Q&A: World Trade Organization’s role in US-China dispute

FRANKFURT, Germany (AP) — China is turning to the World Trade Organization as a way to fight back against the latest tariffs proposed by U.S. President Donald Trump. Its complaint to the organization, which oversees global trade rules, comes less than one week after the U.S. government proposed 10 percent tariffs on a $200 billion list of Chinese goods, to take effect in September at the earliest. The Trump administration on Monday also said it’s filing a challenge at the WTO against China, the European Union, Canada, Mexico and Turkey for tariffs they imposed against the U.S. in retaliation to earlier U.S. tariffs on steel and aluminum. The moves put a spotlight on the WTO, a multinational forum that is based on rules, in contrast with Trump’s nationalistic approach that emphasizes country-to-country relationships. Here’s a look at the WTO and what its role will be in the trade tussle. What is it? Launched Jan. 1, 1995, as the successor to the General Agreement on Tariffs and Trade, the WTO’s mission is to facilitate free and fair trade. It does that by establishing rules, settling disputes and getting countries to talk to work out their differences. It is run by the governments of the 164 members through ministerial meetings at least once every two years, and by ambassadors and delegates at the organization’s headquarters in Geneva. Countries that join commit in principle to apply their lowest tariff rate on goods from other member countries, called most-favored nation treatment. Countries that think other members are acting unfairly can use WTO councils, committees and its dispute settlement system — which essentially rules on trade squabbles — to seek and obtain redress. Why is China going to the WTO? Membership in the WTO has been part of China’s rise to global economic influence since it joined in 2001. Members are barred from discriminating against each other in their trade practices, meaning China’s exports were shielded from protectionist moves by other countries. That was been a key factor in China’s export boom. China has previously prevailed in WTO dispute settlement against the United States in a successful challenge to restrictions on steel imports imposed under President George W. Bush in 2003. While China takes advantage of WTO protections for its goods exports, it has been criticized for not upholding WTO rules requiring enforcement of trademarks and patents and for subsidizing selected domestic sectors. Why is the US going to the WTO? The U.S. is filing a challenge to the tariffs that China, the EU and several other countries imposed on the U.S. in retaliation to U.S. tariffs on their steel and aluminum. The U.S. says its tariffs on steel and aluminum are fair but that the other countries’ were not. The U.S. has said its tariffs were imposed on grounds of national security, saying it needs to strengthen its own steel and aluminum industry to ensure supplies to its military and infrastructure. But China, the EU and the others argue that’s just an excuse. The EU and Canada in particular note that they are longtime allies and that their exports to the U.S. cannot be considered a national security threat. Could the WTO be used to make the US back off tariffs? Yes, although it could take a while. If a U.S. trading partner wants to go through the WTO’s dispute settlement process, it can make a “request for consultations” that would start a 60-day period to talk about the issue. If there’s no deal, it could ask a dispute panel to rule on the tariffs — which generally takes about 18 months. An Airbus-Boeing dispute, for example, took more than a decade to produce a final ruling. Ultimately, the judges in the WTO’s dispute settlement process could rule that the United States should end the tariffs. Washington could refuse to implement such a ruling but would then face the possibility of sanctions. At the very least, Trump is buying time: it can take months or even years before disputes get resolved through WTO bodies or are settled outside between the sides. At times, the disputes simply fizzle as participants lose the ambition to resolve them. Trump’s administration has already caused headaches for the WTO’s dispute settlement process: It has balked at appointing new members to the seven-member appellate body, which now has only four members. In practice, that slows the body’s ability to rule on disputes. Does China have other options? The WTO is only one way of responding. China may run out of U.S. imports to hit with tariffs but can retaliate with other measures. It could deploy measures against U.S. multinational companies operating in China such as consumer boycotts. That tactic was used in disputes with other Asian countries. But China might be reluctant to do that because many products sold by multinational companies, such as General Motors or Apple, are made in China by local workers. China could also seek to lower the exchange rate of its currency against the dollar. That could also backfire by causing an outflow of funds from the country, and because China is no longer merely seeking to profit from cheap exports but wants to move to an economy driven by domestic demand and production of more advanced goods. Jamey Keaten contributed from Geneva.

Funds run by artificial intelligence put to test

A computer can trounce a human chess master and solve complex mathematical calculations in seconds. Can it do a better job investing your money than a flesh-and-blood portfolio manager? Investors willing to test that question can do so with a couple of exchange-traded funds, or ETFs, that leave the investment decisions to a computer’s so-called artificial intelligence, or AI. ETF Managers Group and Ocean Capital Advisors launched an AI-powered fund last month dubbed the Rogers AI Global Macro ETF that invests primarily in single-country ETFs. The fund’s AI sifts through millions of data points from countries around the globe and uses what it learns to determine how best to allocate the fund’s holdings. (Humans carry out the trades, however.) Does this approach work? Another AI fund launched last November by ETF Managers Group and Equbot shows some promise. The fund, which is called the AI Powered Equity ETF, or AEIQ, invests in a variety of U.S.-based companies and seeks to beat the returns of the S&P 500. So far, it’s getting it done. The ETF is up 8.1 percent this year, while the S&P 500 has gained about 1.5 percent. Still, a track record of less than a year on a single fund isn’t nearly enough to gauge the merits of the AI approach. Also, like any fund, one should weigh potential gains against the fund’s fees. At 75 basis points, AEIQ’s expense ratio is on the higher end of ETF fees, even if the AI is doing all the thinking. By comparison, Schwab’s US Broad Market ETF, which also invests in a broad swath of U.S. stocks, has an expense ratio of 3 basis points. Sam Masucci, founder and CEO of ETF Managers Group, recently talked about his firm’s investment funds and why an AI fund manager might prove to be better at generating investment returns than the human variety. Answers have been edited for clarity and length. Q: How is AI different or better than the computer algorithms used for high-speed trading or robo-advisers that can rebalance an investor’s retirement portfolio? A: It’s different. If you think about algorithmic trading or robo-advisers these are tools that are used by human portfolio managers to make decisions on what to invest in. Artificial intelligence is very, very different. While there are humans that obviously are continuing to feed data into it, it’s the computer, the AI environment, that is distilling that information and making the ultimate portfolio selection. In the case of AI, the portfolio manager is not looking at a trade signal and making a decision. The AI model is prescribing the action that needs to be taken, whether it’s a purchase or a sell. Q: Is AI better at picking stocks and curating funds than more conventional approaches? A: We will find out. Theoretically, it should be better, because it has the ability to crunch a much larger universe of daily information and risk-weigh and apply it to a portfolio much faster and efficiently than humans can. In addition, the computer learns from its past actions and the result of those actions and gets smarter over time. And it removes any human bias, because it’s a machine. But it’s still new. We launched the first AI fund, AIEQ, in November. That fund is designed to offer S&P 500-like exposure with a better return and less volatility, and it has been doing that. And it’s getting better at doing that. Q: Can these AI funds anticipate market corrections? A: The more predictive information you can have and analyze, the better. And I am confident machines are better at that. They have the bandwidth. Q: Is AI going to eventually replace the active, human fund manager? A: No. I don’t think the computer is going to put us out of a job anytime soon. But it will allow us to enter into markets and offer people another portfolio solution that takes advantage of the newest technologies.

