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Walker administration studies big change to Alaska LNG deal

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

Big decisions loom on the Alaska LNG megaproject that could include locking in a long-term tax structure for ExxonMobil, BP and ConocoPhillips and possibly buying out a key participant in the $50 billion venture.

It's also possible the governor will call a special session to help move the project forward this fall.

That could represent the year's third special session – the second is now being held in part to address the state's budget crisis.

Gov. Bill Walker said the one on Alaska LNG would be "really special."

"This will put a capital S on the special session because it will involve a gas line," said Walker, a longtime advocate of getting the North Slope's large natural gas reserves to market to help sustain the Alaska economy.

One big possible change involves whether the state should buy out TransCanada's 25 percent interest in the 800-mile gas line and treatment plant. Doing so would cost about $100 million, said Walker.

While the state has a 25 percent stake in the liquefaction plant, it currently has no stake in the pipeline, he said. "We're evaluating the pros and cons of doing that, to give us a bigger seat at the table, so to speak," said Walker.

The bigger role could mean extra construction costs for the state but potentially more revenue. A decision would have to be made by the end of the year, Walker said. It's not something he's taking lightly.

"We're looking at the benefits of having it be totally integrated as far as (state) ownership," he said of the project.

Spending that money would require an appropriation from the Legislature, where key leaders in the Republican party have tangled with Walker over the project.

The administration's analysis comes as Alaska LNG -- combining the state with the oil companies and pipeline builder TransCanada -- ramps up seasonal fieldwork.

As part of the work -- such as continued soil surveys at the potential gas-liquefaction site in Nikiski -- officials with the consortium have been traveling to communities statewide, holding meetings to update the public on current efforts.

The next community "open house" is Thursday at the Hilton Anchorage, followed by one Wednesday at the Westmark Hotel in Fairbanks. Both meetings are scheduled from 6 to 8 p.m., according to the project website.

The consortium is gathering field data to update draft resource reports that have already been provided to federal regulators. The more comprehensive reports are scheduled to be presented early next year and will dig into social and environmental impacts of the project, said Kim Fox, external affairs manager with Alaska LNG.

About 200 people are working in the field this season, roughly double the number from last year, she said.

One contractor with expanded work is Netherlands-based Fugro. The company's duties includes drilling boreholes to assess the stability of sites that could one day host a liquefaction plant weighing 250,000 tons, and a marine terminal nearby where tankers would be loaded with liquefied natural gas. The work includes mapping the seafloor where a pipeline may cross Cook Inlet, Fox said.

As part of a requirement that Alaska LNG update the Legislature three times a year, the consortium will present details of the project to the joint Senate-House Resources Committee at 3 p.m. Tuesday at the Nikiski Recreation Center.

Additional meetings involving the project could take place if a special session is held in November, something Walker is shooting for, he said.

His administration is conducting a 45-day review of the project that is about halfway completed to make sure there are no "showstoppers" embedded in agreements that would make the project a bad idea for the state, he said.

The Walker administration, which took over the project initiated by his predecessor Gov. Sean Parnell, is also studying the pros and cons of taking the state's 25 percent portion of the gas "in kind," meaning as gas rather than cash.

Project plans currently call for the state to receive the gas "in kind," in lieu of collecting production taxes from the oil companies. The 25 percent portion doubles the royalty amount often collected by the state on oil and gas production.

Oil companies have sought "fiscal certainty," meaning the state won't change the terms of the deal, because contracts for liquefied gas can last decades and because the upfront investment in the project will be in the billions of dollars, creating significant risk for investors.

Providing that "fiscal certainty" is something that may be looked at if a special session is held in November, because it may involve a constitutional amendment, Walker said.

Walker said his efforts, including the close review of the project, are aimed at making sure a pipeline gets built.

"As long it's not a situation where we're not in control of our own destiny, that's my biggest concern," he said.