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AGDC president outlines path forward; China deal is dead

Interim Alaska Gasline Development Corp. President Joe Dubler insists that Alaska is still making unprecedented progress toward a long-sought natural gas pipeline project despite the fact that the lead agency on the effort is downsizing significantly.

“I think we’re closer now than we’ve ever been” to making a gasline project happen, Dubler told House Resource Committee members on July 19.

AGDC officials informed the Journal July 10 that the quasi-state agency would be ending its work to secure customers and investors for the roughly $40 billion Alaska LNG Project, as well as closing its public and government relations department.

The reductions are expected to take AGDC’s personnel count from about 20 to less than 10 over the coming weeks.

The remaining eight or nine employees will focus on completing the ongoing Alaska LNG environmental impact statement process for the Federal Energy Regulatory Commission. FERC published the project’s nearly 3,700-page draft EIS June 28.

Dubler told the legislators the reductions are intended to make AGDC “more fit for purpose,” as it focuses on completing the crucial EIS process, which is scheduled to be completed next June.

Staffing levels at the corporation have always been low considering the massive scope of the project it is working on and AGDC has relied on contractors and consultants to help complete major tasks.

“We’re going to have just enough people to get this thing done and at the end of next (fiscal) year in June, then we take a look and say, ‘Where do we go from here?’ ” he said.

It’s at that point that AGDC will reexamine and determine the state’s participation, if there will be any, in the project going forward, according to Dubler.

He said it’s tough to forecast where the project will go in a year, but stressed the state will no longer be leading it through AGDC.

Dubler confirmed that he had the authority to make personnel decisions, which was delegated to him by the corporation’s seven-member board of directors.

Sources within AGDC said the staffing changes followed a detailed review of the project and corporation by Gov. Michael J. Dunleavy’s administration.

Dunleavy has consistently said he wants the state to back away from leading the complex project and instead focus on bringing in partners, such as large oil companies, to again take it over.

By getting a favorable decision on the EIS, AGDC can reduce the regulatory risk to Alaska LNG and make the project more enticing to potential partners, according to Dubler.

He said the state still wants to monetize the roughly 35 trillion cubic feet of known natural gas on the North Slope.

“This isn’t a change in what we’re doing; it’s a change in how we’re going about it,” Dubler said.

He highlighted that FERC largely agreed in the draft EIS that AGDC’s plan for the 807-mile pipeline and a 20 million tons per year LNG plant at Nikiski is the least environmentally damaging option available.

China deal is dead

Dubler also confirmed that AGDC did not renew the nonbinding joint development agreement, or JDA, it had with three large, nationalized Chinese firms to buy up to 75% of the project’s LNG in exchange for an equal share of the needed financing.

Signed in front of President Donald Trump and China President Xi Jinping in November 2017, the JDA was touted as a signature achievement in former Gov. Bill Walker’s effort to secure partners for a state-led Alaska LNG Project.

The agreement was extended multiple times under Walker and former AGDC President Keith Meyer.

Dubler said the project envisioned in the JDA “frankly doesn’t exist anymore” given that the Dunleavy administration is not comfortable with the risk the state would have to assume to lead the project to fruition.

“What we told them is moving forward we will work with the producers and them to see what their role would be, if any, moving forward,” he said of a recent teleconference with representatives from Sinopec, China Investment Corp. and the Bank of China, the three other JDA parties.

Dubler acknowledged that the commercial work AGDC had done since taking over the project in late 2016 was beneficial in that it proved there is international interest in the Alaska LNG Project, but he said much more work needs to be done before major LNG purchase and investment agreements can be finalized.

AGDC officials have said they signed about 15 nonbinding agreements with potential partners — mostly in East Asia — but the content of those agreements has been kept confidential.

“(Those agreements) really didn’t do anything as far as progressing the project and they didn’t do anything for the other side as well because they had no commitments there either so what we said is we don’t need to do those anymore until we have something we can commit to,” Dubler said.

“In another two or three years, whoever’s going to be building this project would again go to the market and look for off takers.”

The overall cost of Alaska LNG — last estimated at $43 billion by AGDC in 2017 — is currently a major impediment to developing it, according to Dubler. That cost translates to LNG delivered to Asian customers at $11 to $12 per million British thermal units, which is nearly three times the going rate for spot market LNG purchases today.

“That’s so far out of the market now nobody would return your phone call. I mean, they wouldn’t even talk to you,” he said.

Dubler’s predecessor Meyer regularly stressed that spot LNG prices are deceptive in that contracted LNG prices are often significantly higher because they come with long-term commitments to deliver scheduled cargoes and that reliability is something large utility buyers covet.

Role of producers

Rep. Chris Tuck, D-Anchorage, said the refocusing of AGDC’s work appears to be taking the project back to early 2016 when BP, ConocoPhillips and ExxonMobil were partners with the state in Alaska LNG but determined that depressed global energy markets challenged the economic viability of the project at the time.

The producers’ Alaska leaders then said they would either shelve or slow down the project until market conditions improved or allow the state to examine ways to make it more economic, and the state enthusiastically chose the latter under Walker.

BP and ExxonMobil, which collectively hold rights to a lion’s share of the gas in the Prudhoe Bay and Point Thomson fields, agreed to general terms including prices for gas sales into the project in 2018.

They also agreed to fund up to $10 million each towards completing the Alaska LNG EIS, which state officials have said could cost close to $30 million.

An economic analysis of the Alaska LNG Project conducted during the producer-state transition by the international energy consulting firm Wood Mackenzie concluded that a project led by the producers would likely not be viable because of the comparably high investment returns large oil companies require, among other considerations.

However, a state-led project could be profitable because of the state’s exemptions to federal taxes and lower return requirements, according to Wood Mackenzie.

“It seems like the light is dimming on a potential gas pipeline,” Tuck said. “It just seems less and less hopeful as we either lose interest from other entities or we are no longer interested in those entities.”

Dubler responded that AGDC has done a detailed review of the project’s costs and potential economics using Department of Revenue economic models and has received assistance from BP and ExxonMobil on how to reduce the overall cost.

Those cost reduction workshops have led state officials to believe the project is “in the ballpark” of being economically competitive, Dubler said.

However, he declined to provide a new cost estimate, saying that disclosing those figures could harm a project proponent’s position in future LNG sales negotiations.

“Instead of pulling everybody behind us we’re going to be behind them helping them set up whatever the state can do to help them be successful,” Dubler said of AGDC’s new role while also acknowledging that it’s unclear who “them” is at this point.

He added, though, that major participation from a major oil company, as the administration envisions, would likely require “fiscal certainty” for the project, a term commonly used when the producers were leading Alaska LNG.

Fiscal certainty is the concept that the producers would need the state to agree to set firm tax rates for natural gas — and possibly oil — before they would agree to multibillion-dollar investments in Alaska LNG.

Clauses in the Alaska Constitution prohibit the Legislature from contracting away its taxing authority, so achieving fiscal certainty for Alaska LNG would likely necessitate a potentially highly controversial constitutional amendment.

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