Movers and Shakers for July 22

Jimmie Rogers, CHSP, has joined Sitnasuak Native Corp. subsidiary companies Bonanza Fuel LLC and Nanuaq LLC in the new role of risk and safety manager. Rogers has more than 30 years of Alaskan-based experience leading safety, security, risk management and emergency management disciplines. He is a board credentialed, certified healthcare safety professional (masters’ level); certified environmental and safety compliance officer; and certified emergency, disaster and security manager, with a bachelor’s degree in business management. Past positions include chair of the Northwest Arctic Public Safety Commission, member of the Matanuska Susitna Borough Local Emergency Planning Committee, and member of the Alaska Safety Advisory Council representing industry. Kristi Schoenleber was appointed as First National Bank Alaska trust officer, joining Operations Manager Shannon Smith as recent additions to the bank’s Investment Management and Trust Services Department. Schoenleber, born and raised in Alaska, brings more than 25 years of experience in investment management and trust services to FNBA. Prior to joining the bank, Schoenleber was a licensed financial consultant at the country’s third-largest bank, working with corporations, Tribal governments, and high-net-worth clients. Most recently, she was an analyst for an international bank with a focus on large corporate clients, foreign currency, and wealth management. As trust officer, Schoenleber will help customers develop and grow their wealth and estate plans. Smith’s path to the department’s operations manager position led through the FNBA Audit Department. She worked as an internal auditor with experience in trust operations. In her new role, Smith will serve as an additional resource for customers, in addition to their primary relationship officer. Resource Data, a custom software development, geographic information system and IT consulting firm, has hired Patrick Schmidt as a GIS programmer/analyst to its Anchorage office. Schmidt graduated summa cum laude from Middlebury College in Vermont with a bachelor’s degree in geography, and has just relocated to Anchorage from Vermont. He recently worked as a GIS intern for Vermont Legal Aid in Burlington, Vt. Resource Data has also hired Jacqueline Hall as a GIS programmer/analyst at the Anchorage office. Hall has a bachelor’s degree in anthropology from San Diego University and has completed GIS certification courses at Mesa Community College. She has a background in data management, technical document writing, GIS and environmental policy. Most recently she worked as an archaeologist for LSA Associates Inc. for six years. Residential Mortgage hired Tawni S. Layne Laxa and Amy Miller as senior mortgage loan originators at its Calais Street office in Anchorage. Laxa, a certified military home specialist, brings 16 years of mortgage industry experience to Residential Mortgage. From 2007-17, she worked at Alaska USA Mortgage Co. as an assistant vice president and senior mortgage loan originator. Most recently, Laxa comes from Prime Lending where she was a senior mortgage loan originator. Laxa graduated from the University of Southern Colorado-Pueblo, now Colorado State University-Pueblo, with bachelor’s degrees in criminology and sociology. Miller has 20 years of experience in mortgage lending, including 10 years as a senior mortgage loan originator at Alaska USA Mortgage Co. Miller specializes in first-time homebuyer, conforming, VA, FHA, RD and HUD184 loans and joins the Residential Mortgage team from Prime Lending. Patricia “Pat” Thayer, based in Fairbanks for HDR, was given the Frank C. Balfour Professional of the Year award during the International Right of Way Association’s recent 64th International Education Conference. HDR also has Alaska offices in Anchorage and Palmer. IRWA works to elevate ethics, learning and a standard of excellence within its membership community. The Frank C. Balfour Professional of the Year award, named after IRWA’s founder, honors professionals who have demonstrated exemplary support to the association based on outstanding contributions made through leadership positions in the chapter, regional and international levels; fulfillment of educational courses and activities; participation in association regional and international activities; and achievement of IRWA professional designations.

OPINION: A smoking gun that shot blanks

The Journal was involved in two stories this past week we wanted no part of, but that ended up presenting a textbook case study in how and how not to practice journalism. On Friday, July 13, Republican blogger Suzanne Downing put up a post under a click-bait headline of “Smoking Gun” accusing Gov. Bill Walker of breaking state law by submitting an opinion column with a link to a campaign video and the Journal and its parent newspaper the Anchorage Daily News of committing campaign finance violations by publishing it. On Tuesday, July 17, the House Subcommittee on Ethics was presented with the deposition of former Journal reporter Naomi Klouda in the case against Rep. David Eastman, who was booted from the Ethics panel this session by a 31-6 vote based on a finding that he violated Alaska law by revealing the existence of an ethics complaint against Rep. Gabrielle LeDoux to Klouda on April 28, 2017. The Journal’s involvement in the Eastman case began that day when Klouda did what real reporters do when they are presented with an allegation: she attempted to verify it. In the case of Eastman, she was actually following his own advice when he told her that she should call the Legislative Ethics Office and ask Administrator Jerry Anderson about a complaint that had been filed within the previous week against LeDoux. Unbeknownst to Klouda at the time, though Anderson would quickly make her aware, ethics complaints are confidential until they are resolved. Anderson informed her that he could neither confirm nor deny the existence of any complaint and asked who had told her about it. Klouda, whose interview with Eastman was entirely on the record, told Anderson that he had told her to call the Ethics office and ask about LeDoux. Because we could not confirm the existence of the complaint, and after Anderson informed us of the serious nature of anyone disclosing a pending complaint, we did not report Eastman’s allegation against LeDoux. A couple weeks later, Klouda and I met with Anderson at his cramped Downtown Anchorage office where for the second of four times, including a deposition given under oath, she recounted in exact detail what Eastman told her that day. Unlike Eastman, her version of events has never changed, and his attorney was left with nothing else but to attack her preservation of notes despite all the contemporaneous documentation at the time, the phone records that show she called Anderson immediately after talking to Eastman and Anderson’s own sworn testimony that all support Klouda’s account. When we reported on the Ethics committee’s recommendation to remove Eastman this past January, LeDoux did confirm that a complaint had indeed been filed against her. We learned on July 17 that the complaint had actually been filed April 27, 2017, the day before Eastman told Klouda to call the Ethics Office and ask about it. The reason for the alarm expressed by Anderson on receiving Klouda’s inquiry the very day after a confidential complaint was filed suddenly became clear during the July 17 hearing. Besides attacking Klouda’s notes by introducing the entirely irrelevant Reuters guidebook and inventing other standards for reporters out of thin air, Eastman’s attorney argued that it wasn’t reasonable to believe that he would do something so stupid as to violate the ethics law by telling her about a pending complaint against a fellow legislator. Just because an action is stupid doesn’t mean people don’t do it, which brings us to Downing and the striking contrast with Klouda. Without a shred of evidence, Downing accused the governor of using state resources to promote a campaign video and the Journal and ADN of being accomplices in the violation by publishing the column with the link to YouTube. Downing didn’t contact ADN Opinion Editor Tom Hewitt to ask about the origin of the column or what the editorial policy is regarding submissions by candidates. Nor did she contact yours truly despite having my cell phone number. Instead, she published a piece of fake news with no reporting and appointed herself as judge and jury of the Alaska Public Offices Commission to declare it was only a question of how many, not if any, legal violations took place. Klouda attempted to verify an allegation before publishing it. Downing made no attempt to verify her allegations. When Klouda could not confirm the existence of a complaint, we did not publish the allegation. Even after being informed that the Walker column came from the campaign and not from his state office, Downing has yet to correct or update her post as of the morning of July 18. Klouda had no agenda when she called the Ethics Office to check on Eastman’s allegation. Downing’s anti-Walker agenda is plastered all over her blog. If the Journal shared Downing’s lack of standards, we could have reported Eastman’s allegation of a complaint and the details he described to Klouda along with the obligatory “could not confirm or deny” from Anderson. We instead chose to be responsible and regardless of how the Ethics committee ultimately rules, Klouda’s effort to get the story right was presented in detail during the July 17 hearing as Eastman’s attorney was left with only an emotional misdirection about her credibility and a defense that boiled down to his client not being that dumb. Downing won’t make that same argument but the next time you read one of her attacks on her ideological foes keep in mind her standards when she writes about her friends. Andrew Jensen can be reached at [email protected]

