Platt's recent "Inside FERC" newsletter outlines the continued challenges that Alaska's natural gas pipeline faces betwen the state's ill-conceived AGIA and rapidly changing market conditions.
In a November publication, for the second time in as many months, a senior Alaska official is publicly rewriting history instead of simply admitting the truth about the imminent failure of AGIA.
With AGIA's scheduled July 2010 open season getting closer by the day, the Parnell administration has begun soft selling the meaning of a failed open season. Last month in press comments, Revenue Commissioner Pat Galvin down-played the process by calling it a nebulous black box.
This of course is exactly the opposite of what Alaskans have been told since AGIA was rolled out in March of 2007, and reflects a sure sign that privately these folks can see the end of their fantasy pipeline strategy.
In the November Platt's newsletter, Commissioner Galvin again tried to down-play the meaning of a failed open season, but this time, his defense of AGIA clearly shows these folks will say anything, even when it's the opposite of what they've said previously.
Galvin told Platt's that FERC won't be looking to the open season as a market-driven indicator of supply or demand, as it does in other cases. "We're in a different environment up here," he said. "The need for the project is clear, because the gas is stranded, and it's recognized under federal law to be a project that is in the national interest."
"Because the gas is stranded," Galvin now says?
This is exactly the opposite of what they've been arguing for years and represented their primary reason for creating AGIA. In fact the entire Palin/Parnell gas team has been saying for years the development of a gas pipeline is wildly profitable so therefore the gas is not stranded.
And since the gas was not stranded, the must haves in AGIA were essential in order to force a project on the state's terms. The belief that natural gas was not stranded on the North Slope was the reason they abandoned the Stranded Gas Development Act passed under both Knowles and Murkowski.
This argument of stranded gas goes back for years. During the 2006 gubernatorial campaign it was an issue that was debated quite thoroughly.
Halcro said the Republican and Democratic candidates are sputtering about taking back oil and gas leases at the Point Thomson gas field; they claim that North Slope gas is now economic, and no longer "stranded;" and say that the kind of deal Gov. Frank Murkowski negotiated is not needed.
"It's just showmanship. Election-year politics," he said.
Knowles' and Palin's arguments that the gas pipeline is now economic aren't valid. "Those statements assume a gas price of $5 and a pipeline that costs $20 billion," Halcro said. "Everyone knows this is no longer a $20 billion pipeline. And gas prices are volatile. They were near $4 recently." Alaska Journal of Commerce - October 29, 2006
This is more of the same tap dancing that we've heard from the Palin/Parnell gas line team since the 2006 election.
They came into office with arrogance and ignorance, they were going to show the producers who was boss through a public relations campaign, they were going to redefine the project by saying it was wildly profitable and the gas was not stranded.
Platt's also reported that economists watching the project said the touchy subject known as "fiscal certainty" could halt the entire process if it's not handled well.
The dispute stems from a long history of suspicion going in both directions between the state and producers. "My observation is that the state isn't really trying on that front," Ed Kelly an analyst with Wood Mackenzie said. "They think they shouldn't give on that."
Kelly went on to say he's waiting for two signs before believing the project is going ahead: that the three producers start working together and the state confronts, once and for all, taxes and royalties.
For some strange reason, when I see the likes of state officials backtracking on AGIA, I keep thinking back to the stern letter that Palin sent to Conoco CEO Jim Mulva two years ago, where she kicked them to the curb and berated them in the process.
Palin wrote,"The economic terms under which oil and gas is produced "upstream" and the construction of a pipeline should be independent."
And then she closed by telling Mulva that she didn't care what Conoco had to say about the pipeline project because she didn't have to.
"The state had several good-faith proposals to build a pipeline under AGIA without any requirements to first modify upstream tax and royalty obligations," she told Mulva. (of course none of those "good faith proposals" came from companies who controlled any natural gas, hence no need for modified tax and royalty obligations)
Two years later, looks like Mulva was right, Palin was wrong, and issues like fiscal certainty along with having a say in the economic terms of the most expensive oil & gas project in the world are critical after all.
Time to disband the pipeline death panel before they backpedal their way off the cliff and take Alaska's economy with them.
Andrew Halcro is running against incumbent U.S. Rep. Don Young in the 2010 Republican primary. 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, 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. Halcro's opinions are his own.