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Walker names 3 to state gas line board, has new ideas for in-state line

  • Author: Nathaniel Herz
  • Updated: September 28, 2016
  • Published February 19, 2015

JUNEAU -- Gov. Bill Walker this week staked out his position on the years-long effort by the state to build a natural gas pipeline from the North Slope -- a project watched closely by lawmakers and lobbyists here because of its potential impacts on the state's shaky finances and oil company balance sheets.

In an opinion piece in several publications Wednesday and at a news conference Thursday, Walker said he wants to scale up the size of a state-controlled pipeline being pursued in tandem with a second, larger pipeline project, in which the state has a smaller stake along with three oil companies. Walker's proposal potentially sets up a confrontation with the Republican legislative leaders who were the primary architects of the existing pipeline plan.

Only one project would ultimately be built, but the state-controlled project is viewed as a backup in case the oil companies decide not to invest in their own pipeline. Legislative leaders like House Speaker Mike Chenault, R-Nikiski, say the state is making adequate progress on its smaller pipeline project and that it could be built and operated at a reasonable cost, currently pegged at roughly $10 billion.

Walker, meanwhile, argues that a big pipeline project, which could cost as much as $65 billion, is the only way for the state to take advantage of economies of scale. He says the state needs to be working on its own large pipeline in case the oil companies decide not to pursue their partnership with the state.

Walker on Thursday also made three appointments to the board of the Alaska Gasline Development Corp., the state entity charged with guiding Alaska's efforts developing both pipelines. Walker fired their predecessors early last month.

At the news conference, Walker said he appointed former state Sen. Rick Halford, 70, a Republican from Chugiak and Bristol Bay and a key figure in Walker's transition efforts; another former state senator, Joe Paskvan, 62, a Fairbanks Democrat and attorney; and Hugh Short, 42, a former mayor of Bethel and co-founder and chairman of Pt Capital, a private equity firm specializing in Arctic investments.

The appointments will require legislative confirmation. In a signal of what could be contentious hearings, House leaders at their own news conference Thursday handed reporters printed copies of the law that lays out the qualifications for board members.

Chenault's staff was also examining whether the governor could shift the mission of the state gas line corporation without passing legislation.

Walker maintained that his proposed shift is "well within the legislation that's there."

The larger pipeline project would provide gas for Alaskans and sell to Asian markets. It has generated keen interest among lawmakers because of its potential to create new revenues for the state, which is currently facing a multibillion-dollar deficit, though its completion is still years away and could be thwarted by market forces.

The smaller project is viewed by some legislators as a way for Alaska to help reduce high energy costs around the state, though some Alaska critics say it would instead increase costs because of its scale.

‘Paradigm shift’

Walker, an oil-and-gas attorney before he was elected governor, has worked for decades on efforts to build an LNG pipeline from the North Slope. He was outspoken in his criticism of the smaller state-controlled project in the lead-up to his election in November.

"We could call him Mr. Alaska Gas Pipeline -- he's been pushing this and following it and nurturing it for quite a long time," said Steve Haycox, a history professor at University of Alaska Anchorage. "Part of the reason why he was motivated to run for governor was because he wanted to take control of this thing."

Walker's removals of the three AGDC board members in January indicated he would try to change the state's approach -- at the time he called for a "paradigm shift." But he offered few details then about what the shift would involve, leaving the legislative supporters of the existing pipeline projects anxious about Walker's approach. Some, however, were reassured by comments in a state Senate committee hearing Wednesday afternoon from deputy natural resources commissioner Marty Rutherford, one of Walker's top officials working with the oil companies on the large pipeline project, who told legislators that "there's really a sense of teamwork."

Walker's opinion piece published later in the day, however, said the state needed to start pursuing its own large pipeline project because it "can no longer afford to stand by and wait while Alaska's future is decided in the boardrooms of international corporations that have competing global interests."

A larger state-controlled pipeline, he argued, is the only viable option if the oil companies choose not to invest in subsequent stages of the project they're currently pursuing along with the state. Or, he suggested, the projects could be combined at a certain point.

