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Australia's gas-deal gain is Alaska's loss

Dan Fagan

Wouldn't it be exciting to wake up one morning and read in the Anchorage Daily News that a $40- to $50 billion gas project has been approved and gas will be flowing out of Alaska by 2014?

A story just like this ran Friday morning in The Wall Street Journal. The Journal reported on the greenlighting of a huge project to produce natural gas reserves tapping into 40 trillion cubic feet of gas, the equivalent of 6.7 billion barrels of oil. The paper reports that even by the standards of Big Oil, the project involving Chevron, Exxon and Shell is huge.

The only problem is the gigantic project does not involve Alaska. It's based in a remote corner of Australia. The LNG project, named Gorgon after the offshore field where the gas will be produced, will elevate Australia to the position of a major global energy producer and create 6,000 high-paying jobs.

The tragedy is Shell Oil could be spending the same capital and creating similar high-paying jobs in our state, but Alaska's North Slope Borough successfully sued to block offshore drilling off the coast of Alaska. Thanks to Mayor Itta of Alaska's North Slope Borough, good-paying jobs are off to Australia to boost that country's economy, while we are seeing layoffs in the oil industry.

The big question is: How did leaders in Australia clear the way for Chevron, Exxon, and Shell to commit to a $50 billion project, while the big oil producers in Alaska refuse to commit to building our gas pipeline? And you can expect the producers to continue to refuse to do so when the two open seasons hit next year.

The key to the producers committing billions to the Gorgon project could be summed up in the first line of a recent story coming out of the Australian newspaper Perth Now.

It read, "(Australian Prime Minister) Kevin Rudd lavished incentives on producers for the proposed $50 billion Gorgon LNG project, hoping to shore up investor support."

Lavished incentives! Is that anything like passing such legislation as A.G.I.A., which effectively prohibits the producers from building and owning a gas pipeline? Or is lavishing incentives anything like raising production taxes on the industry 400 percent through A.C.E.S ., the third tax increase in four years? Maybe lavishing incentives is similar to the state's foolish refusal to even give the producers the rules of the game by giving them fiscal terms?

Obviously, Alaska politicians have taken a very different approach to getting our mega-project going as the leaders in Australia have. It's pretty clear which approach is working.

Here's the terrifying part. The Wall Street Journal reports oil and gas companies are racing to get their projects approved and in production as quickly as possible to lock customers into supply contracts. Chevron, Exxon and Shell have already agreed to sell most of their Gorgon gas through long-term contracts that link the price of the gas to the price of oil. Delayed projects such as the Alaska gas line could be left out in the cold when it comes to securing long-term commitments from buyers. In other words, time is not on our side.

Three years ago, the state had a deal with all three producers to clear the way for a pipeline. The legislature rejected the deal and then the new governor refused to negotiate with the producers to work things out. So here we sit in 2009, still refusing to sit down with the producers and give them the fiscal rules of the game. It's the only real role the state plays in the process and we are blowing it.

Our state leaders don't seem to grasp the sense of urgency. There is no talk of reversing the job, killing high taxes currently in place or giving producers the fiscal terms in the upcoming legislative session they need to forward the gas project. No fiscal terms, no successful open season in 2010. While state leaders seem intent on positioning themselves as tough on Big Oil, Alaska's hope for a prosperous future could be slipping away.

Dan Fagan hosts a talk show on AM750, KFQD. You can reach him at faganreport@me.com.


DAN FAGAN
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