain. AIDEA should not own or operate the plant; leave that to those efficient private operators. They can provide low cost financing, the pad site, etc. things that will reduce the bid prices they receive.
The reason AIDEA should provide the financing is that none of the users in Fairbanks are willing to sign a take or pay agreement that ordinary lenders require to address the market risk associated with developing the LNG plant.
AIDEA's pad site could also host other gas development projects. Methanol production is only one. PB gas field is one of the few of its size that doesn't have a petrochemical complex.
It's time to unlock PB gas for something other than local consumption. Things happen very slowly with PB gas. It was first produced for field consumption about 1975. It took another 14 years before it was made available to Deadhorse next door. For 14 years Deadhorse ran on oil while atop 27 TCF of gas.
We put forth a plan that would have gotten PB gas to Fairbanks this year, but AIDEA selected a much larger but less experienced developer in what had to have been one of the most convoluted processes ever. The experiment failed. Now they should pick up the pieces and what's left of the money, get rid of the inexperienced consultants, ask experienced developers what type of structure would produce the most competitive price and move forward.
The solution is simple. Start with the cheapest wellhead gas price: free for so many years. This saves the Interior money and will limit the draw on the already over priced CI gas. So South Central benefits, too.
Next, use AIDEA's pad site they bought from us to be a host site for any small scale gas developments, starting with an LNG plant to supply the Interior.
I'm pretty sure the truckers don't want any help from the State, they will stand up for the opportunity to haul an extra 10 or more loads per day without any incentives. The State is providing them the road to run on, like it would provide the pad to the LNG developer.
FNG already is set up to receive LNG, but IGU and GVEA will need a receiving and storage site. GVEA purchased land in North Pole for this.
I could go on, but what's the point. Alaska still has a lot of money and the course is set to spend it. But I wonder, if (an economist) did a study that showed adding more captive demand to the CI gas supply resulted in every person in South Central paying $100 more than they would if there were fewer buyers in that market instead of more, that each of those people wouldn't prefer to tap PB gas instead.
Then (the economist) could study what happens when you actually do tap the gas like we did in 1989 when first gas was delivered to Deadhorse. Deadhorse has saved $MMs, cleaned up the air, etc. It was a completely private development.
Posted: 18 Feb 2015 06:24 PM PST
Commonwealth North hosted its 9th annual Alaska Assets Review on February 18. The program recognizes that as shareholders of “Alaska Inc.” the citizens of Alaska need to be informed about how the assets of their company are performing. This year Northrim Bank President and CEO Joe Beedle and former Lt. Governor Mead Treadwell presented the performance review.
A bit of a history lesson on the reason Alaska has the wealth of assets that it does. During the statehood debate, it was recognized that the state’s population would likely never have the critical mass to finance government through conventional means employed by other states, primarily per capita taxation. In recognition of the need for Alaska to have means to produce its own revenue, the state was granted 104 million acres of land and mineral rights to significant acreage on federal lands. From this, it was felt that Alaska could build and sustain an economy and pay for necessary government services. The annual program tracks the performance of Alaska’s assets, including natural resources, financial assets and enterprises.
The full report and presentation can be found at www.commonwealthnorth.org. A few highlights of the discussion are below.
Alaska's natural resources are abundant and a large part of Alaska's economy.
Financial assets are an important topic of discussion because of the budget issues being seen in Alaska.
The state’s enterprises are facing challenges, but are working to stay strong.
To wrap up, Alaska is challenged, but it is also well funded and well endowed. Many people are working on ways to find solutions to the state’s fiscal problems. Commonwealth North has produced a report for Alaska’s leadership. This report highlights some opportunities to work through the fiscal problems and ways to fix the budget gap. This report, Alaska’s Operating Budget: Critical Crossroads, Choices and Opportunities will be presented in Anchorage on February 25 at a lunch hosted by Commonwealth North.