FISH FACTOR: Trade war escalates with seafood import tariffs

President Donald Trump’s trade war now includes tariffs on seafood going to and from China. China is Alaska’s biggest seafood buyer purchasing 54 percent of Alaska seafood exports last year valued at $1.3 billion. On July 6 a 25 percent tariff went into effect on U.S. imports to China, including all Alaska salmon, pollock, cod, herring, flatfish, Dungeness crab, sablefish, geoduck clams and more. Then on July 11 Trump added a 10 percent tariff on all seafood sent from China to the US. According to market expert John Sackton of Seafoodnews.com, it includes products that are reprocessed in China and sent back for distribution in this country. The total value of the 291 seafood products China sends to the U.S. each year is $2.75 billion. Sackton called the 10 percent tariff “a $275 million dollar direct tax on Americans.” It will hit 70 percent of imports of frozen cod fillets. Likewise, 23 percent of all frozen salmon fillets come into the U.S. from China, including pink salmon that is reprocessed into salmon burgers and fillets. Trade data show that China represents 47 percent of U.S. breaded shrimp imports and 37 percent of frozen squid imports. China also supplies 20 percent of the U.S. frozen scallop market. Sackton said the economic hit will go far beyond the $275 million consumer tax. “As sellers are forced to raise prices, competitive products from other countries will follow suit resulting in across the board seafood price increases. That will discourage seafood buying so sellers will lose business as customers back away,” he added. China has been the fastest growing global market for high-end seafood. In late May, Gov. Bill Walker led a trade mission to China with several Alaska seafood companies which have spent millions to expand their brand even more. “All this money will go up in smoke,” Sackton said. In recent years, Alaska seafood sales to China have increased by millions of dollars through e-commerce activity, said Hannah Lindoff, international program director for the Alaska Seafood Marketing Institute. Lindhoff said ASMI will try to expand sales to other markets, such as Brazil, Spain and Ukraine. But, as Sackton points out, it is more expensive to mount campaigns in multiple countries than in a single large market like China. ASMI operates on a shoestring international budget of less than $7 million per year, mostly from grants and federal dollars. Its overall budget is about $22 million, nearly all from processor taxes. Trump’s seafood tariffs come at a time when the Alaska legislature has zeroed out the state’s $1 million dollar contribution to ASMI. Compare that to Norway’s more than $50 million marketing budget from a small tax on its seafood exports. Meanwhile, the Associated Press reported on Thursday that “scant” American fish or shellfish was for sale at Jingshen, Beijing’s largest wholesale seafood market which supplies restaurants and grocers across China. Several distributors said that the recent 25 percent tariff has made American seafood unaffordable. Unless Congress intervenes, the additional 10 percent will take effect in September. Alaska’s delegation has yet to comment. Gearing up for crab Boats already are signing up to participate in fall Bering Sea crab fisheries that begin Oct. 15. Meanwhile, many crabbers are still awaiting word on what their payouts are for last season. Prior to the crab fisheries changing from “come one, come all” to a catch share form of management in 2005, prices were set before boats headed out, said Jake Jacobsen, director of the Inter-Cooperative Exchange which negotiates prices for most of the fleet. “Since then the price is based on the historical division of revenues and there is a formula that is applied to sales. It takes a long time for sales to be completed to the point where we know or can predict what the final wholesale prices will be, and then we can apply the formula to it,” he explained. Prices to fishermen were down a bit from last year but historically very high, Jacobsen said. For snow crab and bairdi Tanners, which typically are hauled up after the start of each year, prices were just settled and won’t be made public for another week. “Most of the snow crab and bairdi prices were over $4 a pound, so that’s very good,” he hinted. According to processor data, last season’s average snow crab price was $4.07 a pound; Tanner crab averaged $3.33. For golden king crab, fishermen averaged $5.51 per pound. For Bristol Bay red king crab, the price averaged $9.20 a pound last year, down from the record $10.18 in 2016. Heading into the fall, Jacobsen said the price outlook is good. “We expect king crab to be very high this year. There is quite a bit of demand throughout the world and it’s in short supply,” he said, adding that a huge reduction in illegally caught crab imports from Russia has helped boost the market for Alaska crab. Right now stakeholders are “on pins and needles” that crab stock surveys underway now will yield good news for the 2018-19 crab catches, which have been on a downward trend for several years. “Based on last year’s surveys it looks like we might have another decline in snow crab and we’re not sure about red king crab as it was kind of on the margin last year,” Jacobsen said. “With Tanners, we never know. If we can get some good quotas it should be a good year,” Last season’s catch limit for Bristol Bay red king crab was 6.6 million pounds, down 20 percent. For golden king crab the quota has remained stable at 6.3 million pounds. The snow crab catch quota at 19 million pounds was a 12 percent decline. For bairdi Tanners, a catch of just 2.5 million pounds was down from over 20 million pounds two years prior. The combined value of the 2017/2018 Bering Sea crab fisheries was nearly $190 million at the Alaska docks. Fish prices The first thing any fisherman wants to know is what he’s getting paid for his catch. The Alaska Department of Fish and Game provides dock prices for nearly every fish species with comparisons going back to 1984 in its Commercial Operator’s Annual Report, or COAR, compiled from inputs by Alaska processors. Here’s a sampler of some of the average prices from 2017: The price for cod was 32 cents per pound, an increase of 4 cents from 2016. The lingcod price averaged $1.88, up 33 cents. Those 3 billion pounds of Alaska pollock fetched 12 cents per pound for fishermen, down a penny. Herring also dropped a penny to 11 cents. Octopus averaged 60 cents per pound, a 14-cent increase; sea cucumbers fetched $5.02, up nearly a dollar. For 11 types of flounders, pesky arrowtooth increased 3 cents to 10 cents per pound; rex sole held as the priciest flatfish at 34 cents. Alaska plaice was the cheapest at 3 cents per pound. For 20 types of rockfish, yellow eye (red snapper) topped the list at $1.49, up 20 cents. Geoduck clams paid out at $6.27, down 32 cents. Longnose skates fetched 49 cents, up a nickel. Halibut averaged $6.25, an increase of 19 cents per pound. Sablefish averaged $7.36 compared to $6.50 the year before. Sockeye salmon averaged $1.26, up 20 cents. At $5.73, chinook salmon increased from $4.88; cohos at $1.23 were up a nickel, chums at 70 cents increased by 8 cents, and pinks at 36 cents per pound dropped a penny. The priciest Alaska catch was spot shrimp paying out at $9.32, up 36 cents. Sculpins were the cheapest at one penny a pound. Another report shows how much each fishery produced and what processors sold it for. Alaska pollock topped them all with 1.3 billion pounds processed for a first wholesale value of $1.5 billion. Sockeye salmon was second at nearly $790 million for 208 million pounds. Why should all Alaskans care about fish prices? With annual catches coming in at 5 billion to 6 billion pounds per year, adding just one penny per pound to the total catch makes a difference of nearly $1 million dollars in landing taxes for the state and local governments each. ^ Laine Welch lives in Kodiak. Visit www.alaskafishradio.com or contact [email protected] for information.

