The Alaska LNG Project: More questions than answers for lawmakers
JUNEAU – Before the legislative session started, the governor, oil industry executives and a pipeline company came up with a road map for bringing North Slope gas to market.
The problem is, it’s a map to a place that none of them have been before. And it’s a road trip they’ve committed to taking together, something they’ve also never done before.
The main road map is a document called the Heads Of Agreement, called this because it was signed by the “heads” of ExxonMobile, ConocoPhillips, BP Exploration, TransCanada and the State of Alaska.
At Senate Finance Committee hearings this week, lawmakers learned that this roadmap is for a journey into undiscovered country; that those who came up with this map really don’t know what’s ahead.
On Wednesday, Sen. Mike Dunleavy pushed for specifics. Mainly, the Wasilla Republican wanted to find out who’s the boss of this trip.
“Who is going to build a pipeline?” Dunleavy asked the partners sitting at the end of the table.
Bill McMahon from Exxon, David Van Tuyl from BP, Pat Flood from Conoco Phillips, Dan Fauske with the state’s Alaska Gasline Development Corporation and Tony Palmer of TransCanada were all part of the conversation.
They best they could come up with? All of them would build the pipeline, together.
Dunleavy pressed on.
“Is there an entity that’s going to take the lead?” Dunleavy asked.
Finally, a direct answer.
“Today, the lead party for this group is ExxonMobil,” said BP’s Van Tuyl.
Longtime observers of the state’s quest to bring its gas to market said the answer to that question is significant.
It says Exxon is the one at the table that matters the most.
Another revealing set of questions that were posed: What do the players like and dislike about the project?
“At this point, I don’t see any downsides in the way we are organized,” said Exxon’s McMahon.
“The entities before you represent something like 98 percent of the known gas on the North Slope,” Van Tuyl said.
The players also talked about the cooperation they’ve enjoyed thus far amongst the parties, who have previously been competitors and often in adversarial roles. They talked about this new relationship’s success, almost as if it was a surprise that it was even possible to work together.
“There’s a lot I like about the arrangement,” Van Tuyl said. “The fact that we have all these entities aligned in front of you is tremendously important.”
Important and historical: To see former competitors sitting together at a committee hearing as a team is a new experience for lawmakers.
As for what the partners said they didn’t like? The answers came quickly.
“I think maybe the one thing I don’t like is just looking forward at a price tag of a project that’s potentially as high as $65 billion,” Van Tuyl said.
“I don’t like how much it costs,” Flood said. “We would love it, if this could be done for a lot less money.”
“The scale of the project is something all parties wish was smaller,” said TransCanada’s Tony Palmer.
“It’s almost hard to put your head around a $60-65 billion project,” said AGDC’s Fauske.
A realization is starting to gel as more of the roadmap gets revealed. It’s more like a map sketched on butcher block paper, not something you find in an atlas or even a pirate’s chest because the treasure — the money — is not located in one place with a great big X mark.
The wealth to be gained is spread across this 800-mile project; from the gas treatment plant on the North Slope, down a pipeline connecting to a liquefaction plant at Nikiski.
The money will come from the fees charged for treating, shipping and processing the gas. There will also be jobs and new infrastructure subject to property taxes, as well as spin-off industries.
But getting liquified natural gas to market requires three megaprojects in one — like climbing Denali, too daunting for any one party to go it alone. In most other LNG projects, the gas is very close to the port where it’s shipped, not across a vast distance of geographically challenged terrain.
Alaska’s share in the project could be as high as $11-17 billion.
For that kind of money, lawmakers understandably want some guarantees as they weigh the merits of Senate Bill 138, the governor’s enabling legislation for the exploratory stage of what’s being called the Alaska LNG Project.
“In this legislation, Alaskans need to know that we are going to benefit from this gas line directly,” said Senator Lyman Hoffman, who represents a district in Southwest Alaska, which has some of the highest energy costs in the world.
For lawmakers, there was acknowledgement at the table that getting gas to Alaskans is part of the plan, and important.
“A successful project will have to get gas to Alaskans,” Van Tuyl said.
The “Heads of Agreement” specifies that the project will include five off-take points from the main pipeline.
But beyond that, there are no specifics about where or how the gas would get to Alaskans.
“Basically those off-take points are a T in the line with a valve, and then what happens downstream of that valve would have to be customized to the customer who would be taking the gas,” said Exxon’s McMahon, who explained that different customers — depending on their needs — will have to have the gas delivered at different pressures.
AGDC’s Dan Fauske explained that it’ll be up to other entrepreneurs to figure how to deliver this gas to Alaskans and make it commercially viable.
Although the state has some of the largest reservoirs of natural gas in the world, getting that gas to Alaskans has never been economical. There aren’t enough Alaskans, and they’re scattered over too great a distance.
But with a line shipping large volumes of gas for export, the concept of getting gas to Alaskans might pencil out.
Tuesday’s discussion in the Senate Finance Committee sharply outlined the competing interests.
The producers are focused on getting gas to markets outside Alaska. That’s where the profit is for them. The state treasury also needs that gas to be sold in large volumes.
And Alaskans, who need just a tiny amount of that gas, will be expensive to serve.
“We want a large amount of gas being sold, so it drives down the price,” Dunleavy said. “But we also have just as an important issue for in-state residents: How do we lower their energy costs?”
These are questions that can’t be answered now, and perhaps for some time.
Finance Committee members were told that this is a gated, staged project. At each phase, the parties will decide whether it’s worth it to go to the next stage. Any one party could also drop out of the project until there’s a decision to build the LNG project, which would come sometime between 2018 and 2019.
The cost for the state for this early engineering and design phase could run as high as half a billion dollars. Lawmakers don’t like the idea that if the project eventually falls through, the state’s money would be gone.
And there’s that risk.
Outside investors would still be needed to bankroll the project. If banks and companies with cash to invest find the Alaska LNG Project too risky, getting North Slope gas to market could remain an impossible dream.
But Fauske summed up the state’s position for moving forward.
“The cost of doing nothing exceeds the cost of the project,” Fauske said.
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