Opinions

State needs a gas line backup plan if producers don't come through

Editor's Note: The following is the text of Gov. Bill Walker's March 26 letter to Sen. Cathy Giessel, chair of the Senate Resources Committee, making his case for a backup gas line plan and for his opposition to House Bill 132, which would limit his options in negotiating a gas line deal. A commentary from Speaker of the House Mike Chenault and Mike Hawker, chair of Senate Finance Committee, was published on the heels of Walker's letter below and is available online.

Dear Senator Giessel:

I want to make it clear that I and my administration absolutely want the AKLNG project to succeed. Additionally, we are appreciative of the work the Legislature did on SB 138 to create a process that increases the chances for a successful project. But as hard as we work on this process, it does not guarantee a project. That is why I proposed continuing the process of making the Alaska Stand Alone Pipeline (ASAP) an economically viable back-up to AKLNG.

It is my intention that we, as a State, continue to diligently negotiate and work with the producers on the AKLNG project. For the ASAP project, I am proposing that the State evaluate increasing the project's gas throughput to make it an economically viable back-up. The Alaska Gasline Development Corporation (AGDC) Board recently passed a resolution directing the corporation to develop a cost estimate and a projected schedule for 36-inch diameter pipe at two different strengths. This is in keeping with the 2013 AGDC project plan amendment that increased the pipe size from 24 inches to 36 inches.

It is also my plan that the State continues discussions with Asian LNG buyers to preliminarily explore their interests in the back-up ASAP pipeline should AKLNG fail to come to fruition. As the AGDC president commented in a press release after a February 2014 presentation by the Japanese consortium Resources Energy Inc.: "REI would be an excellent anchor tenant for the ASAP project," and the "presentation reaffirms our belief that we have a commercially viable project capable of delivering gas to Alaskans by 2020."

Much like AKLNG and the original plan for a smaller ASAP pipeline, details pertaining to financing options, equity ownership, costs, governance and other elements of the project will be determined as the project develops.

My reasons for moving forward with steps to make the ASAP project an economically viable back-up are as follows:

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• The decision on whether to advance the AKLNG project to the next phase of engineering and design is out of the State's hands (currently scheduled for second quarter of 2016). Any one of the three producer partners and TransCanada could decide not to move forward for reasons having nothing to do with Alaska.

• ASAP also provides a back-up for any producer party as well as the state to ship gas if AKLNG does not advance.

• Nothing that is being proposed for ASAP diminishes or impinges on the chances of the AKLNG project succeeding.

• I contacted our AKLNG producer partners at a high level prior to announcing my plans for ASAP and have continued discussions with them since. All have indicated an understanding of my proposal and a willingness to continue making progress on AKLNG.

• Having a viable back-up plan is in keeping with how our producer partners do business. These companies work simultaneously on numerous potential LNG projects worldwide. As ExxonMobil stated in their March 4, 2015, analyst meeting, "Simply put, our large resource base affords us the flexibility to select and develop the most attractive opportunities … We start with high-quality resources with stable, competitive fiscal terms from resource owners. We choose to invest selectively in only the most attractive."

My reasons for opposing HB 132 include:

• By putting a hold on ASAP as proposed under HB 132, we are betting the fiscal future of Alaska on all four of the companies agreeing that the AKLNG project is the "most attractive" of each company's multiple options. We cannot take such an extreme risk when we are facing a $4 billion deficit. A successful gas project is key to Alaska's economic future.

* In 2006, the Stranded Gas Development Act contract failed in large part because the State put all of its eggs in one basket and then imposed timelines on itself for reaching an agreement. This gave the producers significant leverage to negotiate terms that led to an unacceptable and failed contract. If we tie our hands through passage of HB 132 and do not provide Alaska with a viable alternative, we run the risk of making the same mistake.

* The bill will substantially harm my ability to negotiate terms favorable to Alaska within the AKLNG framework.

* AKLNG is scheduled to make a decision regarding FEED in the second quarter of 2016; however, it appears that HB 132 grants AKLNG a one-year extension on that date to July 1, 2017. Managing the AKLNG project through legislation is not in the State's best interests.

Again, I want to make clear that AKLNG is my administration's preferred option; but we need to be prepared with a fallback if all of the parties to AKLNG are not able to clear the hurdles set out in the 2014 Heads of Agreement.

Sincerely,
Bill Walker
Governor

Bill Walker was elected governor of Alaska in 2014.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com

Bill Walker

Bill Walker, an independent, served as the eleventh governor of Alaska.

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