COMMENTARY: Without better habitat protections, salmon are vulnerable

As a commercial fisherman for over four decades, I am supporting Ballot Initiative 1 and voting “Yes for Salmon.” I have participated in a variety of fisheries around the state from Southeast to the Bering Sea, and have experienced a multitude of uncertainties inherent in the business. Fish stocks fluctuate, weather conditions vary, markets can be fickle, mechanical breakdowns happen, foreign exchange rates rise and fall, and politics shift with the wind, to name a few. Exposure to risk — both physical and financial — plays an especially outsized role in commercial fishing, but like any other type of business, finding some level of predictability is a key to success. Although there are many risk factors beyond our control, Alaska fishermen are lucky to have predictability when it comes to management of fisheries. The mandate for sustainable resource use in Article 8 of the Alaska Constitution provides a foundation for a sophisticated management system administered by the Alaska Department of Fish and Game. The department uses the best available science and data collection methods along with a participatory public process at the Board of Fisheries to develop regulations that promote sustainable resource use. That predictability allows fishermen like me to make better decisions about my business that have ripple effects on family, crew, community and throughout the economy. Alaska’s fishery management system may be the envy of the world, but we are clearly vulnerable when it comes to protection of freshwater habitat. Throughout the northern hemisphere, where salmon were once bountiful, most places have seen their great runs diminish to a mere trickle or even lost altogether. The causes for salmon run decimation are well documented and nearly always related to loss of habitat. It’s often not from any one factor or project, but the cumulative effect of many disruptions. One only needs to look at the Pacific Northwest as an example of the loss and subsequent difficulty in rehabilitating those once-abundant stocks. I am hoping that Alaska will learn from the mistakes of others and act to effectively protect salmon habitat before it is too late. While some claim that Alaska has “robust” permitting laws, the few column inches pertaining to salmon habitat protection in the voluminous book of fishery statutes (Title 16) is grossly insufficient. ADFG — the agency with actual responsibility for upholding the constitutional mandate — needs the authority required to assure that salmon habitat is protected. Present habitat permitting laws date back to statehood 60 years ago at a time when our population was 224,000 residents, a third of today’s roughly 740,000! Over the years since statehood, many have recognized the shortcomings of the present guiding statute (AS 16.05.871 section d), which states that “The commissioner shall approve the proposed construction, work, or use in writing unless the commissioner finds the plans and specifications insufficient for the proper protection of fish and game.” “Proper protection” falls for short of a “robust” standard that will bring us the salmon-enhanced future that most of us desire. Two years ago, the Board of Fisheries stepped in with a request to the Legislature for changes to the permitting statutes. Alaska Rep. Louise Stutes, R-Kodiak, rose to the challenge with proposed legislation, but the bill never made it out of committee. Legislative inaction has made the “Yes for Salmon” ballot initiative a credible alternative if salmon habitat is to be protected. With increasing pressure to develop Alaska’s non-renewable resources, the threat to salmon habitat is real. The status quo may be appealing to development interests, but unless costs are internalized — borne by the entity undertaking the project, the rest of us end up paying the price. When considering salmon habitat protection, Ben Franklin might have altered his famous axiom to state that “an ounce of prevention is worth a ton of cure.” So, I am supporting the “Yes for Salmon” initiative because there is nothing in the present statutes that will preclude a long-term decline in salmon viability as the state becomes more developed. The initiative clarifies what constitutes “proper protection” of fish and game, sets up a permitting process that is transparent and workable, and recognizes that not only has the state of Alaska changed, but the state of the science is also far more advanced. Chip Treinen of Anchorage holds an MBA from Haas School of Business at UC Berkeley and has over 40 years of fishing experience in Alaska’s waters.

