Parnell sets $425 million LNG trucking project on its way


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Alaska Gov. Sean Parnell chats at Fountainhead Antique Auto Museum in Fairbanks on May 29 after signing Senate Bill 23 to provide a package of $362.5 million in state financing to begin trucking LNG from the North Slope to Fairbanks.

Courtesy/Office of Gov. Parnell

Gov. Sean Parnell signed a bill May 29 committing the state to finance $362.5 million of a proposed $425 natural gas liquefaction plant on the North Slope as well as facilities in Fairbanks to “re-gasify” and store LNG trucked from the slope and to distribute gas to residential and business customers.

Private parties are expected to finance the rest of the $425 million total, mostly for the LNG project, according to a presentation given by the Alaska Industrial Development and Export Authority, the state’s development corporation, to state legislators in late March.

A feasibility study of the project is expected to be completed in late June or early July, AIDEA spokesman Karsten Rodvik said.

Meanwhile, two gas utilities are vying to build out the distribution system for Fairbanks. One is now serving a small core area of Fairbanks; the other is a newly-formed public utility that does not yet have pipe in the ground.

The project is expected to deliver LNG for a wholesale price of about $10.15 per thousand cubic feet, or mcf, according to AIDEA’s preliminary estimates. That is expected to translate to a delivered retail price of gas in the Fairbanks area for $13.42 to $17 per mcf.

On an energy-equivalent basis that is about half what Fairbanks consumers now pay for fuel oil.

Other customers are expected to include Golden Valley Electric Association, the Interior electric co-op, and Flint Hills Resources, owner of a refinery at North Pole, east of Fairbanks. Both now use fuel oil, which is very costly.

Propane would also be available as a part of the project for use in the Fairbanks area or in rural communities.

The legislation signed by Parnell is Senate Bill 23, passed by the state Legislature in April. It commits AIDEA and another state entity, the Alaska Energy Authority, to finance and develop the LNG project with private partners.

AIDEA would own part of the North Slope LNG project, with a $50 million direct investment with a yet-unidentified private partner.

The state investment would give the state a share of the expected 9 billion cubic feet per year of processing capacity, amounting to about 6.5 billion cubic feet per year.

AIDEA’s share of the plant’s LNG output, amounting to about two-thirds, would be sold to public utilities in the Fairbanks area at cost, with no return charged on the state’s investment.

If AIDEA sells LNG to non-utility customers it can include charge for return on investment, however.

The state authority would also issue up to $150 million in authority revenue bonds to finance the gas distribution system. The gas utility would repay the bonds with fees charged to consumers.

The tentative plan developed by the authority envisions an interest rate of 3 percent to 4.5 percent on the bonds, depending on the tax-exempt component of the bond issue and the rates in the market when the bonds are sold.

Bonds will also carry the state’s “moral obligation” that the state itself would back the bonds if the Fairbanks gas utility did not make payments.

In addition, the plan calls for AIDEA to make $125 million available from the authority’s sustainable energy investment fund for financing for private parties on parts of the LNG plant and the gas distribution system. Senate Bill 123 set the interest rate for this financing at 3 percent.

Finally, the LNG storage tanks built for the project in Fairbanks, which would be constructed or owned by a local utility or private parties, would be eligible for state tax credits up to $30 million.

The project plan contemplates an LNG plant at Prudhoe Bay with LNG tank trucks carrying liquefied fuel down the Dalton Highway to Fairbanks, but a variation of this being studied by AIDEA, the state Department of Natural Resources and private firms would have the LNG plant built farther south along the highway, according to sources familiar with the discussions.

There is a small fuel gas pipeline built parallel to the Trans-Alaska Pipeline System that carries gas for fuel to pump stations north of Atigun Pass. The pipeline is now underused, and an idea being considered is using spare capacity to supply an LNG plant.

The plant could be built either at Galbaith Lake, just north of Atigun Pass, where there is a TAPS pump station reached by the pipeline, or it could be built at Chandalar, south of the pass, where the state has an existing highway maintenance camp.

Using state land adjacent to the camp could simplify permitting, but it would also require a short extension of the gas pipeline, according to the sources familiar with the idea.

 

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

 

Reader Comments:
Jun 9, 2013 04:03 am
 Posted by  redoubt1

Governor Parnell please cut


Governor Parnell please cut the red tape and high cost of dumb rules that they use to keep Alaskans out of the oil wealth!

It is these hidden cost that are like an added tax with high cost bonds and red tape that hurts the smaller oil companies and Alaskan drillers like Jim Weeks, Jim White and Ken Thompson with Brooks Range, ACES was fine!

SB 21 was a trick on all Alaskans to give it all to the majors and now Alaska will go broke and Alaskans will that are drilling will be run out so the major will own it most all as it has been for decades! SB 21 took away the credits needed to enable Alaskans needed to get a leg up on the major's monopoly but you took it away, why hurt the smaller competitor. Not one Independent has made a profit only the majors why do you favor them so much?

