The new head of the state gas line corporation says it's time for the state to take a lead role in the megaproject from ExxonMobil.
The state is currently discussing a potential restructuring with its partners in the $55 billion Alaska LNG project — ExxonMobil, BP and ConocoPhillips. But the idea raises numerous questions about how a small state in a deep fiscal hole could afford an endeavor that involves building an 800-mile gas line, a plant to liquefy natural gas and other mammoth facilities.
On Monday, a week after he took office as president of the Alaska Gasline Development Corp., Keith Meyer, 58, said he's the man for the job.
Meyer said it's possible for the state to boost its 25 percent ownership share without boosting the state's investment. In fact, he said, it's possible for the state to own the entire line, yet invest very little.
Meyer, who will will earn an annual base salary of $550,000 a year, cites his experience at Cheniere LNG as an example of how a small company can build a big LNG project.
He was president of Cheniere a decade ago when he oversaw the development of the Sabine Pass LNG receiving terminal in Louisiana, the largest such LNG facility in North America.
From his longtime role in the industry, Meyer said he has witnessed Alaska's unsuccessful efforts over decades to complete a project that will tap the state's large reserves of North Slope natural gas for sale to large buyers overseas.
In an interview Monday with Alaska Dispatch News, he said the global demand for natural gas is growing, and he's moving to Alaska from the Houston area with an "execution plan" in mind to complete an LNG project.
"I came up here with the belief it is achievable," said Meyer. "I didn't have to be convinced."
Here's an excerpt of the interview, edited for length and clarity:
Alaska Dispatch News: Why should the state pay you so much?
Meyer: It's really not so much in the industry. It's at the low-end in terms of peers in the industry. AGDC has to attract good talent, so we have to pay competitive industry wages, not just for me but other people we'll have to bring on to execute the project.
ADN: So why do this job?
Meyer: To me this is one of those crown jewel projects, a quintessential, career-achievement project. I've watched this project for literally my entire career. The first day I stepped into this industry I sat next to a guy working on the Alaskan gas project. I remember thinking as a young guy — that was 35 years ago (when I worked) at American Natural Resources — "Gosh, that's a neat project, maybe someday I'll get to work on a project like that."
I've watched it over the years, from a pipeline standpoint, from a North American gas supply standpoint, from an LNG standpoint. I was here in 2011 looking at a small-scale LNG solution for Southeast Alaska.
I have always been somewhat puzzled it could not get off the drawing board and into construction, so the opportunity to be the guy to put this project into construction and operation is a pretty good calling.
And the second aspect is just Alaska, which has its own attraction.
ADN: A lot of people in Alaska don't believe this will happen anytime soon, if at all. How do you make it happen?
Meyer: One of the things people have to realize is the large producers have many options to choose from in terms of the projects they launch. Alaska has one project. So to me, the biggest fundamental shift that has to happen is Alaska has to lead this project because no one is going to lead it for them. So the biggest change right now that's happening is that Alaska is now going to be in the lead to get this project on its pace for a 2023 to 2025 in-service.
One of the things we're looking at is a greater ownership (by) the state. But one thing I'd like to make clear is ownership is not equivalent to investment. The state may own 100 percent, but may not invest hardly anything.
So if we structure this project properly, this will be a very attractive project for infrastructure investors, private equity funds, retirement funds, that type of thing. There are trillions of dollars on the sidelines looking for good investments that have reasonable returns. So if we develop this project to have a reasonable return it will be attractive to those large infrastructure investments.
What I've said to the producers is if we do this right, they are certainly welcome to be an investor, and we'd certainly love to have them.
So that's a big change we're looking at, is — how do we structure this project differently to make it much more competitive, because it is a competitive global arena. It is probably the most competitive LNG arena we've had in decades, so we've got to get this project to where it can compete.
I think we can do that. I think this project will be very attractive. It's a United States project, it's an Alaskan project, so it has a high degree of security around it, and it has a direct route to the major markets without passing through the territory of a third-party nation, such as the Panama or the Suez (canals).
ADN: Tax-exempt bonds issued by the state could also be an advantage?
Meyer: That's a potential we're looking at. So now we're saying let's almost start with a clean piece of paper with the producers helping in this discussion. It's how do we make this project more competitive, and that tax-exempt financing could be one way.
ADN: Alaska doesn't have to invest in it at all, but we'd still have to guarantee that investment.
Meyer: Not necessarily. You don't have to look any further than the Lower 48 projects to see the biggest of those projects were developed by companies that were relatively small and had no balance sheet capacity at all. But what they did, which is what many infrastructure developers do, you get good contracts with buyers, customers and that becomes the financial foundation for the lenders and equity investors. They don't look so much at the developer, they look at the sanctity of the contracts you have been able to achieve.
You have to look no further than a company like Cheniere that didn't guarantee, but they have contracts with customers that have financial guarantees on the payments, and built what is the largest LNG export project in North America today.