At his news conference Thursday, Walker said he had conversations with oil company executives about his proposed shift and received "no pushback at all from them on this."

Representatives for ConocoPhillips and BP wouldn't speak about Walker's comments or confirm his characterization of his conversations with their executives. A spokeswoman for ExxonMobil, Kim Jordan, emailed a statement saying the company's management had received a phone call from the governor informing them that the state was announcing a "back-up plan" for gas development should the cooperative pipeline project involving the state and the companies -- known as Alaska LNG -- didn't move forward.

"The governor clearly stated that he was committed to Alaska LNG and only wants one project to proceed," Jordan said. "Now that the governor has announced that the State of Alaska is sponsoring a project in direct competition with the Alaska LNG Project, we are assessing the impact on our forward plans."

Rep. Mike Hawker, R-Anchorage, argued that Walker's plan to scale up the state's smaller pipeline project would upend the progress Alaska has made with the oil companies on the larger cooperative pipeline project, and would compete with it, echoing Exxon's statement.

He likened the members of the existing partnership to players on a basketball squad.

"What happens when one of your players starts playing against your own team?" Hawker asked.

Democrats were more enthusiastic. Rep. Les Gara, D-Anchorage, said that the existing structure for the development of the two different pipeline projects was tilted towards the interests of Alaska's big three oil companies, rather than the state's.

"By telling the big three that we might essentially shop elsewhere, he puts pressure on them," Gara said.

Larry Persily, the federal government's coordinator for a North Slope gas pipeline, said in a phone interview that he agreed with Walker that the current smaller, state-controlled project is not economically viable. But he described it as insurance policy should the larger project fall through -- one that the state gas line corporation could present to the Legislature and to the public as a proposal with an estimated subsidy.

Ultimately, Persily said, market forces will decide whether a larger pipeline gets built -- not oil producers or the state.

"If it's not an economically viable project with the producers involved, it's not going to be economically viable without the producers," Persily said. He also pointed out that the state only controls a small portion of North Slope gas, and would still need some level of cooperation by the oil companies to fill a large pipeline.

New members

In interviews, two of Walker's three appointees to the gas line board said their primary task was to get up to speed on the state's progress on the two pipeline projects.

In a phone call, Halford said he hadn't gone over Walker's new gas pipeline plans and declined to give his opinion on them.

He said Walker hadn't given him any instructions about his work on the pipeline projects, but Halford added: "I believe in his leadership."

Short, in a separate phone call, listed a few of his qualifications for serving on the board, like working on "close to a billion dollars of deals that include anything from oil infrastructure to industrial roads to heavy equipment to real estate." Prior to founding Pt Capital — Pt is the chemical symbol for platinum — he worked for a financial subsidiary of Arctic Slope Regional Corp.

Short, a Republican, also pointed to his Alaska Native heritage and his childhood in rural Alaska, where residents face a "very real problem" of high energy prices.

Alice Rogoff, the publisher of Alaska Dispatch News, is a member of the advisory board for Short's private equity firm.

Short, like the two other appointees, is known to some legislators here -- he's son-in-law to Sen. Lyman Hoffman, D-Bethel, and said he now lives in Girdwood, south of Anchorage, where he's represented by Hawker and Sen. Cathy Giessel, two of the lawmakers who have voiced skepticism of Walker's gas line plans.

Short said he runs into Hawker at Costco occasionally, while Giessel noted that she went to grade school and junior high school in Fairbanks with Paskvan, Walker's third appointee.

In an interview in her office, Giessel pulled out a bound volume of Alaska statutes and referenced the one that controls Walker's appointees to the gas line board.

It says the governor "shall consider an individual's expertise and experience in natural gas pipeline construction, operation and marketing; finance; large project management," and other relevant experience.

Giessel said the Legislature would "seriously and objectively" hear Walker's appointments. But she added that "we want really qualified people there."

"If you don't know what's going on and the subject matter you're directing, well, you're not going to be much help," she said.