We need to change the oil and gas laws so Alaskans are not priced out of the oil Industry by DNR by them Jacking up the cost of lease rentals by 1,000% up to 8,333% and unit rules that keep the Majors in and small Alaskans out, see DNR website UNIT DENIALS, thanks to Gov. Parnell men in charge at DNR!!

They let the majors have it all and keep Alaskans out, for example, with the C -Plan , trick to keep Alaskans out) and the high bonding oil and gas wells that is 76 times higher then anywhere in North America, see the Dr. Paul Craig CEO Trading Bay Energy, study, Paul is a great Alaskan oil investor & explorer and Should run for Governor .

Us small players know Alaska has a self insured 470 Oil spill fund that protects the lands in case of a spill and it is fully funded and the Millions of dollars have never had to be used because the majors and the Parnell keep the Alaskans out of the oil wealth so the majors can export it all to London and Houston!! Get rid of all the high cost and long C-Plans that keep Alaskans and smaller oil companies out of the Alaska oil and Industry!

SEE DR. Paul L. Graig's Testomony to the 2005 Legislature asking REP VIC KORHING TO HELP THE ALASKANS TO COMPETE WITH THE MAJORS IN VAIN!!!,

, http://www.legis.state.ak.us/basis/get_minutes_comm.asp?hse=H&session=24&comm=O!G&date=20051121&time=1310

Vote for those that want to enable Alaskans to share into the oil wealth and keep the billions in Alaska for Alaskans and not give it all away to the Majors.

A few Alaskans have invested and broke down this wall they put up to keep Alaskans out of the oil money, Rick Wagner and his step Father Bill Stroker that died last year put was getting $600,000 per month and Rick around $ 300,000 per month.

Alaskans can do have income of $ 600,000 per month like these Alaskans in Fairbanks, heck it is what the Top guys in the majors get as bonuses all the time with Alaskans oil money.

Dr Paul Criag and Rick Wagner are a few that can testify how hard Alaskans can have to work to have Royalty and other oil and gas income like this, If Alaskans are interested in investing in leases sales.

They want to keep Alaskans out, the DNR just raise the cost on Alaskans by 150% on Minimum bid on tracts in the oil and gas lease sales. The DNR did this when some sales had no bidders and other only had 3% of tracts bid on and 97% with no bidders, why to keep Alaskans out and the majors in!!

Under the current rules not one Alaskan has drilled an oil well and found oil and sold it at a profit because the DNR DOG and this Governor want's the majors to have it all in my view.

Alaskans can use the 77-7 plan and change the rules by telling the Legislature to enable Alaskans to prosper and stop the monopoly that keeps Alaskans away from the oil wealth some want to give away to the majors! Contact Ray Metcalfe and help win back Alaska's oil wealth for Alaskans and smaller oil and gas competitors

Jun 9, 2013 04:06 am
 Posted by  redoubt1

Gov.Parnell, 77-7 Plan Please! Don't Leave Smaller Companies Out


Multibillion-Dollar Tax Break for Big Oil in Alaska Could Leave Smaller Companies Out in the Cold

Controversial oil tax bill moves forward, while some say it is tainted by conflicts-of-interest and even supporters admit it's a gamble of public funds

Protestors have been covered by the Anchorage Daily News

ANCHORAGE, Alaska--(BUSINESS WIRE)--A multibillion-dollar tax break for big oil supported by Alaska Governor Sean Parnell is nearing reality as a Republican-dominated Alaska Legislature nears the end of its session.

“If this bill passes, in almost any form, I think the national media will get a hold of it and the result will be another chapter in the Bill Allen-Veco corruption tale in Alaska, and that, I will take personal offense at”

Meanwhile, some smaller independents feel slighted by the bill that they say further slants the playing field in Alaska's prolific North Slope toward the majors.

Parnell, a Republican who was employed as a lobbyist for ConocoPhillips before taking office, says the massive tax break will fuel the majors to produce more oil on the North Slope to fill the trans-Alaska oil pipeline. The pipeline is currently in jeopardy because throughput has declined and it was designed to operate with far greater flow.

Recently the majors have complained that the state's existing Alaska's Clear and Equitable Share tax system which increases the state's take when oil prices rise, makes additional production uneconomical.

The three majors – ConocoPhillips, BP, and ExxonMobil are eager for the SB 21 windfall, but have offered no guarantee that it will add any new oil to the equation. Indeed, some at Exxon and BP have said the bill doesn't do enough to move the needle for them, placing the hope for the State's oil and gas future on a single company – ConocoPhillips.

In recent testimony independents have voiced concerns and suggested changes.

