I was puzzled, but not surprised, when Gov. Bill Walker made his surprise announcement that he would seek an expansion of a state-led gas pipeline that is being planned as a backup to a large industry-led pipeline and liquefied natural gas project, which is now in preliminary engineering.
The state is a 25 percent partner in that.
House Speaker Mike Chenault and Rep. Mike Hawker sought details from the governor on the plan, worried that this would be interpreted as competing with the big project. Dissastified with the answers, they introduced a bill that would limit public funds being spent on the expansion until it was clear that the big gas project would not proceed.
What happened next astonished me. The governor reacted angrily, convening a hasty press conference and saying things he probably regrets, basically impugning the character of the bill sponsors.
This has brought relations between Walker and the House leadership to a new low (not really helpful to the governor's prime initiative, Medicaid expansion) but it was great political theater.
The next day House Democratic Minority Leader Rep. Chris Tuck, in a briefing for reporters, had some wise words: "I think both sides should cool down."
Good advice.
Let's step back and look at this: The governor said then, as he has several times, that he continues to strongly support the big gas project. The state-led project is a backup plan, he said. The governor believes the current design of the state pipeline is too limiting to be economically viable. By expanding the gas volume to be moved the economics improve, although the state would then have to line up buyers for the gas. This could be a company interested in developing an large LNG plant.
There is really nothing wrong with this as a backup although it must be clearly communicated that it is an alternative, and not competition. The state-led Alaska Stand-Alone Pipeline, or ASAP, is technically capable of carrying a lot more gas by adding compression. It would cost money, but it's doable.
Ironically, the previous board of the state Alaska Gasline Development Corporation, or AGDC, (three of whom Walker fired recently) wisely set the stage for this by expanding the pipe diameter of ASAP from 24 inches to 36 inches, which allows the pipe to move more gas. (By comparison, the large gas project has a 42-inch pipeline.)
AGDC has enough money appropriated by the Legislature, about $150 million, to do the preliminary engineering for the expansion. This was the money the governor wanted to take back a few weeks ago to help with the state budget shortage.
Spending this now on preliminary engineering for the expansion, or Pre-Front End Engineering and Design (pre-FEED) in project jargon, would get us a good estimate of what the cost would be. Proceeding on to the Front-End Engineering and Design, the full engineering, would take a substantial investment by the state, however.
This decision could probably be made late next year if the pre-FEED work can be done in time. The Legislature would have to appropriate these funds.
By then we'd likely know more about the big project, because results of the preliminary engineering and a revised cost estimate on that will be in by early next year. Presumably the necessary further agreements with the state, a partner in the project, will have been made.
Assuming the big project still appears economic (the revised cost estimate is important) the industry partners, including the state, can decide to take the next step, to the FEED. That is a multi-billion-dollar commitment and one that would not be taken, I believe, unless the project looks viable.
So where does that leave governor and his pipeline? As he said, an option.
Walker has decided to go ahead and spend the $150 million left in AGDC on the expansion, and this may be enough get some preliminary engineering done. However, it is prudent not to spend any more, on final engineering, until the fate of the big project is known. We'll know more about that by the end of 2016.
Some would argue that the $150 million is better spent this year back-filling some of the cuts to schools and state agencies, but the governor has decided on this course.
What's really important, however, is that the governor communicate his intentions clearly, to the industry partners and the public, that he is not trying to develop a parallel state-built pipeline that would be in competition with the privately-led project.
He needs say this not in press conferences and Op-Ed pieces, but in writing -- for example in instructions to the state gas corporation. That way, his intentions are clear. Right now, his intentions are not clear. There's a lot of suspicion, and that needs to be dispelled.
My own view is that if the industry can't put together a viable gas export project it's doubtful the state can build a successful one. There's always a huge state subsidy that could be paid, but that would pretty much consume the Permanent Fund.
I'm willing to take the governor at his word, however, that this is being done just to further develop an option. I can think of better uses for $150 million this year, though.
Tim Bradner is a natural resources writer for the Alaska Journal of Commerce.