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Pipeline megaproject corporation cuts spending, seeks clarity on secrecy pledge

  • Author: Alex DeMarban
  • Updated: September 28, 2016
  • Published January 8, 2015

Targeted by new Gov. Bill Walker as he looks to cut costs and increase transparency, the state corporation working on two megaprojects dramatically downshifted spending plans and took steps to find a way forward if new appointees don't sign the confidentiality pledge the governor opposes.

The board of the Alaska Gasline Development Corp., in charge of advancing the $10 billion Alaska Standalone Pipeline, met Thursday in Anchorage with three empty chairs after Walker this week removed Al Bolea, Dick Rabinow and Drue Pearce.

That left the board with only four members, two of them also new because they're filling the seats set aside for two of the governor's commissioners.

That new board approved a work plan that called for slashing spending in the current fiscal year and next by a total of $90 million. The current spending plan is now for $60 million, down from $150 million.

AGDC president Dan Fauske said the groundwork for that reduction was laid in advance of Gov. Bill Walker's recent order halting new contracts and hiring on the stand-alone pipeline and other megaprojects.

The instate pipeline project was launched five years ago to get North Slope gas to Alaskans as cheaply as possible, in a 727-mile pipeline from Alaska's Arctic oil fields to a site north of Cook Inlet and Anchorage.

But the effort is also now in a holding pattern because the state gas line corporation is working on another big gas line project -- the $45 billion to $65 billion Alaska LNG export proposal -- and only one of the projects will be built.

Fauske said information is being shared between the two projects to reduce overlap and save money. The stand-alone pipeline will focus on refining engineering and design work over the next several months as it waits for the partners in the larger project – the state, ExxonMobil, BP and ConocoPhillips – to decide in 2016 if they will advance the effort.

The governor's effort to rein in spending "factored nicely" into AGDC's plans to slow spending on the stand-alone pipeline, Fauske said.

"We were already working on reducing the spend rate, knowing that to align the two projects, it didn't make any sense" to not do so, he said. "It was one of those timing things."

The stand-alone pipeline team, after an extensive review of the design, engineering and other plans, can now reasonably determine what it would cost to ship the gas more than 700 miles from the North Slope to Fairbanks and Anchorage, officials said.

Also, the project essentially has what it needs to hold an open season that would present project details to potential buyers of natural gas and the owners of that gas: the state, ExxonMobil, ConocoPhillips and BP, AGDC officials said.

Optimally, the open season would lead to long-term gas delivery contracts that could be used attract to bond investors to support the project.

The critical juncture for the stand-alone pipeline was reached "on time and under budget," said Fauske.

The AGDC board also got two new faces Thursday, with new Walker labor commissioner Heidi Drygas in attendance at the Anchorage meeting and his new acting commissioner of commerce, community and economic development, Fred Parady, phoning into the meeting.

The two have been instructed by the governor not to sign the confidentiality pledge that other AGDC officials have signed.

Fauske said the pledge is needed because information is shared between the two gas line projects to reduce costs. As a result, the state and oil companies might provide proprietary details to each other that should be kept confidential, such as the best pipeline components, the composition of the gas or facility costs, he said.

"The companies say, 'You can have our data, but we want to make sure it's protected,'" he said. "You use that data to come out in a public hearing and provide good information, because you used that data to back up the assumptions you made during your analysis."

At the meeting, the board's chair, John Burns, who also served as board chair under former Gov. Sean Parnell, said he has asked the corporation's legal counsel and the state's attorney general for an analysis of what it will mean if the new board members don't sign the pledge.

"I've asked our counsel to let us know what the impact of this directive is on our ability to function as a board," he said.

Fauske said the inability of some board members to sign the pledge raises questions, such as: If they don't sign it, can those who did sign it share the data with them?

"The answer is probably no, and then you have to figure out how to let that information flow in such a way you haven't violated the confidentiality agreements," he said.

Drygas said she would not sign the pledge and that details on how to move forward were being worked out between the administration and AGDC's general counsel.

"The governor has made it clear he wants an open and transparent process when it comes to developing Alaska's resources and developing its natural gas," she said.

"It does put us in a bit of a predicament, but I'm confident there will be a way forward, and I know those conversations are taking place, so we can engage fully as board members."