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Will Alaska natural gas and our government come through for Japan?

  • Author: Scott Woodham
  • Updated: September 27, 2016
  • Published March 17, 2012

To: Japan

CC: South Korea

Subject: Powering the future

Dear Esteemed Visitors,

As we understand it, a group of your officials recently visited Alaska to explore the possibility of securing a steady, long-term supply of liquefied natural gas, and maybe even build part or all of a pipeline.

The visit has so far been very hush-hush. No one has said whether you are from Japan's national government or from a private company or two, and the only Alaska officials who've gone on the record about your visit are Department of Natural Resources Commissioner Dan Sullivan and Lt. Gov. Mead Treadwell. We even heard Treadwell accompanied you to dinner one evening. Overall, we're confident you're being treated well, if not with attentive respect.

As we understand it, Commissioner Sullivan touted our state's gas resources in his meeting with you but later said it was just an exploratory meeting. We hope more talks are in the works. For a long time, Alaska's gas has been stuck because of lack of confidence it could find a market, or so we've been led to believe.

But now, here you are -- a large potential market -- and we couldn't be more hopeful. Especially since prices for associated gas liquids are so high these days that shale gas producers could practically give methane away and still turn a profit. Which is one reason they're still producing even though North American spot prices keep scraping bottom.

As excited as we are that you're looking to replace much of your country's nuclear power plants with gas, we're worried. We felt a little snubbed last summer when a group from Korea's largest utility skipped Alaska altogether in its search for Arctic natural gas – traveling instead to Canada to discuss investing in that country's proposed Mackenzie pipeline, which frankly looks a lot less promising than any of the proposed Alaska gaslines.

Prior to the delegation's trip to Canada, the Alaska Natural Gas Development Authority—the group that's in the process of being swallowed by another group with the same mission, but less political clout -- even had a group all lined up to travel to South Korea to discuss the possibility of export. But the governor decided they shouldn't go. He cited a desire not to mess with the pending completion of two open seasons, one for ConocoPhillips and BP's now-defunct Denali joint-venture, and the other for TransCanada's AGIA-licensed Alaska Pipeline Project.

We're worried what happened to South Korea might happen to you: Increasingly promising talks followed by a withdrawal in deference to the North Slope leaseholders. We're ultimately worried whether this administration will be willing or able to ensure the leaseholders' participation in a deal between Alaska and Japan, or any companies there.

But maybe our worries are unfounded. Lately, the Big Three have been trying to develop "alignment" on an Alaska LNG project at Gov. Parnell's suggestion, and just this week John Minge, president of BP Exploration Alaska, said the group now has more alignment than they've had in eight months.

We're actually kind of surprised the companies didn't just call you up once they heard you were looking to replace most, if not all, of your atomic power plants by buying up pieces of gas projects and securing a supply contracts around the world. Alaskans were pretty afraid of radiation once the shock of sympathy subsided, so it seems like a win-win for the state to help you give up nuclear reactors. Unless, as some critics allege, the leaseholders don't actually want to sell any Alaska gas.

But it might not actually be Alaska's gas. There has been some confusion over that. Alaska's Constitution says it belongs to the state in trust for the people. The companies control leases, naturally, but those leases are subject to clauses, either implicitly or explicitly, that provide for a "duty to produce" if there is a possibility that even the smallest profit could be made.

One thing is certain, though. The gas is actually located in Alaska. The land clearly owns it, if no one else does. For years, it has been argued that there is no market for the gas or that it wouldn't be prudent for the stakeholders, including the state, to fulfill its duty to produce. After all, gas powers the oil harvest, and oil is worth far more than natural gas. It has also been said over the years that there's no gasline yet because there's not enough of a market for North Slope gas.

Well, you probably know this but your country and Korea (and probably China) represent markets. Huge markets, in fact, and growing markets. And natural gas prices in Asia haven't effectively decoupled from oil prices, as they have in North America.

But we're still worried what could happen to the whole process if it depends on what the producers want. Minge also said that even if the companies reached some kind of super-hyper-magnetized alignment over LNG, there would be "massive" debate over the terms in the Legislature as early as next year. And that would just be the start.

Years would pass, LNG terminals now under construction would come online, and you might find better options while the North Slope leaseholders decide what to do. Or not do.

It seems to us that successful meetings between you and Alaska's government could bring an end to the friendly back-and-forth between the leaseholders over who will finally bring gas located in Alaska to market.

It seems Gov. Parnell could use successful meetings with you as leverage to avoid doing things that might irritate the state's largest business partners, like going to court, enforcing the companies' duty to produce, or serving subpoenas for sensitive information.

For your interest, ??????????.

The Concerned

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