Senators air concerns, potential as gas bill moves


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FAIRCLOUGH

With the 2013 legislative session about half over, the Senate Finance Committee continues to plow through Gov. Sean Parnell’s proposal for the state to partner in a large North Slope gas project.

Expectations were for the committee to finish its work and consider amendments by March 7, but that wasn’t certain as of press time March 5.

The Senate Resources Committee voted out Senate Bill 138, which gives the state administration authority to pursue the deal, on March 3, sending it to the Finance Committee.

The House Resources Committee is meanwhile still conducting its own review of the House version of the bill, HB 277, but is mainly waiting on the Senate to send its bill over before taking action.

So far no major obstacles have emerged for the bill, but members of the Finance Committee are still focused on several key issues. One is whether the project will make natural gas more available to Alaskans, and at an affordable price.

Senate Finance co-chair Sen. Kevin Meyer, R-Anchorage, said his constituents are asking him whether the state’s involvement will make gas available at lower prices.

“Do we get a discounted rate?” he asked during a meeting of the Finance Committee.

State Natural Resources Commissioner Joe Balash, who was appearing before the committee, replied that state (royalty) gas could be sold at lower prices, “but there would be a cost,” in lost revenues to the treasury, he said.

Another concern, said Sen. Anna Fairclough, R-Eagle River, is to ensure that the project will have good terms for expansion, which could greatly benefit the state if it is a part owner.

“Future expansions of the project could be very profitable for the state, and we also have to remember than for every dollar we invest the industry partners invest $4 or $5,” depending on how much of a stake the state wants, she said.

Fairclough, who is on the Finance committee and the Resources committee that reviewed the bill earlier, spoke along with other Senate leaders in a March 4 briefing.

One another issue, Fairclough said, is “there is also a nagging question of why we need the state’s Alaska Gasline Development Corp., or AGDC, to stand up a subsidiary to own the equity share in the project.”

The concern is about duplication of functions and whether the state corporation itself, which is also charged with planning a smaller state-led pipeline as a backup plan, would be more efficiently engaged in the larger project without having to form and work through a subsidiary.

Fairbanks Republican Sen. Click Bishop, who is also on the Finance and the Resources committees, said his nagging question is simply a fear of the unknown.

“This is a $45 billion to $65 billion project, and most of the experience I’ve heard on mega-projects is that they tend to run over budget. I want to make sure we’re not looking at this through rose-colored glasses. I want to make sure the state will be able to meet the cash calls,” as a partner, Bishop said.

Despite the reservations, Bishop said he supports passing the bill so the state and its proposed industry partners can get on with the “pre-FEED” (Preliminary Front-End Engineering Design) work, from which a more definitive cost estimate can be derived.

Bishop also said a big value of the deal, which is not yet widely recognized, is the possibility of “value-added” manufacturing, which having affordable gas available will make possible.

“We have to look at what we get beyond just exporting the gas,” he said.

Senate President Charlie Huggins, R-Wasilla, said that what gives him comfort now is that this is a staged, step-by-step processs of approvals over several years.

“We don’t have to be bold at this stage but we have to show a little courage,” in getting the ball rolling, he said.  “What is exciting to me is that ExxonMobil is excited about this, and is being followed by the other two gas producers,” BP and ConocoPhillips.

ExxonMobil is the largest single owner of gas reserves on the slope, followed by the State of Alaska.

Fairclough was asked what the state gets out of the partnership deal that it couldn’t get with the status quo, if the state simply took its revenues in cash payments from the gas royalty and production tax.

“It’s really about sustainability and durability of the tax structure,” she said. “The producers have always said that if a gas pipeline is going to happen there has to be durability,” of the tax terms.

“Our equity stake does that. There’s great value in equity, and we’ll be on the inside,” with access to information, she said. “The producers need a partner to go with them to the (LNG) market, which is opaque (in terms of sales prices) and not transparent like Henry Hub,” where Lower 48 gas sales transactions and prices are widely posted. “With LNG there’s real benefit to us being on the inside,” with access to market information.

With the royalty and tax taken “in value,” or cash, there wouldn’t be easy access to markets information and disputes would likely result, which the producers want to avoid.

There are still legislators with concerns about the deal, however. In the state House, Rep. Chris Tuck, the Democratic minority leader, said he is concerned whether the state will have the staff and expertise to negotiate very complex contracts on the gas deal.

“A decision like this could also complicate our responsibility to be a regulator. This would merge our roles, creating conflicts,” he said. “Also, why we being asked to help bankroll a project that could, in reality, bankroll itself, without us? There are just a lot of questions about this.”

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

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