“The Proposed SB 21 Oil & Gas Production Tax Legislation will negatively impact Savant’s ability to maintain or grow existing production, both in the Badami Unit and on its leasehold outside of the Badami Unit.” Greg Vigil, President Savant Alaska LLC

“The current bill as it stands before does not help our current funding request as the contemplated tax regime makes this new project (Nuna) less attractive than under ACES when viewed as a stand alone incremental investment project.” J. Patrick Foley, Pioneer Natural Resources

Even Senator Kevin Meyer, a supporter of Parnell's proposal, reportedly said it's "a crap shoot;" alluding to the fact that the bill's impact may not be all that was hoped for. Some fear the bill may be a bust for state programs such as health, infrastructure, and education.

Glaring Conflicts

The bill could also be seen as tainted because the governor and key legislators have ties to big oil.

Sens. Peter Micciche and Kevin Meyer are ConocoPhillips employees. House Resources Committee member Mike Hawker, who works as an analyst for ConocoPhillips, also voted for the bill. Other legislators are married to employees that either work for the majors or are tied to service companies that benefit from spending by the majors. While not illegal, none have declined to vote on the floor or in committee, despite the colossal windfall to the major oil and gas companies – estimated at $4.5 billion to $20 billion over the life of the bill.

Another critic of the bill is former Anchorage Borough mayor Jack Roderick who was deputy commissioner of Natural Resources in the early days of the industry in Alaska, and authored the law establishing oil and gas leasing. Roderick is also the author of “Crude Dreams” which is a best selling book on the State's main industry.

Roderick criticized SB 21 in a late March public hearing on the bill.

Roderick thinks the bill is too complex, and that the conflict-of-interest issue is a scandal in the making.

"If this bill passes, in almost any form, I think the national media will get a hold of it and the result will be another chapter in the Bill Allen-Veco corruption tale in Alaska, and that, I will take personal offense at,” he said. “ I've been here 60 years involved in public affairs and the oil business and this is the most important decision you people will probably ever make, and you shouldn't make it this way."

"I think it's bad legislation," Roderick said. "You're dealing with the largest and most powerful corporations in the world and you can't take it simply on a handshake. My recommendation is to put this aside. I'd wait for more information to come to you, particularly a guarantee from the companies that they will do what you want them to do."

However SB 21 went though committee hearings in both the Senate and the house. At press time, the bill is slated to be heard on the House floor and it appears likely that the governor's bill will pass and that big oil will reap additional profits at the expense of the state treasury.

77-7 Plan, offering a new solution

Meanwhile, a group of independent companies have offered a proposal that they feel would attract new investment to the state and result in more production and income for Alaska.

Their proposal, dubbed the 77-7 Plan, would provide incentives to both the majors and independents equally. The plan hopes to attract new companies to explore on the North Slope and help to create a more competitive balance. One Independent said, “Under 77-7, Alaskans themselves might form companies to drill for new oil and gas.”

Under this plan the funds would remain in the state treasury until Alaska's stated goals are achieved. If companies do not step up to meet the state's objectives, the 777 Plan would not cost the state.

The authors of the 77-7 Plan have broken it down into three basic components:

1. Adopt a simple, voluntary 77% exploration and production credit for any investment outside existing units that is based on clearly delineated expense schedules. This would avoid lengthy audits and subjective judgments by state employees – capped at $77 million per company per year with a seven-year sunset;

2. While leaving a fixed state royalty in place, provide a seven-year exemption from taxes for all new production outside of the existing participating areas;

3. Leave the existing ACES tax – including progressivity – as is for all existing participating areas.

The majors have been able to sustain steady profits from the North Slope oil for years while independents have struggled to enter the market area. The three majors control the infrastructure they have built including: feeder-lines, conditioning facilities, the trans-Alaska oil pipeline and tankers. The list of barriers to independent goes on: high bonding and permitting costs in excess of those in other states, cumbersome regulations, ambiguous statutes which allow arbitrary decisions by regulators, and of course the high cost of doing business in a harsh and distant location.

Proponents of the 77-7 Plan claim they have had difficulty getting a fair hearing in the Legislature, in part because SB 21 with its complicated structure has already burned hours of time at the Capital. Legislators are anxious to end the session and return to their homes. The fatigue of the busy 2013 session has set in and the path of least resistance is to pass SB 21, a bill that is certain to be signed by the governor.

However, 77-7 Plan proponents feel they are gaining traction but the eleventh hour is approaching. They are looking for an intrepid legislator to propose the requisite changes to SB 21 before the legislature adjourns.

Once the legacy fields on the North Slope tail off the majors will leave the state regardless of tax incentives. Smaller companies with lower cost structures that specialize in late stage development will take over the fields.

Likewise, smaller companies are the key to discovering and producing prospects that are too small for the majors.

To insure a thriving oil and gas industry going forward, Alaska must attract and nurture independent oil companies. Proponents of the 77-7 plan say it can do that by providing incentives, and avoiding the appearance of favoritism in its regulations and dealings with all companies.

As the legislative session comes to a close it remains to be seen if the 77-7 proposal or the other suggestions from independents will be added to the bill making it more attractive to smaller producers or if it will remain highly focused unfairly the Majors.

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