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Tillerson might help Alaska’s gas project despite brittle relations with governor

  • Author: Alex DeMarban
  • Updated: December 2, 2017
  • Published December 25, 2016

Alaska could benefit if Congress confirms ExxonMobil chief executive Rex Tillerson as the next secretary of state despite Tillerson's tense relations with Gov. Bill Walker over Alaska's gas line project, some Alaskans believe.

That's because the Alaskans hope that Tillerson, regarded as a no-nonsense deal-maker, will shift his focus away from the interests of ExxonMobil's shareholders to national needs that include energy security, presenting an opportunity for hydrocarbon-rich Alaska.

"American energy security is good national security, and if that is in his mind, then I think it goes a long ways to getting over" any hard feelings that might linger from Tillerson's relationship with Walker, said Mark Begich, a former Democratic U.S. senator who owns Northern Compass Group, a consulting firm.

Tillerson, 64, first worked on an Alaska gas line project for ExxonMobil in the mid-1980s when North Slope gas would have moved by pipeline through Canada to the Lower 48.

That was one of many Alaska gas pipeline proposals studied by the oil and gas industry over the decades but never consummated. Since becoming ExxonMobil's chief executive in 2006, Tillerson has worked on three different Alaska gas line projects under four governors.

That includes leading the current $55 billion Alaska LNG project to sell liquefied natural gas from the North Slope to Asian utilities, a role the company is now turning over to the state because it doesn't consider the project competitive.

ExxonMobil, leaseholder of the largest gas reserves in Alaska, has always been an important player in gas line discussions. But over the last year, Tillerson has sparred with Walker. In September 2015 Tillerson told a natural gas trade publication that Alaska has failed to build a gas line because the state is "its own worst enemy," with a series of governors who have each introduced new projects.

Meanwhile Walker suggested that ExxonMobil was dragging its feet on the current project. In a letter sent in October to another ExxonMobil executive, Walker expressed skepticism about ExxonMobil's support for Alaska LNG, noting the company had embarked on a global expansion of competing gas-liquefaction projects in Mozambique, Tanzania and Texas.

In his letter, Walker asked ExxonMobil not to "thwart" the project as the state takes over, and said the "lead party must lead" to capitalize on opportunities to sell gas to Asian utilities.

On Dec. 12, news surfaced that president-elect Donald Trump would select Tillerson to be his next secretary of state. Walker underwent prostate cancer surgery later that day. But before the operation, he sent out a diplomatic  statement addressing Tillerson's nomination.

"I look forward to working with the incoming Trump administration to build Alaska's economy and gain responsible access to our natural resources," Walker said. "This includes, but is not limited to, our abundant commercial fishing, world-class mining, off-shore drilling, and the construction of a natural gas pipeline."

Walker, who has kept a low profile as he recovers from surgery, was not available for comment Friday.

Tillerson's confirmation hearings are expected to begin Jan. 11 before the Senate Foreign Relations Committee, and are expected to be controversial. Key Republican senators such as John McCain and Marco Rubio have expressed concerns about the nomination, including over Tillerson's close business ties to Russian president Vladimir Putin. Under Tillerson's leadership, ExxonMobil has entered partnerships with Russian oil company Rosneft, including on major oil and gas projects at Sakhalin Island north of Japan, much closer to the big Asian markets than Alaska. He has won the admiration of Putin.

Begich, who has been impressed with Tillerson in multiple meetings and seen him work closely with Democrats and Republicans, said he was "cautiously hopeful" that Tillerson could make a good secretary of state who goes to bat for Alaska's energy needs.

Larry Persily, oil and gas adviser to Kenai Peninsula Borough Mayor Mike Navarre, said Tillerson as secretary of state will likely neither be good nor bad for an Alaska gas line project. Tillerson won't have a specific role in the project, such as a regulatory oversight. And he'll be busy with much bigger issues, including potential conflicts with China and Russia's nuclear buildup.

"Rex Tillerson as secretary of state isn't going to mean squat" to an Alaska gas line project, Persily asserted.

But Tillerson is expected to have a strong interest in domestic oil and gas development and U.S. exports, which could potentially bode well for oil-dependent Alaska, facing multibillion-dollar deficits with low oil and gas prices.

Tillerson has advocated for drilling in the U.S. Arctic Ocean. But it won't be easy for the Trump Administration to undo President Barack Obama's decision on Tuesday withdrawing all of the Chukchi Sea and most of the Beaufort Sea from future oil and gas leasing.

Tillerson could foster energy ties between Asian countries and the United States that help ensure stability in both regions, said Mead Treadwell, a former Republican lieutenant governor. Alaska's gas could be part of that equation, he said.

"It's clearly in America's interest to have long-term trade with allies in Asia," Treadwell said. "I hope he'd support the state's efforts to get Alaska into the queue of potential LNG suppliers of Asian markets."

Treadwell, president of Pt Capital, an Alaska-based Arctic investment firm, said he'd like to see the establishment of something similar to the Reagan-era Japan-U.S. Energy Working Group. Established under Secretary of State George Shultz, the group looked to Alaska as a source of natural gas for Japan.

"I hope as Alaska tries to get those kinds of commercial relations going it can look to the State Department as it always has, as a neutral broker," Treadwell said.

Alice Rogoff, the publisher of Alaska Dispatch News, is a nonpaid senior adviser for Pt Capital and a shareholder.

Former Gov. Frank Murkowski said Tillerson will have a personal interest in seeing the Alaska gas line developed because of his long affiliation with the project.

Murkowski worked with Tillerson in 2005 as ExxonMobil, BP, ConocoPhillips and his administration worked on that period's proposed gas line project to the Lower 48.

Murkowski said Tillerson was correct that the state is its own worst enemy because plans keep changing. He dismissed concerns that Tillerson will hold a grudge against Alaska.

"The strongest attribute he has is his personal character," Murkowski said, adding that Tillerson won't look at Alaska differently than any other state.

The key issue isn't who becomes secretary of state, said Kara Moriarty, president of the Alaska Oil and Gas Association, representing the state's oil industry.

"After the Obama Administration, especially the (withdrawal) decision that was made this past week, I have every reason to believe the Trump Administration will be better for Alaska, regardless of who is appointed secretary of state," or any other cabinet position under Trump, she said in an email.

"And in terms of the gas line, as Gov. Walker says, the market will determine when we get our gas to market," she said.

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