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Walker: My 30-year history driving LNG projects vs. Parnell's recent epiphany

  • Author: Bill Walker
  • Updated: June 29, 2016
  • Published October 7, 2014

Finally, in a pre-election epiphany, Gov. Parnell is supporting a liquefied natural gas project. However, he is asserting I will derail his latest plan. That's just not true.

I have been advocating for an Alaska LNG project since the late 1970s. It was after several Alaska municipalities formed the Alaska Gasline Port Authority (Port Authority) in the late 1990s, and I was asked to be general counsel and project manager, that my involvement intensified.

In 2000, we met with the Bechtel Corporation Board of Directors in San Francisco to request a cost estimate for a large volume gasline alongside TAPS to tidewater to include an LNG terminal. The Bechtel board was sufficiently optimistic that it agreed to do years and millions of dollars worth of technical work for free.

In 2005, I thought we had finally broken the log jam when Sempra Energy, the Southern California gas utility, working in conjunction with the Port Authority offered to purchase enough North Slope gas from the leaseholders to finance and construct a project. That effort was rebuffed by Exxon, BP and ConocoPhillips.

In 2008, I was approached by the Mitsubishi Corporation, a major global LNG player. Mitsubishi let it be known they wanted to either buy Alaska LNG delivered at Japan, or purchase gas at the wellhead and construct a gasline/LNG project. Sempra joined the consortium, and together we again tried to engage the leaseholders. Among other efforts, we presented an offer to Exxon in Houston only to have Exxon, within weeks of our Houston meeting, offer LNG to Mitsubishi out of their Australia project even though AGIA allowed an option to build an LNG project to Valdez. Shortly thereafter, Mitsubishi withdrew from their relationship with the Port Authority.

That experience led me to place gas pipeline development at the forefront of my 2010 gubernatorial campaign. I was frustrated that Gov. Parnell continued to defend a pipeline through Canada, notwithstanding the shale gas revolution that heralded the death of a Canadian route. I knew, as did Gov. Wally Hickel before me and the late Sen. Ted Stevens, that our future was a large volume gasline selling LNG to Asia.

After Gov. Parnell won the 2010 primary, I asked to meet to try and convince him to change course and focus Alaska's efforts on LNG. He would only meet with me if our wives were present. So the four of us met, and for the first time I realized how little he knew about the global LNG markets, or the opportunities Alaska was ignoring and dismissing. He was adamant that he would stay the course with AGIA with Exxon and TransCanada at the helm.

In 2011, one week after the Fukushima earthquake, I took another contingent from the Mitsubishi Corporation to Juneau but the governor was not available to meet with us. The same Mitsubishi representatives continued on to British Columbia where they invested in an LNG project out of Kitimat, B.C. A short time later, Mitsubishi invested in a U.S. Gulf Coast LNG project. Parnell continued to work on a gasline into Canada.

Later that summer Wood Mackenzie, a world renowned energy consultancy, performed an analysis for the Port Authority showing that Alaska could deliver LNG to the Asian markets cheaper than competing projects around the globe. It also estimated revenues to Alaska from the LNG project would be in the range of $75 billion to $400+ billion over the first 30 years. Moreover, it showed the project was highly profitable to the North Slope leaseholders without any state concessions.

At a loss as to how to convince the administration to switch gears, I decided in 2011 to connect directly with the Asian market. Since the Port Authority's private investment funds were running low, I donated my time and was reimbursed only for expenses.

Following numerous trips and meetings with companies in Asia, I helped six of the world's largest LNG buyers submit a response to the Solicitation of Interest Exxon and TransCanada were required to hold under AGIA. Their aggregated volume, plus anticipated instate use, was over 100 percent of the capacity of a large volume LNG project. I later learned that a separate Japanese consortium, Resource Energy Inc. (REI), also responded seeking to acquire a similar volume of gas. To be clear, that meant that a 200 percent volume response from the Asian market had been submitted under the AGIA process for an LNG project to tidewater.

We received no response, either from the state or the AGIA partners, Exxon and TransCanada. When we asked TransCanada, "When will we hear back?" they directed us to Exxon. An Exxon representative said, and I quote, "Don't hold your breath." REI was also told the governor was too busy to meet with their representatives.

