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Natural gas legislation cruises towards Senate vote

By Rhonda McBride 5:33 AM March 18, 2014

Critics warn SB 138 is moving too fast; new reports raise doubts about LNG megaproject

JUNEAU – So far, Gov. Sean Parnell’s natural gas legislation has been on a steady march to passage, with a vote in the Senate expected Tuesday.

The measure would enable the state to proceed in a partnership with three oil companies — ExxonMobile, BP and ConocoPhillips — as well as TransCanada, a pipeline company.

Democrats have tried to put up some red flags. They say Senate Bill 138 is moving too quickly through the Legislature. They point to two recent reports, which raise some serious questions about whether state ownership in a liquefied natural gas project makes sense.

The first report — written by Roger Marks, a consultant for the state — was submitted on Feb. 18, but did not come up for discussion in the Senate Finance Committee, where the bill has been heard for about a month.

Another report — written by Rick Harper, a consultant who has worked as an advisor to the administrations of former governors Sarah Palin and Frank Murkowski — was just completed for the Legislature.

Both reports urge the state to proceed with caution.

“We should hear from the experts before we vote,” said Sen. Bill Wielechowski, who believes the bill should go back to committee to discuss some of the potential flaws identified by the consultants.

“They are very well regarded experts, and they were hired by the Legislature for the purpose of helping us figure out whether this extremely complex deal was a good deal for the state,” Wielechowski said. “Both experts came back and expressed serious, serious concern about the way forward, and it’s troubling we haven’t had these experts before us in legislative committee.”

Sen. Anna Fairclough is chairwoman of the Legislative Budget and Audit Committee, as well as vice chairwoman of the Senate Finance Committee.

Although Democrats say they’ve only recently discovered the existence of Marks’ report, Fairclough said it’s been posted on the committee’s website since Feb. 18.

The research was requested by Sen. Kevin Meyer, who said he read it and passed it on to certain colleagues. He said he also used it as a basis for formulating questions for Parnell administration officials and other consultants during recent Senate Finance Committee hearings.

Meyer said he saw no need to have Marks testify before the committee because he covered a lot of the same ground as other consultants.

Meyer also said he’s surprised Democrats want to hear from Marks, because they didn’t agree with him last year when the Legislature used him as a consultant for SB 21, the oil tax legislation that passed last year.

In his latest report, Marks warns the Legislature, “It is far from certain that the project will happen.”

He wrote about the growth and increasing competition in the Asian LNG market, which would be the primary customer for Alaska gas.

“There will be twice as much supply chasing the Asian market as there will be demand in 2030,” Marks wrote.

He also had this warning:

“Given this will be a 50-year project (or more) worth several billion dollars to the state, it is important to structure it carefully. The state has time to figure out what is in its best interests without being hurried.”

Fairclough and other lawmakers in support of SB 138 believe the opposite; that time is of the essence because contracts for gas are long-term and the state has a narrow window to lock in customers.

Marks is also critical of the governor’s plan for the state to partner with TransCanada and have the company finance a share of the state’s equity in the pipeline.

Marks warns that the state will be on the hook for TransCanada’s costs if the LNG project falls through.

“Should this occur, the state is responsible for TC’s costs even if the state does not exercise the ownership option,” Marks wrote.

The report from Rick Harper, who was recently engaged as a consultant for the Senate minority, warns that the partnership will lead to a “misalignment of interests” between the state and North Slope producers. He also said the state would be a minority owner and would not have the leverage it currently does as a regulator.

Harper also questioned whether it was wise for the state to take its royalty gas and taxes in gas rather than cash payments; that it should be careful to avoid transportation costs.

Harper also said the proposed legislation does not protect the state from having to offer more concessions to oil companies in the future.

Some other cautions: Doing business with LNG producers carries a high risk for entanglement in lawsuits. Also, expansion of the project to other producers could be difficult under the proposed setup.

Senate Finance Committee members say most of the issues raised in the Harper and Marks reports have been covered in committee hearings thus far.

Natural Resources Commissioner Joe Balash, who has been one of the point people for the governor on LNG legislation, said a lot of the criticisms in the report have already been part of the discussion.

“Certainly if there’s a question that hasn’t been asked and answered to date, we’d be happy to,” Balash said. “My brief review of the reports, however, suggests we have answered the questions.”

Balash also points out that SB 138 is just a starting point for exploring whether a $45-65 billion LNG project can attract investors and customers.

“Let’s take a couple of steps. Get as many questions answered as we can, come back to the public, back to the Legislature and take the next step – which, by the way, won’t be the final step,” Balash said.

SB 138 calls for less than $100 million in state spending for the exploratory phase of the project.

When it comes down to it, Fairclough said, megaprojects are inherently risky.

“I think there are a lot more conversations to be had about all this,” Fairclough said. “But really most of the questions being raised are the downfalls of megaprojects. I think we all need to pause. All megaprojects have risk. It just depends on our tolerance for that risk.”

Fairclough said the bill has been in the Senate long enough and needs to move to the House.

“It’s a team effort in politics. We have two different bodies,” Fairclough said. “We have 90 days to get the people’s business done. The House needs the opportunity to crack this nut.”

Democrats are expected to push for a number of amendments when the bill comes up for a vote on the Senate floor Tuesday.

“Alaskans desperately want a pipeline, and it appears that we’re taking some shortcuts here,” Wielechowski said. “At least to look to the public like we’re making progress, when we may be hurting ourselves more than we’re helping ourselves.”

Click here to view the full Roger Marks report.

Click here to view the full Rick Harper report.


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