AK LNG leaders navigate trade battle with China

The $43 billion Alaska LNG Project is in a rather unique spot when it comes to the United States’ trade relations with China. It was a central piece of a Nov. 9, 2017, meeting between President Donald Trump and China President Xi Jinping in Beijing, a ceremony at which numerous deals totaling roughly $250 billion in potential trade between the countries were announced. That day Gov. Bill Walker and Alaska Gasline Development Corp. President Keith Meyer signed a joint development agreement with the state-owned Chinese companies Sinopec, China Investment Corp. and the Bank of China; it was one of a select group of trade pacts chosen to be signed in front of the two presidents. Although nonbinding, the JDA has been touted as the early stages of a foundational deal to support the gasline as it calls for selling up to 75 percent of the project’s LNG’s production capacity to Sinopec in exchange for a like percentage of the needed financing. It could represent billions of dollars per year of Alaska LNG exports to China, which would be a significant step towards rebalancing trade between the two countries. However, business relations between Beijing and Washington, D.C., have been on a well-publicized downhill path since. AGDC leaders acknowledge the 25 percent tariff the Trump administration levied on Chinese steel imports this spring could impact the viability of sourcing the steel for the project’s 800-mile, 42-inch natural gas pipeline and other components such as pipe racks. Reuters reported July 16 that the Trump administration recently rejected a request for a waiver from the 25 percent tariff on Chinese steel by Plains All American Pipeline LP, despite the fact that the company signed a contract for the steel to be used in a 550-mile Texas oil line last year prior to the tariffs taking effect or even being announced. At the same time, state gasline officials note that prefabricated modules and other constructed units that would make up large portions of the North Slope gas treatment plant, the Nikiski LNG plant and the pipeline compressor stations are exempt from the new tariffs, for now, at least. Many such components will have to be sourced internationally if the Alaska LNG Project is built because there simply are too few, if any, U.S. manufacturers. Additionally, cost savings are often available in world markets versus domestically sourced materials, according to AGDC Vice President Frank Richards. During a July 11 project update to legislators, Richards highlighted that China has not included U.S. LNG in its retaliatory tariff measures as part of the tit-for-tat trade dispute. It seems unlikely that LNG, or any energy form for that matter, would be hit with such a tariff as such a move would ultimately increase prices for Chinese consumers at a time when the government is making a major push away from coal for electric generation to cleaner fuels such as natural gas. “We feel that we have high visibility. China wants clean, efficient natural gas; Alaska has it; the U.S. wants to produce and export it, so we feel that we are in a good position as a project and as Alaska, too, to not hopefully be impacted by that (trade dispute),” Richards said. He added that AGDC learned in early July that there are pipe manufacturers in Arkansas and Illinois capable of rolling 42-inch steel pipe; AGDC previously didn’t know if sourcing the primary gasline steel from the U.S. was even possible. As for Alaska LNG’s end product, AGDC Commercial Vice President Lieza Wilcox told legislators asking about financial risks in the project that if China does puts a tariff on imported LNG, the downstream sales contracts will be structured so the additional tariff cost is borne by the LNG buyer. “Once the contract is concluded the price is not going to be discounted for tariffs,” Wilcox said. She — as other AGDC leaders have since the November announcement — emphasized that the Alaska LNG Project is well regarded in the trade circles of both countries and said it has the opportunity to “continue to be a force for good in the continuing discussions about trade.” Elwood Brehmer can be reached at [email protected]

Best time to be an investor? Yes. Best time to invest? Meh.

NEW YORK (AP) — This may be the best time in history to be an investor. Never has it been so cheap to put money into the market, and it’s about to get even cheaper following Vanguard’s recent decision to end online commissions for most ETFs. Financial advice is easier to get, particularly for people with smaller account sizes. And advances in technology mean investors can keep tabs on their accounts simply by pulling their phones from their pockets. That increasing ease plus the strengthening job market are helping to coax more Americans into the stock market. Slightly more than half of all U.S. families own stocks in some way, the highest rate since 2007, when the Great Recession was beginning. And stocks, with their long history of providing better long-term returns than bonds and other investments, are one of the most powerful tools to help people’s savings grow. The only downside in all of this is that it didn’t happen sooner. Because while it may be a good time to be an investor, it’s not necessarily the best time to be investing. After a long run of more than nine years of gains for stocks, more voices along Wall Street are saying the good times could end in the next few years. If they’re right, it will be up to investors not to turn all these newfound advantages and trading tools into implements of destruction. Even though it’s easier —and less expensive — than ever to trade, sometimes the best thing to do when markets are falling is nothing. Barry Bannister, head of institutional equity strategy at Stifel, says the bull run that began for the S&P 500 in March 2009 may end by the first quarter of 2020. Predicted cause of death: continued interest-rate increases by the Federal Reserve. The Fed has already raised rates seven times since 2015 off their record lows, and it says two more increases may be coming this year. Higher rates have historically put the brakes on stocks and other risky investments, and Bannister says the Fed’s pace means the federal funds rate may cross a key threshold next year. With profit margins already high, Bannister says the next decade will likely have weaker returns for stocks than the previous one. “I think we’re looking at a rotating and trading market for 10 years,” Bannister said. “So the ability to move fast and be flexible is probably at a premium.” That’s good for investors who are able to take advantage of their new trading tools. Funds that cover everything from foreign bonds to low-volatility stocks to global technology companies have all been getting cheaper to own. Improved websites and lower commissions also make ETFs easier to trade. So anyone with the foresight to move from losers to winners can do so quickly and cheaply. But it’s also important to remember that many investors, for all their confidence, have a long history of selling and buying at inopportune times. When stocks are soaring, everyone’s happy to pile into the market on the expectation that more gains are to come. The biggest year for flows into stock mutual funds was in 2000, for example, according to the Investment Company Institute. That’s when the stock market hit its peak and the dot-com bubble burst. When stocks are falling, meanwhile, antsy investors sell their holdings. That may help avoid losses, but it creates a tough decision: when to get back into the market? Many investors who dumped stocks during the Great Recession missed out on the big gains that followed. That’s why investors, as a group, have largely fallen short of the returns of the funds they invest in. Consider Fidelity’s Contrafund, one of the largest mutual funds by assets. It returned 10.9 percent annually over the 10 years through June 30. But not all of its investors stayed committed to the fund through that stretch. After accounting for dollars coming in and out of the fund, Morningstar says the average investor got an 8.8 percent annual return from the fund. So, the best approach may be to take advantage of all these opportunities in a moment of calm, before markets are falling sharply, to ensure that your portfolio is set up in a way that will leave you comfortable regardless of the market’s direction. If you can’t stomach the idea of the stocks in your portfolio dropping 10 percent, consider shifting more money into bonds and other less volatile investments. Then, take comfort in knowing that this golden era of investing means you can act quickly during the next downturn, but you don’t have to.

