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Alaska's next move

Andrew Halcro

I've been singing long enough about the oncoming failure of the Alaska Gasline Inducement Act (AGIA), the loony legacy that will be attached to Tom Irwin's era at Alaska Department of Natural Resources (DNR) and the populism-driven promises of a free lunch that everyone seems to buy into with reckless abandon.

Money for nothing and your pipeline for free.

However, the press framing of today's story regarding a new entrant into the lieutenant governor's race highlights how Alaska's gas pipeline policy has turned into "Let's Make a Deal."

Every candidate has apparently morphed into Monty Hall and they're working hard to sell you what's behind curtain number three.

According to the Anchorage Daily News, Mat-Su Borough assemblyman Mark Ewing filed as a Republican candidate for lieutenant governor, throwing himself behind efforts to build a large-diameter gas pipeline from the North Slope to Valdez.

Excellent.

Another candidate who believes they'll have a say in which markets the gas goes to.

If you're keeping score at home; the race for lieutenant governor has two serious candidates. Jay Ramras supports bullet line to take care of Alaska's needs first and now Mark Ewing says he's for the line to Valdez to export liquefied natural gas (LNG).

The race for governor in the GOP primary has the three serious candidates and all of them have staked out a different position. Ralph Samuels, like Ramras supports a bullet line to take care of Alaskans needs first and possibly export. Bill Walker, like Ewing supports the LNG line to Valdez for export.

Gov. Sean Parnell? He's all alone wrapped in an embrace with AGIA, trying to convince everyone that the grenade Palin left him won't go off.

So ... where do we go.

All of them are right and all of them are wrong. Look, Mark Ewing seems like a bright enough guy to realize that markets dictate where a commodity goes, not politicians

All three pipeline ideas have merit but they won't make a bit of difference until we offer investors the path to decide what project pencils out.

After months about hearing conflicting reports about shale gas, the dean of oil & gas, Daniel Yergin, stated in a speech that the developments of fracking and seismic have been the greatest changes in the oil & gas industry in a century.

Shale is for real.

So exporting gas to foreign markets might be an option.

Well, is President Obama really going to allow Alaska's gas to be shipped to China when he just took steps to open up more drilling in Alaska federal waters?

And what about energy security? Exporting gas doesn't seem to serve the purpose of protecting our nation's security. And President Obama has already pledged to displace dirtier forms of energy and replace it with clean sources. What's cleaner than natural gas?

Meanwhile, the bullet line would be expensive and would require a large, industrial users to make the numbers work. Using Permanent Fund dollars to fund the pipeline is a risky proposition, and in the long run, it would be better to move forward quickly and attract investment the proper way.

The state of Alaska currently has almost $10 billion in the bank. We have the cushion to offer fiscal incentives that will cost today, but can be easily absorbed until the incentives make it through the corporate structure and begin providing a return. The candidate who takes the long view is the true leader.

Parnell's AGIA will fail because it completely ignores the prudent decision trees that grow in board rooms.

Just how bad is AGIA today?

The Federal Energy Regulatory Commission (FERC) recently ruled that TransCanada must immediately make its data available to prospective suppliers so that they have sufficient time to review necessary information regarding currently withheld technical and financial details.

The FERC ruled on the issues because both BP and ConocoPhillips appealed that the AGIA process had not given them enough information to make an informed decision.

Let me put this into perspective. AGIA is asking you to commit hundreds of billions in ship-or-pay commitments, and it takes you appealing to the independent agency just so you can get some complete financial information.

In addition. the three major producers just all protested the state's royalty incentives adopted through AGIA regulations.

Here are some of the responses:

"The proposed regulations fail to provide certainty and clarity, The proposed regulations would not result in a reasonable valuation of the gas, Gas valuation should reflect the actual costs for gas treating, other product disposition, gas transportation and natural gas liquids (NGL) extraction."

But the biggest surprise came from Claire Fitzpatrick, chief financial officer at BP,who pointed out in a March 22 letter to DNR that one of AGIA's own regulations violated the intent of the Legislature.

"AGIA offered the option of a contractually binding royalty inducement, in the form of royalty regulations to be known in advance, as an incentive to lessees to commit gas to the upcoming pipeline open season. However, including a clause in the "contract" that allows one party to unilaterally change the regulation effective nullifies the Legislature's attempt to provide fiscal predictability."

Meanwhile, the big line, the bullet line and LNG options might still be available if the state gets back to the two things it can control in this project: permitting and taxes.

First we have to stop viewing the pipeline options as all or nothing.

They fact is right now they are all nothing because they are not economically viable.

If the LNG route is such a cash cow, why isn't there any private sector interest?

We need to focus on creating a positive investment climate.

Putting in place competitive long-term gas tax rates and workable fiscal predictability is the only way these companies can evaluate which pipeline route makes sense.

There has to be a clearly understood equation of risk and value for the producers, just as the state has to meet its constitutional requirement of maximizing the benefit of the resource.

The quest is in finding the sweet spot.

This will only be accomplished by face-to-face negotiations, not idle threats.

The Legislature would be wise to create a special committee to tackle the issue of long-term certainty. The committee could report to the new Legislature next January, which would give the Legislature two years to approve a ballot question.

Long-term fiscal certainty is the key.

The sooner we act by adopting a competitive tax regime and longer fiscal predictability, the sooner the producers can determine the economics of each pipeline project and proceed ... the same way you or I would if we were accepting a few hundred billion in risk.

That's Alaska's next move.

Andrew Halcro is the publisher of AndrewHalcro.com, a blog devoted to Alaska issues and politics, where this column first appeared. He is president of Avis/Alaska Rent-A-Car, his family business. Halcro served in the Alaska House of Representatives from 1999 to 2003, and he ran for governor in 2006 as an Independent. He and Democrat Tony Knowles lost to a woman named Sarah Palin.

Talk of theTundra features commentary by Alaskans from across the state. The views expressed are the writers' own and are not endorsed by Alaska Dispatch.