ADN: That may be similar to what the governor has talked about with Asian companies having buy-in into the project?
Meyer: To make sure we're clear, they could. They could have ownership in these projects, but they don't have to. If you look to the Lower 48, in a Cheniere project, they don't. But in other projects, like Sempra's project, Freeport LNG (in Texas), they do have ownership interests. So either way is acceptable.
ADN: People say negotiating with potential buyers puts at risk our returns, because they'll come up front demanding the lowest prices. So how do we overcome that?
Meyer: Right now the challenge is to get this project competitive in the global arena, and to have acceptable returns. But when we define acceptability, that's acceptable for an infrastructure investor. So, a pension fund is a perfect infrastructure investor, someone with a relatively long horizon. Most of the Asian companies have a pretty long horizon, so a properly structured LNG project or pipeline project can fit them very well. Where it starts to fall off the attractiveness scale is where you put it in the context of a deepwater drilling program, or even an oil and gas well — it doesn't achieve that high return that a producer would like to see. So that's where we need to beat this project into looking more like an infrastructure project, which is what it is, rather than something riskier.
ADN: And we as a state can accept lower returns than BP or Exxon may want?
Meyer: Correct, we as a state, or infrastructure investors, that kind of thing.
ADN: So taking control of the project doesn't necessarily mean a change in ownership structure but it could mean we're nominally the lead partner?
Meyer: That's a potential outcome. We may find that to get the best tax treatment, it may be a state-owned project. It could be 100 percent. One hundred percent is on the table if that's what it takes to make this work, but I want to be clear 100 percent ownership by no means means 100 percent of the funding.
ADN: There is some concern among lawmakers about us not having the producers involved.
Meyer: What I said in Juneau is we may have a larger ownership. But what I realized wasn't said, and I just assumed it in my mind but it wasn't said, is that ownership doesn't equate to investment. I come from a perspective of having done infrastructure and development over the last 30, 35 years. Never did we, at any place I worked at, anticipate funding an entire project. It was always developed such that it could achieve nonrecourse third-party finance, and that included at a Fortune 500 company. So the balance sheet of the developer is somewhat protected, and what I look to do is put together good contracts that are attractive to the financial community, and that's our challenge here.
ADN: Are the producers an obstacle in any way because we have this sort of equitable distribution of ownership now, and they have these multiple sites in their LNG portfolio where Alaska gas may not be so important to them?
Meyer: They have the potential to be but only because of competitive projects internally. Oil prices are down so they are somewhat capital-constrained. That's outside anything we can do. They are all feeling pressure of this somewhat global surplus, somewhat global slowdown. Because of that we need this project to be competitive. But I believe if we structure this project competitively so we're not putting a big burden on their balance sheets, they will view this much more favorably. The goal is to have a very solid project that gets into production, gets built, and has happy producers on one end, happy customers on the other, and a happy state right in between.
ADN: Can you tell me about your experience at Cheniere's Sabine Pass project?
Meyer: I was president of Cheniere LNG when we built the important terminal. It was 2003 to 2008.
We took that from a bare patch of ground and we were a small company that had no real business being in LNG. We were told we were too small, we were told we had no credentials and that was probably all true. But we said no, no, we are going to build this. And we built the largest LNG import terminal in the Western Hemisphere, with two very solid customers.
So the company had no money. One of my first meetings I was told in February we didn't have enough money to make payroll by November. But we scraped together a bit of money, got good contractors that were willing to work cheaply. Bechtel was one that saw a good opportunity. Then we were very determined and definitive in pursuing the regulatory approvals. And when it came time the producers starting looking around to see who has the best project we were in the lead, and got two very good customers with Chevron and Total.
ADN: Was Cheniere a 100-percent owner with zero investors?
Meyer: They were then. The company has since done a master limited partnership so there's a public ownership chunk of the partnership. A lot of the pipelines and LNG projects now are held in these master limited partnerships that don't pay taxes as a partner but they're very attractive for the infrastructure funds. So Cheniere corporate is still a publicly traded entity, but the major projects are owned by major limited partnerships, which they own the majority of.
ADN: Who were the investors that allowed this to happen?
Meyer: No oil companies, but they were initial shareholders, so small hedge funds invested early days. And then once we got our first contract (with Chevron), we had quite a bump and with our second one (Total) we were off to the races. Then we had a real live project. We had 20-year contracts with guarantees from two majors (Chevron and Total), so that becomes a very financeable document. We engaged a lender, HSBC. The lenders were happy, the equity investors were happy, the customers were happy. We built that project very schedule-driven. We had time commitments in our customer contracts because our customers were developing a large LNG project that had to fit through the eye of an needle, which was our import project. We had clauses in the contracts if we weren't in service by a particular time, they could walk.
So I have that similar mindset here, that we need to act like we're a development company. We have a project to develop, a great market out there in the world that wants LNG. We have a massive resource in the north. Now, it's a matter of structuring the project so it's attractive to the investing and lending public.