ConocoPhillips raises reserve totals at Slope discoveries

ConocoPhillips believes its recent winter exploration campaigns on the North Slope have added up to 1.4 billion barrels of oil and gas resources to its portfolio, company officials said in a July 16 presentation to investors. The estimate is largely derived from the results of the six exploration and appraisal wells the company drilled into its western Slope prospects last winter, which built on the work of two wells drilled in the federal National Petroleum Reserve-Alaska in early 2016. The 2016 drilling led to ConocoPhillips’ Willow oil discovery — a shallow, Nanushuk formation-focused prospect — with an early oil estimate of up to 300 million recoverable barrels announced in January 2017. Company leaders said July 16 that four more wells drilled into Willow early this year indicate the field could hold between 500 million and 1.1 billion barrels of gross resources that will cost between $4 billion to $6 billion to fully develop, with first oil potentially in the 2024-25 timeframe. It was also noted that roughly 75 percent of the company’s prospective acreage in the area is yet to be drilled. With a conventional target zone in the 4,000-foot range, ConocoPhillips also believes it can produce from Willow for less than $40 per barrel, according to a release accompanying the presentation. “Alaska provides competitive investment opportunities and will generate profitable growth from diversified investments with significant exploration upside,” CEO Ryan Lance said in the release. “We are proud of the value we create for the State of Alaska through the revenues we generate, the jobs we create and the community investments we make. Our shareholders realize the advantages of (Alaska North Slope)-priced oil, competitive cash and earnings margins from our operations and our years of expertise and sound stewardship. We plan to continue to strive to safely unlock the energy potential of this world-class oil province for years to come and play an active role in Alaska’s economic future.” ConocoPhillips Alaska leaders have previously said Willow could produce at rates up to 120,000 barrels per day with standalone processing facilities, an investment the company is now leaning towards. The Putu and Stony Hill wells the company drilled this year on state leases south of the Nanushuk discovery in the Pikka Unit collectively hold another 100 million to 350 million barrels, according to ConocoPhillips. Production from those prospects has been pegged at up to 20,000 barrels per day each. ConocoPhillips is also expected to bring its roughly $1 billion Greater Mooses Tooth-1 project online sometime late this year. Located just east of Willow in the NPR-A, GMT-1 is expected to produce up to 30,000 barrels per day at its peak. The company is also in permitting with the Bureau of Land Management to develop its Greater Mooses Tooth-2 prospect, which is generally a mirror and just to the south of GMT-1. Elwood Brehmer can be reached at [email protected]

Board rejects emergency petition over pink salmon hatchery production

The Valdez Fisheries Development Association can move ahead with its plan to increase its pink salmon production after the Alaska Board of Fisheries rejected an emergency petition from groups led by the Kenai River Sportfishing Association who oppose the plan. The seven-member board ultimately decided the issue does not constitute an emergency on a 4-3 vote during a Tuesday afternoon meeting in Anchorage. Board members Israel Payton of Wasilla, Reed Morisky of Fairbanks and Orville Huntington of Huslia voted in favor of the petition meeting emergency criteria for consideration. Those voting against were chair John Jensen of Petersburg, Alan Cain of Anchorage, Robert Ruffner of Soldotna and Fritz Johnson of Dillingham. The petition was signed by KRSA Executive Director Ricky Gease and 18 individuals representing Lower Cook Inlet commercial fishing interests, the Chitina Dipnetters Association, the Kenai River Professional Guide Association, the Fairbanks Fish and Game Advisory Committee, among others. It urged the board to reverse a previously approved increase of 20 million pink salmon eggs by the Valdez Fisheries Development Association this year for expanding future hatchery-produced harvests. KRSA first submitted the petition May 1. The first version was signed by nine sport and personal use fishing groups, sans the Lower Cook Inlet commercial representatives. The board subsequently voted to a 3-3 tie on the issue during a May 14 teleconference meeting. The petition alleges that increasing the number of hatchery produced salmon poses a threat to wild salmon stocks as the hatchery fish compete with wild salmon for food while they are collectively rearing in the ocean. It highlights that a sampling study found up to 70 percent of pink salmon returning to some small Lower Cook Inlet streams in 2017 were found to be from Prince William Sound hatchery stocks. “In addition to the straying issues of PWS hatchery-origin pink salmon observed in Lower Cook Inlet, recent scientific publications (building on past published reports and internal Alaska Department of Fish and Game reviews) have provided cause for great concern over the biological impacts associated with continued release of very large numbers of hatchery salmon into the North Pacific Ocean, including the Bering Sea and the Gulf of Alaska,” the petition states. Fish and Game Commissioner Sam Cotten wrote to a letter to Gease June 14 in which he denied the petition via authority delegated to him by the Board of Fisheries, but noted two board members had already requested a special meeting to discuss the matter. Fish and Game officials as well as board chair Jensen said at the Tuesday meeting that emergency findings are rare; there must be an unforeseen event that threatens a resource or an instance where action would lead to a loss of harvest opportunity that couldn’t be had in the future. “I don’t think taking eggs is an emergency,” Jensen said. Gease said in an interview that the state has policies in place that make it illegal to transport salmon between regions, but the department is passively allowing it to happen by approving increased hatchery production when the fish are known to stray. “It seemingly now is OK that there is no standard for hatchery fish straying,” Gease said. Valdez Fisheries Development Association leaders could not immediately be reached for comment in time for this story. Morisky said he feels instances where 70 percent of the fish spawning in a stream have strayed from hatchery stocks constitutes an emergency and allowing an egg take that will lead to more hatchery fish could threaten wild salmon stocks, the health of which Fish and Game is required to prioritize above other salmon. Payton said the potential issue of hatchery fish competing with wild salmon for food in the ocean is of particular concern to him. “I do think there is a potential threat to the wild stock resource here,” Payton said. Fish and Game Commercial Fisheries Division Director Scott Kelley said the Valdez-area hatcheries originally wanted to take an additional 70 million eggs and increase the total egg take to 300 million from 230 million, but the department agreed to a phased approach of increases in 20 million-egg increments in 2016 and 2018. It’s an approach that is commonly used with hatcheries across the state, according to Kelley. “That’s why we ease in — test the waters, literally,” he said. Kelley noted recent wild stock returns of pink salmon to Prince William sound in 2013 and 2015 — pinks typically return in two-year high and low abundance cycles — were among the most prolific on record. Board member Johnson of Dillingham said the egg take is supposed to happen in three days, adding the board is already scheduled to take up hatchery issues during an October 15-16 work session in Anchorage. It was also emphasized at the meeting that the department, in conjunction with hatchery groups, is working on a long-term study to flesh out theories of how hatchery salmon from Prince William Sound and Southeast Alaska do or don’t impact wild fish stocks. Cain, of Anchorage, said the issues of how hatchery salmon interact with wild salmon are very important but the petition didn’t meet the board’s threshold for an emergency. Elwood Brehmer can be reached at [email protected]

