COMMENTARY: ‘Fiscal certainty’ is an idea whose time has come

  • Gov. Bill Walker, alongside BP Alaska President Janet Weiss and ConocoPhillips Alaska President Joe Marushack at a February 2016 press conference to announce a stall in advancing the Alaska LNG Project. (Photo/Elwood Brehmer/AJOC)

Since 2002, the soap opera that has become Alaska’s natural gas pipeline hopes has been never ending. Today, just the Alaska LNG Project 3.5-billion cubic feet pipeline proposal remains, with the Alaska Gas Development Corp. trying to bring the project to fruition under Gov. Bill Walker.

The Dec. 30, 2016 press release from AGDC continues the soap opera with AGDC extolling the “concluded agreements … “with the Producers … that will enhance AGDC’s ability to commercialize Alaska’s North Slope natural gas resources.”

The next two pages have sections labeled “Cautionary Statement” by each “partner” in the project that are basically disclaimers with respect to anything actually happening … ever. Nothing new there.

In the meantime, massive shale play discoveries and discoveries around the world, increasing export capacity in the Lower 48 and the ongoing development of the Kittimat, British Columbia, proposed LNG and oil terminals are further eroding any hope for Alaska to move its natural gas to market.

An increasing project cost that has risen from $24 billion in 2010 to the present $45 billion to $65 billion has further complicated the marketing of North Slope natural gas to a world market — a world market that has contracted due to economic conditions that are not improving.

There is some glimmer on the horizon with the conversion of more coal power plants being converted to natural gas both in the U.S. and abroad, but not enough to give rise to the market prices for LNG that existed prior to the energy crash in 2014.

BP plc recently announced its partnership with Kosmos Energy Ltd. for development of deposits of gas and oil offshore Mauritania and Senegal estimated to comprise with present knowledge 15 trillion cubic feet to 50 trillion cubic feet of natural gas, and 1 billion barrels of oil.

Both ExxonMobil and ConocoPhillips have major oil and gas developments in the Pacific and off Australia that are intended for Asian markets. ConocoPhillips supplies an estimated 14 percent of Japan’s LNG market with natural gas from Qattar.

Probably the biggest blow to the Walker Administration’s dreams of a natural gas pipeline and a serious investment by the producers to increase oil production on the North Slope is the 20 billion barrels of oil and 16 trillion cubic feet of natural gas discoveries announced in November 2016 in the Texas Wolfcamp shale formation.

In 2015, the state of Ohio announced another 5 trillion cubic feet of natural gas discoveries in its Utica shale play. The finds continue in the shale plays.

Meanwhile, in Alaska, two weeks ago, more layoffs on the North Slope.

With a hostile regulatory environment and litigious opposition, how is that our governor and the Legislature think that Alaska can complete with domestic sources of oil and gas?

Where the shale plays are located, the driller can literally make a deal with the farmer who owns the land without government interference or the threat of public interest litigation, and have a drilling platform on-site and working within 30 days of the initial handshake.

In Alaska, that same progress takes at least 10 years or more, given the ever-present threat of public interest litigation by the anti-development Outside environmental interests.

The investment in Alaska to start of activity would be upwards of $100 million and a decade in lost time by the time the drill platform is finally on the property and the first pipe stem begins a long trip downhole.

This is why elephants are preferred in Alaska to smaller field development. This situation must change if Alaska is to compete in a world market.

If Alaska is expected to receive continued oil and gas development in this state with any degree of priority, given the world market and the economic downturn, fiscal certainty is an idea whose time has come.

Otherwise, Alaska can sit and watch while massive foreign and domestic finds receive the money that would, could have gone to Alaska’s fields and prospects.

The producers and new companies in the Alaska oil and gas development have continued to ask the Legislature for “fiscal certainty” before there is any firm contract to move forward with further oil and gas development, including the natural gas pipeline project.

Fiscal certainty is simply a guaranteed, fixed tax and royalty structure that could be negotiated per development. The bar is that Alaska’s Constitution does not allow one administration or Legislature from enacting law that binds a future state government. It is time to remove this impediment.

If Gov. Walker and the Legislature want to keep Alaska in competition for resource development investment, it is time this “we are owed” mindset ends.

Deregulate and reduce taxes in face of the current recession, and stop growing government. Our economy is slowing, there is a worldwide depression; it is time to face reality.

Provide “fiscal certainty,” or watch the money go to other developments outside of Alaska.

Larry Wood is President of Terra Resources, Ltd., a 62-year Alaskan and former Valley Coordinator for the Walker 2010 and 2014 campaigns.

 

Updated: 
01/11/2017 - 12:53pm

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