FAIRBANKS -- The political pronouncements and news stories about the proposed gas pipeline have made much of predictions that a decade from now the state will be collecting anywhere from $3 billion to $4.5 billion a year from natural gas. But there's a problem with every dollar figure.
“The actual precise numbers, you can say only one thing about them, which is that they’re all certainly wrong," consultant Janak Mayer told legislators this week.
Mayer and other consultants who have included precise numbers in their PowerPoint presentations to legislators are now taking pains to say that it’s far too soon to use specifics about the revenue future. That hasn’t stopped them from offering details in their presentations, however, which tends to give the public the wrong impression when the numbers are quoted by reporters and politicians.
For instance, Black & Veatch, the consulting firm hired by the Parnell administration, introduces many of its presentations to lawmakers with a slide that says $4 billion to $4.5 billion in additional revenues can be expected in 2024, based on the state forecast. That statistic has been widely quoted, almost as if this is as predictable as the length of the pipe.
But every slideshow and every news story should be prefaced with a disclaimer saying no one has enough information to say today just how much the gas pipeline would cost or how much the state would collect in a decade. The use of specific numbers masks the degree of uncertainty that surrounds this project.
At this stage there is “fairly limited information,” which is enough to show trends and directions but not enough to justify exact numbers, Deepa Poduval, an executive with Black & Veatch, told lawmakers Tuesday.
“Is the revenue going to be $4 billion from this project? I’m not sure I would bet anything on that,” she said. “There’s lots of uncertainties that are yet to be resolved about this project.”
But that hasn't stopped her from using slides with that number.
“All we’re doing here is making assumptions based on the best information that you have today,” she told legislators. “As more and more information becomes available, the numbers will start being better.”
A day earlier, Anchorage Republican Rep. Mike Hawker, who has asked the most in-depth questions in the House Resources Committee, raised this topic with Mayer and Nikos Tsafos, partners in a consulting company called enalytica, hired by the Legislature.
“We’ve got some numbers here that look awfully precise. What’s the probability and certainty that these are in fact the numbers?” Hawker asked. “Do you know something about the planning and execution of this project that we are not privy to?”
Mayer said he has tried to state clearly on the record that they are “very, very abstract terms”:
“These are sort of order of magnitude indications. They should not by any means be taken as precise forecasts of what will happen here because there isn’t even a project scoped out in any detail to understand and to analyze.”
“These are very, very, very rough indications -- directionally -- of what could happen,” he said.
He said the revenue numbers are “quite a bit lower” than those offered by Black & Veatch and the administration, citing different assumptions about Point Thomson as one factor.
Hawker said hearing of the differences between the administration's consultant and the Legislature's consultant is cause for concern.
“I think if you compare them you’ll see that directionally we come to very similar conclusions on a lot of the core issues,” Mayer said.
“But when it comes to specific revenue amounts, for instance, that they show in later years, there are a wide range of differences,” he said. One difference, he said, is that the consultants did not use the same approach in dealing with the future impact of inflation on the value of the dollar.
Hawker said while enalytica is using $11.7 billion as a state cost for construction, if TransCanada is not involved, a comparable administration proposal uses $13.2 billion.
Mayer said he would expect to see differences, and the gap is not surprising.
“These are actually very close numbers from the perspective of just how little is known about this project,” he said.
“Any numbers you see will be an abstract effort to represent what the possible future looks like. In a year and a half you’ll have substantially tighter numbers with substantially better estimates.”
One clear warning about numbers from the consultants was this: If the total project cost comes in at $65 billion -- which the oil companies have pegged as the upper end of the cost range -- they don't expect the companies will decide to build. For its base case estimate, enalytica used $49 billion, which is near the $45 billion low end of the estimated cost range.