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Energy

Dunleavy weighs fate of $43 billion gas line plan

  • Author: Alex DeMarban
  • Updated: December 15, 2018
  • Published December 15, 2018

It’s the $43 billion question for Gov. Mike Dunleavy: What to do with the Alaska LNG megaproject?

Workers obtain a soil sample near Autumn Road on Oct. 9, 2014, in Nikiski, where the Alaska LNG Project would locate a facility to cool natural gas into a liquid form for export. (Photo/File/Rashah McChesney)

For now, the new governor wants to learn more about it before setting a course.

“(Dunleavy) will withhold judgment on this or any project until he and his administration can fully understand the costs, risks, and potential benefits," said Brett Huber, his senior policy adviser.

The plan involves building an 800-mile pipeline that would be used to ship North Slope gas to Nikiski, where a plant would liquefy it for shipment to Asian buyers. Dunleavy’s gas line adviser during the gubernatorial transition, former Gov. Sean Parnell, believes the complicated project should keep advancing until it wins federal approval.

That could come in 15 months, and is expected to cost the state $40 million — in addition to a portion of the $22 million proposed in former Gov. Bill Walker’s outgoing budget. That’s a lot of money as Alaska struggles to combat giant deficits amid fallen oil prices.

On Friday, Dunleavy’s new administration rolled out a budget that kept Walker’s proposed gas line spending.

That budget proposal is merely a starting point for discussions with the Legislature about how to close an anticipated $1.6 billion deficit, said Laura Cramer, deputy director of the Office of Management and Budget.

It’s not intended to show support for the project, she said.

Dunleavy is the third governor to oversee Alaska LNG — after Parnell launched it in 2012, and Walker added his stamp starting in 2014.

Dunleavy faces critical questions about its future, including what partnership role Chinese-owned companies courted by Walker should play, if any.

The latest of decades-old attempts by companies and politicians to build a mega-gas line project, some $600 million has been spent on Alaska LNG, $200 million of that by the state.

The project, designed to one day replace dwindling oil income, would make some gas some available for Alaska distribution. The fuel isn’t expected to flow until 2025.

Dunleavy has said he supports a project to sell that natural gas, while also providing fuel for in-state use.

How he’ll do that remains to be seen.

As a candidate, Dunleavy questioned the economics and limited transparency of Walker’s state-led version of the project, echoing criticism that Walker, an independent, had dished out before he beat Parnell.

Dunleavy has argued the private sector must lead the project, as it did under Parnell, a Republican. As a state senator in 2017, Dunleavy unsuccessfully sought to strip $50 million from the state gas line agency, the Alaska Gasline Development Corp., money now keeping the project alive.

Digging into the details of Alaska LNG, and a smaller pipeline project that would ship gas in-state, Alaska Stand Alone Pipeline, will take the new administration months, Parnell said.

“Hopefully sooner than that,” Dunleavy said recently.

Former Gov. Sean Parnell speaks to a reporter on Nov. 29 at the Holland and Hart law firm in Anchorage. Parnell is advising governor-elect Mike Dunleavy on the proposed natural gas pipeline projects. (Loren Holmes / ADN)

An attorney with Holland & Hart in Anchorage, Parnell told a reporter that he’d recently completed a three-week “fact-finding journey” to collect data on the projects.

He’d put in about 100 volunteer hours, Parnell said. The review included several long meetings at the gas line agency, after Parnell signed an agreement to see confidential details.

Parnell said there are plenty of documents he hasn’t seen. He simply ran out of time in the transition following Dunleavy’s Nov. 6 win.

Materials Parnell didn’t see include draft agreement terms the agency is negotiating with potential gas buyers in multiple Asian countries. Parnell also didn’t see financial modeling of the “current commercial structure,” including assumptions the agency has made about the project’s costs, benefits and risks, he said.

“It wasn’t that AGDC withheld anything," Parnell said. “It’s just that there is a lot to sift through, including all the financial modeling of the current structure being pursued by the Walker administration."

Those are materials Dunleavy’s staff will wade through, Parnell said.

AGDC has pegged the project’s income to Alaska at $250 million annually, and more after the debt is paid off after several years.

Some lawmakers have questioned those figures, saying the agency hasn’t provided details supporting them.

“I feel like I’m in the dark with decent information,” said state Sen. Natasha von Imhof, incoming co-chair of the Republican-led Senate Finance Committee, who will oversee the capital budget.

Tim Fitzpatrick, AGDC’s vice president of external affairs, said the agency must balance the transparency lawmakers need while protecting commercially sensitive information.

Parnell said he met with Dunleavy for more than an hour on Monday to brief him on what he’d learned. Parnell declined to provide specific details of the conversation but has previously said he wouldn’t make recommendations to Dunleavy.

Parnell told a reporter he has concluded Alaska LNG should be allowed to win approval from the Federal Energy Regulatory Commission.

That’s expected in February 2020.

Federal approval could boost Alaska LNG’s value. Potential owners would not have to repeat the long, costly permitting process, Parnell said.

“What’s important now is getting something of value to the state for all the time and money (invested),” Parnell said.

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