Meanwhile, Parnell and the Legislature pushed through HB4 authorizing another expensive study for the garden-hose sized "bullet line," despite the fact that it would not provide significant revenue into state coffers or provide low cost energy. Even the City of Valdez launched its MVP (Maximum Volume Pipeline) campaign to urge the Legislature to not pursue a bullet line over a large volume line, even if Valdez were not selected as the terminus. Valdez understood that all of Alaska would benefit by the right sized project, destination Asia, that would provide low cost energy statewide and provide billions of dollars in revenue to finance education, roads, infrastructure, fire and safety and essential government services.

Then, for reasons unclear, AGIA was abandoned by Parnell although our financial obligations to TransCanada remained. Never mind that AGIA had an LNG leg to it that had just received a 200 percent response from the Asian market at its open season to tidewater. The newly financed bullet line study took a backseat and Parnell decided to start over.

This spring the legislature passed Senate Bill 138, which created a brand new framework to progress a gas pipeline. As authorizing legislation for state participation, like that previously creating ANGDA for allowing negotiation of Gov. Murkowski's gasline contract, it is a workable platform. My primary concern with the legislation is it started over and provided a broad grant of authority to the governor to keep contractual agreements between the state and project partners confidential.

The Parnell administration is taking full advantage of those provisions to shut out the public despite committing the state to expending millions in public funds. He is also putting legislators in the untenable position of having to sign confidentiality agreements in order to see project specifics. This means public representatives will not be able to share information with their constituents and must hold policy discussions behind closed doors. My solution is to mandate public disclosure, except when a company can make a showing under legal guidelines as to why very specific information should be kept confidential. Transparency should be the rule, not the exception. There is ample precedent for this approach under Alaska law.

My biggest concern is not with SB138, but the particular terms Gov. Parnell is brewing in secret. From what is public it is apparent he has structured an arrangement where the leaseholders -- not Alaska -- are in the driver's seat. After 30-plus years of these same companies blocking the development of North Slope gas while they advance their own competing projects around the world, this arrangement is unacceptable and will not succeed.

The current Alaska LNG development plan essentially accomplishes two things. First, it establishes a roadmap for Alaska to make concessions to the leaseholders. Second, it allows for early permitting and engineering work.

As to concessions, since the current agreements are secret, I can only speculate what promises have been made. My guess is some aspects are acceptable, and some are not. State ownership in the project equal to our share of gas, an LNG terminal at tidewater, and working collaboratively with the North Slope leaseholders and Asian buyers will be a hallmark of any project.

However, I am leery of a process whereby: 1) the state is not in control of the timeline; 2) oil tax concessions are tied to a gas pipeline study; 3) TransCanada owns our share of the pipeline without competitive bidding; 4) our Prudhoe Bay leases are altered; and 5) Alaska receives its tax payments in gas rather than money.

History demonstrates the state fares poorly when it foregoes standard lease terms and regulatory processes to cut leaseholder-specific deals. Such deals are arbitrary and typically reflect an inappropriate exercise of political influence and market power which is the antithesis of competition and free markets. We need only look to the pipeline tariff agreement in the 1980s, the Amerada Hess royalty litigation in the 1990s, the proposed stranded gas development contract in the mid-2000's, Gov. Parnell's recent Point Thomson settlement, and the state's willingness to undercharge the Trans-Alaska Pipeline System on property taxes to see that is true.

As to the early permitting and engineering work for a project to Cook Inlet, I intend to continue that effort. Front end work is just a beginning step but it does represent time. We have started over often (El Paso, Foot Hills, YPC, AGIA and Denali all progressed further than Alaska LNG) and we can no longer afford to do so.

I will insist the state take control of the project through a Final Investment Decision (FID), the point at which all parties are committed to construction. Such an approach will prevent any one company from halting progress, or from refusing to do further work until the state makes further concessions. In short, I intend to finish the current LNG project plan, but with Alaska working with the both the leaseholders and Asian buyers and in control of a transparent and competitive process.

Bill Walker is an independent candidate for governor. He was a carpenter, laborer and teamster during the construction of the oil pipeline, is an oil and gas attorney, and has a long history of working to develop an Alaska LNG export project.

The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com.

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