Asia is nice, but the best bet is closer to home
Let’s just get it out of the way that there’s nothing inherently wrong with Gov. Bill Walker heading off on a 10-day sales junket to pitch the Alaska LNG Project to Asian markets.
This is the kind of thing governors are supposed to do. Sure, it’s going to cost money to send an eight-person delegation overseas, but that’s miniscule in the overall budget deficit.
The big question is what is he going to say? As the Alaska Gasline Development Corp. moves to take over AK LNG from our producer partners, there is still nothing close to a firm outline of how the project will take shape, how it will be financed and whether it can be cost competitive.
Walker, who desperately wants to put a happy face on the project despite its enormous challenges, is already issuing press releases about meetings that don’t do much if anything to advance the effort.
The governor still believes the market that existed four or five years ago is still there, despite the fact that the Japanese came to their senses and restarted the 20 or so nuclear power plants it took offline after the 2011 earthquake, tsunami and Fukushima disaster.
Just ask Walker, and he’ll point to 2012 when he continues to assert that he brought “twice” the market to a possible Alaska LNG export project. That claim didn’t hold up then, and it doesn’t hold up now.
Read the letters of intention that Walker submitted to the Federal Energy Regulatory Commission in search of an export permit for the Alaska Gasline Port Authority he led in an effort to bring a pipeline to Valdez and it’s clear why the application was dismissed not once, but twice.
First off, one of the “letters” is an email, and another is actually an article from this newspaper published in 2012 about Resources Energy Inc. opening an office in Anchorage and seeking as much as 2.7 billion cubic feet per day from a gasline.
As an interesting aside, REI actually submitted its own letter to FERC saying it had nothing to do with Walker’s export application and for the agency not to consider it a letter of interest.
The other letters of interest have another thing in common: they all demanded some kind of break or discount from the prices they were currently paying.
So even if the market is there, and it still is to a lesser degree than five years ago, it is conditioned on a competitive price that Alaska LNG was going to struggle to achieve under the best of circumstances.
Walker is also encouraged by the report from Wood Mackenzie that determined AK LNG could possibly break even $45 per barrel, but only if financing could be achieved in the range of 8 percent.
Well, you can put any low number in the financial model and it is going to make it look better. The issue remains whether there is a pool of capital out there that would take 8 percent on the risks of a $45 billion project.
Indeed, AK LNG, should it ever come to fruition, would be a game-changer for Alaska.
But Walker would be well served to pay more mind to the game-changer that’s happening right now at the Pikka Unit on the North Slope where Armstrong Energy is advancing a $5 billion project in partnership with Repsol that could produce 120,000 barrels per day by 2021.
Armstrong should be Walker’s dream come true: an independent wildcatter who’s made the most significant discovery since Alpine and is the only company planning to explore this winter.
At a time of layoffs and drilling reductions at Prudhoe, Armstrong is currently employing about 750 people between his staff and contractors.
Yet Walker’s official policy is to render Armstrong’s project less economic by raising his taxes. Walker wants to raise the minimum tax, and make it kick in as prices climb. A worse policy is hard to imagine for a state facing multi-billion deficits for years and an uncertain outlook at best for an LNG export project.
Beyond the desperately needed revenue, the implications for Armstrong’s project are enormous. It would add 25 percent or more to the trans-Alaska Pipeline System throughput by the time it is online.
Each new barrel brings down the transportation costs for every barrel, not to mention alleviating the nightmare scenarios Alyeska Pipeline Services Co. has been trying to avoid as production has declined and more and more engineering feats are needed to keep the oil moving.
Most heartening of all is that Armstrong thinks the discovery he’s made is repeatable.
Walker likes to say that the best way to get more oil into TAPS is to build a gasline.
Not to put too fine a point on it, but the best way to get more oil into TAPS is to, you know, drill for oil. That’s what Armstrong did, and that’s what a lot of other people are going to do if he proves successful.
Nobody is going to go exploring for gas when there’s 35 trillion cubic feet of proven reserves on the North Slope.
Continuing to pitch the gasline is fine, but there is something terribly wrong with making it more difficult for the state’s best prospects for jobs, oil production and revenue.