King Cove road opponents file motions for summary judgment

The groups suing Interior Secretary Ryan Zinke laid out their final arguments in court documents filed July 11 against a federal land exchange that sets the stage for construction of an emergency access road through the Izembek National Wildlife Refuge. Friends of Alaska Wildlife Refuges, the Alaska Wilderness League, The Wilderness Society, the Sierra Club and five other national conservation organizations filed a motion for summary judgment with U.S. District Court of Alaska Judge Timothy M. Burgess, urging him to void the land swap signed Jan. 22 with King Cove Corp. on the grounds that Zinke violated several major federal laws in a hasty attempt to get the road built. The groups are represented by the Anchorage environmental nonprofit law firm Trustees for Alaska. A 55-page supporting memo accompanying the 4-page motion signed by Trustees attorney Brook Brisson alleges that Zinke, in order to expedite the transfer, ignored provisions in the 1980 Alaska National Interest Lands Conservation Act, which created the Izembek refuge; the National Environmental Policy Act, or NEPA, as the nation’s overarching environmental review law; and the Endangered Species Act. Federal attorneys contended in a May 3 response to the original complaint that the plaintiffs do not have standing to object to the land swap because they have not been harmed by it and their complaints are not ripe for a ruling because the final lands to be traded have not been selected. They further assert that the federal District Court does not have subject matter jurisdiction over the lawsuit. Section 1302 of the milestone 1980 public lands bill commonly known as ANILCA grants the Interior secretary the authority to carry out such a land exchange, but also states that such an action must be done to “carry out the purposes of this act.” Signed by President Jimmy Carter, ANILCA established or expanded many of the national parks, wildlife refuges and other federal conservation areas in the state. “The secretary made no findings that the land exchange would further ANILCA’s general or Izembek’s specific purposes and failed to acknowledge or explain the decades of findings and conclusions by the (U.S. Fish and Wildlife) Service that a land exchange and road were contrary to those purposes,” Brisson wrote. The suit was filed just nine days after the land exchange was announced. The agreement between King Cove Corp. and Interior has the Alaska Native village corporation trading up to 500 acres of its land for an equal-value chunk of a wilderness-designated section of the Izembek Wildlife Refuge, or enough refuge land to build an 11-mile, single-lane gravel road that would complete the connection to Cold Bay. The suit is moving relatively quickly to a judgment because there are few facts to dispute; it is simply a matter of Burgess interpreting the applicable laws and authorities. ANILCA also requires consultation with other federal agency leaders, including the Transportation secretary, on any application to construct a transportation corridor through conservation areas. It also states that Congress must approve any corridor through wilderness-designated areas. Opponents to the King Cove road stress the importance of the unique habitat in and around Izembek lagoon in debating the issue. In their view, it would set an extremely dangerous precedent approving a road through an area once designated as wilderness would set. At various times of the year the 315,000-acre Izembek Refuge is home to nearly the world’s entire population of Pacific black brant geese and other migratory birds that use it as breeding grounds and a resting place on their annual travels, according to the U.S. Fish and Wildlife Service. Alaska’s congressional delegation and state lawmakers insist the road is the only way to provide truly safe access to medical care for the roughly 950 residents of King Cove. Those in need of urgent medical care in King Cove currently must be flown via small plane or boated across the waters of Cold Bay to reach Cold Bay’s airport with its 10,000-foot runway that provides more reliable jet service during bad weather. The plaintiffs further insist that the land exchange deal — announced when it was agreed to with no public notice — is a “major federal action” and therefore requires an environmental assessment or impact statement be conducted before it is approved. Brisson wrote that an exception in ANILCA to that requirement does not apply because it relates to land conveyances to Alaska Native corporations under the Alaska Native Claims Settlement Act, which the January deal is not. “As the courts have stated, the fundamental policies in NEPA should not be discarded absent some clear indication that Congress so intended,” the plaintiffs’ memo states. “Instead, deciding whether to exchange federal lands for a road is the quintessential government decision that NEPA was passed to apply to: to ensure informed decision-making about environmental impacts and to allow public participation in a decision regarding national public lands.” Lastly, they argue Zinke violated the Endangered Species Act by not consulting with the Fish and Wildlife Service on the potential impacts of the land deal before agreeing to it. The ESA requires such coordination for federal actions that could harm species listed as “endangered” or “threatened.” In this case, that applies to the Northern Sea Otter and the Stellar’s eider duck, which breeds on the North Slope and overwinters in Izembek. The Alaska breeding population of the small ducks are listed as threatened, according to Fish and Wildlife. In late 2013, then-Interior Secretary Sally Jewell rejected land swap deal passed by Congress in 2009 after a U.S. Fish and Wildlife Service environmental impact statement urged against it; the EIS deemed the road would irreparably damage critical waterfowl habitat in the refuge. King Cove Native organizations and the State of Alaska subsequently sued Jewell over her decision to block the road, but the suit was dismissed in federal District Court and an appeal to the 9th Circuit Court of Appeals was later dropped. That swap would have traded 206 acres of Izembek land and 1,600 federal acres outside the refuge for about 56,000 acres of state and King Cove Corp. land. Members of Alaska’s congressional delegation have said the ANILCA provisions hadn’t been used during other Republican administrations that would seemingly be more open to the plan because key officials in President George W. Bush’s administration, for example, opposed the road through Izembek. The road has also become a priority for President Donald Trump, who was captivated by the situation when briefed on it in March 2017 by Alaska’s delegation shortly after he took office. Attorneys for the Interior Department have 30 days to respond. ^ Elwood Brehmer can be reached at [email protected]

