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Debate over LNG heats up as the session winds down

By Rhonda McBride 12:42 PM April 12, 2014

With just a week left in the legislative session, some are asking if a liquefied natural gas project that could bring tens of billions of dollars to the state is possible.

On Thursday, the House Finance Committee heard from Rick Harper, a consultant who raised some serious questions about the proposal.

The co-chairman of the finance committee, Rep. Bill Stoltze, said he scheduled Harper to testify following a request by Democrats on the committee. And Stoltze said he thought it was a fair thing to do.

Harper has consulted for the state for years on oil and gas issues. And he’s seen many efforts to get North Slope gas to market fail.

But this project, he says, actually has a good chance of happening. But he has a warning.

“I will tell you from the get go, that my chief concern is the royalty in kind versus the royalty in value,” he said.

For oil, the state has primarily taken its royalties and taxes as cash.

Under the lease agreement, oil companies don’t charge the state for marketing its share of the oil.

But under the governor’s plan, the state would receive gas.

“It’s a huge concession that we’re giving the industry,” said Sen. Bill Wielechowski. “The current leases require they have a duty to produce, they have a duty to market the gas. “

Wielechowski believes the reason Harper hasn’t been heard from until now is because he’s a contrarian voice.

“He’s eminently qualified. In fact he’s probably the only expert that we’ve had that’s actually built pipelines. He’s actually managed LNG plants,” Wielechowski said. ”He’s someone we’ve been using in this state for decades. Republicans have used him for years.”

Commissioner of Natural Resources Joe Balash said the issues flagged by Harper are risks the state is aware of and has taken steps to mitigate.

The administration says there’s a reason there will no longer be an either/or choice for royalties and tax payments.

Gas contracts are long-term. And it’s not a good idea to switch back and forth.

“Virtually every lease I’ve ever seen and ever helped negotiate in the oil and gas industry has in it the right to take your share in kind,” Harper said. ”I personally have never seen it once exercised.”

Harper told lawmakers the state could take on a lot of risk marketing its own gas.

“The state is a minority player, not only in terms of the production from the North Slope area, but a minority player in terms of the world stage,” he said.

The administration of Gov. Sean Parnell says it could still turn out that oil producers will market the state’s gas. And the understanding now is that the state will not be charged for this service.

The state also wants the option to try marketing its gas on the table.

“There might be buyers out there who can provide the capital necessary to pay our share of infrastructure,” Balash said.

Infrastructure that will be the largest megaproject in Alaska’s history. The cost could run as high as $65 billion.

The administration said state ownership could help bring that cost down and make the project more likely to happen.

The governor’s legislation, SB 138, lays the groundwork for state partnership between Alaska’s three big oil producers and a pipeline company.

The House Finance Committee heard public testimony on the bill at 8 a.m. Saturday.

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