Gov. Sean Parnell's new gas pipeline approach reminds me of the admonishment that those who don't know history are doomed to repeat it.
In the 1990s CSX permitted a pipeline to ship LNG to Asia, an effort abandoned because the North Slope leaseholders decided they would not allow a gas pipeline to be built until the state gave them "fiscal certainty." That means tax, royalty and regulatory concessions that are locked in from legislative change for decades.
Instead the leaseholders opted for enactment of the Stranded Gas Development Act in 1998. Still on the books, the act gives the governor power to negotiate a comprehensive gas pipeline deal, to be approved by the Legislature after a defined public process. The Murkowski Administration negotiated a deal with BP, Exxon, and ConocoPhillips while not so politely telling independent companies - like TransCanada, Warren Buffet's MidAmerica and California energy giant Sempra - to take a hike.
As you'd expect when you tell three large oil companies you're desperate for a deal, but will only negotiate with them, it was bad. The deal committed Alaska to tens of billions of dollars in oil concessions with no commitment to build a gas pipeline. The rest is history. Gov. Frank Murkowski's negotiating team quit, Alaskans got angry, the FBI arrested 10 percent of our Legislature bribed by oil company lobbyist Bill Allen trying to support it, and Gov. Palin got elected on a platform of standing up for Alaska.
Determined to break the Big 3 stranglehold, Gov. Palin sponsored AGIA. Its purpose was to bring in an independent company that would not hold gas pipeline development hostage over fiscal concessions on oil or gas. But AGIA was a flop. Alaska selected a project through Canada in 2008, and Exxon coopted the process and it again became about concessions to the leaseholders.
Gov. Parnell spent the next four-plus years letting the gas pipeline dream lay idle except for writing AGIA checks and giving Exxon back Point Thomson. He even awkwardly ignored that Asian companies responded to the 2012 open season TransCanada was required to hold under AGIA with an interest in purchasing twice the capacity of an Alaska LNG project.
In a pre-election epiphany the governor has rediscovered "alignment" and announced a plan with the big 3 to provide fiscal certainty via an iteration of Gov. Murkowski's contract. So Alaska is at a familiar decision point. We can either hope the monopolists will undertake an already profitable project if we give untold billions of dollars in concessions, or we can allow free markets to work by empowering other companies - namely the Asian buyers - to build a project.
Unfortunately Gov. Parnell has made clear he intends to follow Gov. Murkowski's approach and deal exclusively with the leaseholders. Although the particulars are not public, certain details are worth discussing.
AGIA is not over. Rather TransCanada agreed to drop AGIA later if it gets the state's share of the pipeline. The governor gave away one of the few positives of Gov. Murkowski's proposal, that we would own our throughput share, to buy off TransCanada.
Gov. Parnell's plan suffers from the same fatal flaw as Gov. Murkowski's. Like most state constitutions, ours prohibits surrendering the power to tax. The rub is that what the Big 3 demand - unchangeable tax terms - is exactly what is prohibited. Gov. Murkowski proposed a constitutional amendment. Gov. Parnell wants to end-run the constitution by eliminating production taxes entirely in exchange for the state receiving physical delivery of gas rather than tax payments.
Finally, for all the faults of Gov. Murkowski's deal, he chose a public process. It was presented in its entirety after innumerable written findings and public hearings. Gov. Parnell could follow the same public process, but is choosing a piecemeal approach to feed the same deal to Alaska one uninformed bite at a time.
Craig Richards grew up in Fairbanks and now lives in Anchorage. He holds a BS in finance from the University of Virginia, a law degree from Washington & Lee University, and an MBA from Duke. He practices law with independent candidate for governor Bill Walker, but the views expressed herein are exclusively his own.
By CRAIG RICHARDS