Skip to main Content

Legislators grill state gas line team, oil companies over project delays

  • Author: Alex DeMarban
  • Updated: September 28, 2016
  • Published September 10, 2015

PALMER -- In a tense marathon meeting that one lawmaker likened to an "inquisition," Republican legislators blasted the state's gas line team after learning that a lack of agreement between the state and its partners in the massive Alaska LNG project may preclude a special session this fall, possibly leading to costly delays.

Coming through loud and clear in the six-hour hearing was the need for a decision on key project details, including whether the state should pay $108 million to take over TransCanada's role in the proposed project and whether the pipeline should be expanded, two potential changes suggested by Gov. Bill Walker.

Lasting past midnight, the joint Senate and House resource committee hearing in Palmer included pointed questions by legislators and a plea from Sen. Charlie Huggins of Wasilla for state officials to not "screw up" the project.

Combining ExxonMobil, BP and ConocoPhillips in a partnership with the state and pipeline builder TransCanada, the $50 billion proposal is considered crucial for Alaska as a way to diversify the fossil fuel economy at a time when dwindling oil production and prices have produced huge deficits.

Under the proposal, North Slope gas would be shipped down an 800-mile pipeline and liquefied in Nikiski so it can be shipped in tankers overseas. The first gas isn't expected to flow until 2024.

The meeting Wednesday night was a quarterly update required under Senate Bill 138, the project's enabling legislation.

At the meeting, much of the questioning underscored the lack of communication between the administration and Republican lawmakers who have criticized Walker's plans. The legislators sought to determine who is in charge of the state's gas line team and making critical decisions on such things as financing and partner agreements.

They said they had asked the administration for organizational charts, but received none.

"Where does the buck stop?" demanded Rep. Mike Hawker, R-Anchorage.

His was part of a series of questions that ended only when Rep. Ben Nageak, D-Barrow, angrily said he had not come to hear an "inquisition."

Committee members seemed surprised to learn at the hearing that Rigdon Boykin, the South Carolina consultant hired by Walker this spring and now being paid by the Alaska Gasline Development Corp., is leading the state's gas line team.

Boykin, who said his job is "to push the devil out of this project" to get it done, acknowledged he has no experience creating a global multibillion-dollar LNG project.

In an interview earlier this week, Boykin, who once worked for the Los Angeles-based law firm O'Melveny & Myers, said he has completed "tons" of power projects around the globe, including in China, India, Pakistan and the United States.

Part of his expertise lies in securing financing for efforts with limited equity, he said.

Boykin was defended at the hearing by Dan Fauske, head of AGDC. Fauske said Boykin works extremely hard and has a long-standing record of negotiating agreements on big projects.

At the meeting, Hawker said he was concerned the project was being led by "a hired gun who can walk away tomorrow and say, 'Sayonara.' "

Hawker said he was concerned Boykin and the Alaska Gasline Development Corp. were taking over roles that belonged to the state's revenue and natural resources departments, and asked if the enabling legislation should be changed.

"That's a good question," said Fauske.

Boykin's role and other revelations came in a surprise letter that Fauske said represented the governor's views and provided answers to several questions previously submitted by lawmakers.

Fauske read it so hurriedly that Sen. Cathy Giessel, the meeting chair, demanded it be read a second time -- and slowly.

The unsigned letter said "the state team is very concerned about the lack of progress on many of the key commercial and fiscal issues," including divisions on how taxes will be structured, milestones meant to ensure progress, and gas balancing negotiations that would ensure supply is met in the event of an interruption.

Those agreements won't be completed in time for a special session this fall, but it's possible other matters could be addressed before the year's end, the letter said.

One issue that might remain on the table for a special session this year is the state's proposed buyout of TransCanada's share, which would give the state a 25 percent stake in every aspect of the project, putting it on equal footing with the oil companies in terms of equity.

A TransCanada official confirmed the state and the pipeline builder are currently discussing an exit plan.

Sen. Anna MacKinnon, R-Eagle River, said the "letter laid down a gauntlet" by accusing the oil companies of not completing their work. She said the administration has created "instability" among the partners.

Giessel said the state was partly to blame for possible delays, including by dragging its feet on necessary reviews.

"I point out the state itself has faltered," she said.

Representatives for the three oil companies, some rubbing their eyes late into the night, said they are committed to the project and said the state's team has worked very diligently. One decision the state must make is whether it will buy out TransCanada's share, they said.

Dave Van Tuyl, BP's leader for the Alaska LNG project, said he understands the governor's concerns about delays, and that complex negotiations are underway with a lot at stake. He added that the project continues to make "good progress," with early engineering studies moving ahead and key steps taken to meet state and federal regulatory requirements.

He said the hurdles and delays aren't insurmountable and should be expected in a massive project. "If we are not hitting speed bumps, you should be concerned," he said. "It means we are not driving down the road."

Van Tuyl said the project is critical to BP's future in Alaska and hopefully the company will be spending billions of dollars on it.

He also addressed the topic of a gas reserves tax, something Walker has said may have public support if a gas line isn't built. The measure would tax natural gas reserves that aren't being produced.

Van Tuyl said "punitive taxation" is not the right way to "incentivize" a project.

Steve Butt, who works for ExxonMobil and heads the Alaska LNG project, said ExxonMobil has agreed to put up money to study upsizing the pipeline from 42 inches to 48 inches, as Walker has proposed.

The larger line is expected to be more expensive, and possibly cut into revenues, Butt said. But an extensive study may provide new answers and would satisfy the request from the state while giving all partners confidence the best selection is being made. A review would cost millions of dollars and could delay the project six to eight months.

One critical decision anticipated next year is whether the partners will move forward into a detailed engineering phase that could cost the state $500 million for its share.

"lt doesn't take a genius to realize Alaska needs this (project)," said Huggins, a Republican leader in the Senate.

Local news matters.

Support independent, local journalism in Alaska.

Comments