With the election over, what’s next for the gas line?

The dust is settling from the Nov. 6 elections, and many people are wondering whether Gov.-elect Mike Dunleavy will take a wrecking ball to Gov. Bill Walker’s signature priority, the Alaska LNG Project.

I don’t think he will. The state has invested about half a billion dollars since 2011 in this project, and three major North Slope producers have ponied up about the same, or even a bit more. That’s more than a billion dollars that shouldn’t be wasted, and I don’t believe it will.

I’m encouraged that Gov.-elect Dunleavy has asked former Gov. Sean Parnell to take a look at Alaska LNG as it currently is, which is much different than it was when Parnell was governor.

Parnell is careful, and no wrecking ball. He’s familiar with the gas project (he was the architect of the former industry-led consortium that led Alaska LNG) and no doubt has qualms about the state now leading his huge project, as does Dunleavy. That’s understandable.

Alaska LNG has come a long way in the past four years, two of those under state leadership. It is now closing in on a key regulatory achievement, a draft and then final Environmental Impact Statement. This builds on previous technical work by the industry-led group, of which the state was a part.

Negotiations are now well along with three major Chinese companies that could be major customers and investors. The current U.S. trade battle may cloud that, but the state gas corporation, Alaska Gasline Development Corp., said there are no signals as yet of problems in meeting a Dec. 31 goal for the deals to be agreed.

But we’ll see. If the Chinese don’t show up, AGDC will have to refocus on other potential customers it is talking with, such as Japan and Vietnam. But that might also be a point where the new governor could take a pause and consider some other alternatives for marketing North Slope gas.

My favorite potential alternative is gas-to-liquids, converting the gas into a synthetic diesel that can be shipped through the existing trans-Alaska oil pipeline. But in any event, it’s important to finish the regulatory work and not waste a billion dollars on sunk investment.

There is, of course, understandable discomfort with the state leading Alaska LNG. But let’s remember that the three industry partners that withdrew from the project in early 2016 encouraged the state to continue work, mainly on the critical regulatory effort.

The companies withdrew because as a privately-led venture, it didn’t meet their minimum return on investment. It didn’t help that oil (and LNG) prices cratered at the same time.

The producers encouraged the state to pursue alternative models for the project, such as public ownership, to attract investment. Aside from certain tax advantages, there is also the possibility that long-term institutional-type investors might be willing to accept a lower minimum return than ExxonMobil or BP, for example.

We’ll know by the end of December if this idea is workable — if the Chinese show up.

However, the state leading a major Alaska industrial project is nothing new. The best example is the Red Dog Mine port and road in Northwest Alaska, where the state industrial finance corporation, the Alaska Industrial Development and Export Authority, funded and constructed a port and road to help Cominco, the mining company, develop what is now one of the world’s largest zinc mines – Red Dog. AIDEA still owns and road and port. The initial debt is long paid and AIDEA is still making profits.

Alaska LNG is many times the size of Red Dog, of course, but the principle of state investment and construction of infrastructure to enable resource production is the same. However, given the size and complexity of Alaska LNG, it would be a good idea to have the producers help manage construction.

This brings me to another point. If we do wind up taking a pause with Alaska LNG, why not use AGDC’s capabilities with another pipeline project that will help the state’s economic development?

I’m thinking of the Donlin Gold mine on the middle fork of the Kuskokwim River, 350 miles west of Anchorage. The owners, Barrick Gold and NovaGold Resources, have received major federal permits for the mine and for a 315-mile, 14-inch gas pipeline that would bring Cook Inlet gas to the mine to provide energy.

The cost of building the mine is estimated at more than $6 billion, and the company is worried that at current gold prices, it doesn’t pencil. However, if another party were to own the pipeline ($1 billion of the $6 billion) as well as the power plant for the mine (several hundred million dollars), much of the financial pressure would be eased.

That’s because this arrangement lowers the front-end cash the mining companies have to raise and would allow the pipeline and power plant to be paid for over time as operating expenses.

Precisely this happened with Red Dog. Cominco, the mining company (now Teck), was unable to finance the road and port along with the mine. The state stepped in, through AIDEA. It was a win-win.

Donlin Gold would be a similar exercise. The 315-mile pipeline has much of the engineering done, is permitted and has its federal right of way. Most important, it has customers, one being the world’s largest gold producer, Barrick.

If Donlin Gold were built, it would be a big economic stimulus to the state and particularly Southwest Alaska and the Yukon-Kuskokwim region, now one of the state’s most economically depressed areas.

Tim Bradner is co-publisher of the Alaska Legislative Digest and is the 2018 Atwood Visiting Professor of Journalism at the University of Alaska Anchorage.

The views expressed here are the writer’s and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser. Read our full guidelines for letters and commentaries here.