Gasline leaders face daunting list of tasks

Even small construction projects are often complex in their own ways, but a July 11 legislative hearing emphasized the daunting amount of highly sensitive and technical work that must all be carefully coordinated to successfully thread the $43 billion Alaska LNG Project needle. Held in Anchorage, the joint meeting of the House and Senate Resources committees updated legislators on the progress of the megaproject, which by all accounts would be the largest in the history of the country. Alaska Gasline Development Corp. board of directors Chairman Dave Cruz said the quasi-state group has now secured letters of intent or other memorandums expressing interest in buying LNG from 15 entities. AGDC has announced a handful of those nonbinding agreements since early 2017 signed with some of the world’s largest LNG buyers, but has mostly declined to disclose details, citing commercial sensitivity and the wishes of its counterparties. The notable exception is the November 2017 signing of a joint development agreement, or JDA, with three nationalized Chinese mega corporations, which outlines the prospect of China buying up to 75 percent of the project’s LNG in exchange for financing 75 percent of its cost. The remaining 25 percent of the project’s planned production capacity of 20 million tons per year of LNG would be split among other buyers if a deal with terms similar to the nonbinding JDA is finalized with the Chinese. “I’ve absolutely been amazed at the reception we’ve gotten from the Asian countries. I’m still waiting on a call from (North Korean dictator) Kim Jong Un,” Cruz quipped. East Asia is the key market for Alaska given LNG demand from the region is likely to continue to grow and Alaska’s location is advantageous for selling into Asian — but not European — markets. AGDC Commercial Vice President Lieza Wilcox again stressed that long-term demand for LNG will continue to grow in those markets and overcome the recent supply glut as nations, notably China, move away from coal and nuclear power and towards cleaner and less risky natural gas for power generation. AGDC President Keith Meyer was occupied by a financing meeting with New York investors and was unable to attend the hearing, according to Cruz. Supply negotiations On the supply side, detailed gas sale negotiations with BP, ConocoPhillips and ExxonMobil are ongoing, Wilcox said. AGDC and BP made a big announcement May 7 that they had reached a binding agreement on the key terms of gas price and volume the company would sell into the Alaska LNG system, but further points still need to be hashed out. Gas sale negotiations with ConocoPhillips and ExxonMobil are nearing a similar level of detail as talks with BP, according to Wilcox, who also added that the companies might want to work directly on final agreements and bypass a term sheet, which makes for a longer series of talks before successes are announced. Under the tolling structure AGDC is proposing, the corporation would buy the gas shortly before it enters the North Slope gas treatment plant. AGDC would then sell the LNG at the marine terminal in Nikiski. The final LNG sale price would include the project’s revenue-generating toll that needs to cover all of the project’s costs. Wilcox said the project could afford a toll of about $6 per thousand cubic feet, or mcf, of gas and remain competitive in global markets. AGDC officials also mentioned feedstock gas prices from the producers would likely be in the $1-$2 per mcf range after stating for months that the producers would have to sell gas into the project at about $1 per mcf or less to make price-competitive LNG. AGDC’s Meyer has said the producers should generally be willing to accept a lower price for their shares of North Slope gas than previously expected because they no longer have to invest in the project infrastructure, unless they choose to. Royalty gas However, reaching agreement on commercial terms for gas sales with all three major producers — as important and momentous as it would be — is only part of getting upstream Alaska LNG issues resolved for a successful project, Department of Natural Resources leaders described at the hearing. For starters, administration officials and then legislators must decide if they want the state to get its 12.5 percent royalty portion of North Slope gas reserves in-kind or in-value. Natural Resources Commissioner Andy Mack said at this point the priority for the state is royalty in-kind, or RIK, but that could change. Royalty in-kind refers to the state taking its share as natural gas, instead of receiving payments from the producers for the market value of the resource, which is what would happen if the state took its royalty in-value, or RIV. The state regularly takes its share of royalty oil in-kind and sells it to local refineries in an effort to maximize the in-state economic benefits of oil production. Department officials are also in talks with the producers to get a sense of their preferences regarding royalty gas issues. Those issues include: the RIK or RIV, decision; details around whether the producers will pay gas production taxes in equivalent value volumes of gas, known as tax-as-gas, or TAG; the interplay of gas production from the Prudhoe Bay and Point Thomson fields; and how carbon dioxide disposal impacts other upstream matters. The 35 trillion cubic feet of North Slope gas intended to feed the Alaska LNG Project is about 10 percent carbon dioxide, which must be stripped out of the gas and re-injected underground. “I can’t go any further other than to say we’ve had detailed conversations” with the producers and AGDC, Mack said. “We do have preferences and we’ve expressed those.” Deputy DNR Commissioner Mark Wiggin said the department has a draft RIK-gas sales term sheet that is being discussed with AGDC officials. If the state makes an RIK selection, AGDC will buy the state’s royalty gas to use it in the project, Wiggin said. He also noted that valuing production is a challenge, which makes reaching acceptable RIV calculations all the more complex. “That is not necessarily, by any means, an easy or simplistic path to go down,” Wiggin commented. Additionally, the Prudhoe and Point Thomson lease agreements currently allow the state to switch between RIK and RIV every six months. Rather understandably, the producers would prefer the state to pick one for the duration of the project, which could necessitate amending the leases, he said. Mack also said that he anticipates further discussions on how to align what is happening in the project with the 2012 Point Thomson Settlement Agreement, which specified how the high-pressure gas field would originally be developed and expanded depending on whether a large natural gas project moved forward. ExxonMobil operates the Point Thomson field. Alaska LNG state investment While DNR is working on the litany of technical resource management issues for the project, Department of Revenue officials said they are busy preparing recommendations for state investment in Alaska LNG based on numerous possible scenarios. Deputy Revenue Commissioner Mike Barnhill said the department’s investment analyses is based on the high-level assumption that the state would fund about $11 billion, or 25 percent, of Alaska LNG’s overall $43 billion estimated cost. From there, it needs to be determined what portion of that $11 billion investment would be direct equity injections and how much would be raised through debt. AGDC’s Meyer has long said he envisions the project being funded through roughly 75 percent debt and 25 percent equity investment. The project’s contracts and other financial arrangements will be structured to allow debt to be “non-recourse,” according to AGDC leaders, meaning the loans would be underwritten by LNG sale contracts. In that scenario, if LNG buyers fall short on their payments, in-turn shorting AGDC’s revenue stream and ability to service its debt, the banks would seek repayment from the end buyers and not the state corporation. Barnhill commented that the risks inherent in such a large project are not necessarily bad. “Ultimately, you’re trying to answer the question: Is the projected return commensurate with the expected risks? Are you being compensated for the risk? Now, we want risk in an investment context. We want to be commensurately compensated for that risk,” he said. “Obviously, the more that this project can be structured with no recourse to the state is a good thing.” Wilcox said AGDC doesn’t expect there to be any risk to the stat in the gas sale agreements with the producers as the wholesale gas price would be passed on to LNG customers. Maria Tsu, Revenue’s gasline financing specialist and a former investment director with the Alaska Permanent Fund Corp., said the department is modeling investment scenarios and risks based on likely commercial terms AGDC can secure and then looking at potential disruptions to those assumptions. For example, the department is analyzing how construction delays could impact the project’s economics over its expected initial life of 25 years. She noted that de-risking the project can make investors — the state or others — more comfortable with it but at the same time likely means lower returns. “I think there will need to be state participation in order for the project to move forward and prevent the state’s equity interest from being diluted and for the state to not lose control it will be important for the state to provide both possibly development capital as well as construction capital to the project,” Tsu said. Investing when construction risks are largely settled would likely lead to lower, but stable, infrastructure-type returns in the 8 percent to 10 percent range, according to AGDC and Revenue officials. Meyer has stressed that investors willing to sacrifice high returns in exchange for reliability would supply the bulk of the project’s equity investments. Sen. Bert Stedman, R-Sitka, who manages an investment firm, emphasized that cost overruns of up to 20 percent — beyond the $9 billion of contingency costs built into the $43 billion Alaska LNG estimate — are often considered a relative success for megaprojects. He urged Revenue officials to test the impacts of overruns in the $20 billion to $30 billion range, which he said are not out of the realm of possibility for the project that had an original estimated cost range of $45 billion to $65 billion. He further requested the department analyze the financials of specifically Arctic infrastructure developments given the inherent challenges of building in that environment. “I don’t mind betting the cow but I won’t bet the farm,” Stedman said of the state’s role in financing Alaska LNG. Elwood Brehmer can be reached at [email protected]

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