Governor Bill Walker today sent a letter to Secretary of Interior Sally Jewell nominating the Beaufort and Chukchi seas and Cook Inlet for inclusion in the 2017-2022 proposed Outer Continental Shelf (OCS) lease sale More here.
With Some Highly Astute Audiences, One Has But One Chance To Make A Successful Pitch
by
Dave Harbour*
Bill Walker, Governor of Alaska. NGP file photo by Dave Harbour.
The release below, received today, indicates Governor Bill Walker will be in Korea tomorrow for a speech to the new but influential Yeosijae Future Consensus Institute.
The group thinks of itself as a Korean version of the Brookings Institute.
We note that the release gives a one day’s notice to Walker’s constituency of an international trip concerning Alaska’s government-led gas pipeline/LNG project. We know from this invitation letter that the Governor knew of the invitation in September.
We believe it could have been to the Governor’s benefit to avoid such outreach until, 1) more Alaska consensus for the currently uneconomic project could be verified, and 2) a constitutional amendment providing fiscal certainty could be secured, and 3) Alaska’s rating agency support could be heightened by successfully resolving Alaska’s fiscal crisis.
Absent these minimal (i.e. not necessarily all) assurances sure to be required by prospective investors or “take-or-pay” purchasers, Alaska’s delegation is vulnerable to experiencing loss of face and embarrassment for not being able to answer basic questions sure to be asked by this very astute audience.
At the very least, when one makes a pitch for investment of any kind, the prospective investor expects the briefer to be confident and quick with answers to all reasonable questions. As this Petroleum News article by industry journalist Tim Bradner indicates, the gas project’s president is unsure of whether, within the next year, he will know if the project is viable or not.
While we wish our peripatetic governor and his staff another safe trip, we do so with misgivings.
*Former Public Affairs Officer, General Staff to LTG William P. Yarborough, CG, I Corps (GP), United Nations Command, DMZ, Republic of Korea
PR 16-96 Governor Walker Invited to Speak in Korea about Alaska’s Energy Opportunities 100716
FOR IMMEDIATE RELEASE No. 16-096
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12:32 PM (2 hours ago) | |||
Contact: Katie Marquette, Press Secretary – (907) 269-7447
Jonathon Taylor, Deputy Press Secretary – (907) 465-3985
Governor Walker Invited to Speak in Korea about Alaska’s Energy Opportunities
October 7, 2016 ANCHORAGE—Following his meetings in South Korea last week, Governor Bill Walker accepted an invitation to return to Seoul tomorrow to speak about the role of Alaska’s rich energy potential to provide economic opportunities in the Eurasian region. The Future Consensus Institute, a nonprofit public policy research institute, is hosting the forum in partnership with Joongang Ilbo, one of Korea’s largest daily newspapers, and the Royal Institute of International Affairs, a London-based international affairs think tank. Alaska Gasline Development Corporation (AGDC) President Keith Meyer will also attend the forum.
“I am grateful for this opportunity to talk directly to leaders from Korea, Japan, China, Russia and the United Kingdom about how Alaska’s vast energy resources can mutually benefit our respective economies,” Governor Walker said. “There will be discussion of the changing Arctic during this forum, so I am eager to talk about how Alaska’s strategic location can provide the reliability and stability of resource delivery.”
While in Seoul, Governor Walker and AGDC President Meyer will meet with the Deputy Prime Minister of Japan and other international leaders about Alaska’s oil and gas opportunities.
The Future Consensus Institute is paying for lodging, travel and ground transportation.
Attached: Invitation letter
Meyer: ‘Give us a chance’Petroleum News. Keith Meyer, CEO of Alaska’s state-owned gas corporation, knows Alaska … through a project developed by the Alaska Gasline Development Corp. … AGDC will take over the project by the end the year from a four-party … AGDC intends to be out marketing, however, and a new joint-venture LNG … Caelus Energy CEO gives oil tax presentation Oil Clout Ebbs in Alaska as Billions in Tax Credits Are Cut From Ak-HeadlampBloomberg examined Alaskan policies that have had a negative impact on industry investment, specifically tax credits. “Other states and countries are looking at how we incentivize companies to keep investing,” said Kara Moriarty, president of the Alaska Oil and Gas Association, an industry group in Anchorage. “Alaska is looking at just the opposite.” Caelus this week announced its exploration in the Smith Bay oilfield on the North Slope, northwest of Prudhoe Bay, struck a world-class find that could provide some 200,000 barrels a day into the trans-Alaska Pipeline System. Caelus Energy Alaska CEO Jim Musselman’s passion about the intricacies of oil exploration and development shined at the Alaska Support Industry Alliance’s Fairbanks update on Thursday. “We think this is going to be very valuable to the state of Alaska,” Musselman told the audience. “What it really represents the most is jobs, it’s going to be hundreds and hundreds of jobs. … This is going to make the North Slope like it was in the early ’80s.” Afterward, Musselman said the biggest challenge to bringing the field online will be the state’s shifting oil tax policies.. “… most of the things I worry about are fiscal,” he said. “We need certainty from the state how we’re to be treated. … We would like to get that locked down for the long term,” Musselman stressed. “If you don’t have a legitimate tax regime and you don’t have a stable tax regime, it’s going to be terribly, terribly difficult to bring that amount of money in,” he said.
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Keith Meyer in a recent interview with Tim Bradner said: “Give us a chance”. I wonder if Mr. Meyer realizes that his biggest obstacle in getting the Alaska LNG Export project to work in Alaska is Alaskan’s. In Alaska just because you have an agreement with the State or a taxing authority doesn’t mean that next year a different Legislature will/won’t change the rules or the Governor will veto a payment that was agreed to. Governor Walker should have gone to each company that invested its money and earned the tax credits the law provided and asked them to renegotiate because of the financial problems that the State was going through. Companies may have agreed to waive or delay credits or payments. Those who didn’t may not be welcome in the State but at least the world would have seen the State of Alaska honor its agreements. This is the single greatest obstacle to getting any mega billion-dollar project in Alaska financed.
Many years ago we would enter into natural gas sales agreements with a pipeline and we included “FERC Outs” in the agreement. FERC or Federal Energy Regulatory Commission had the ability to change the rules at any time that could render an agreement uneconomic to either party. Because of this, most natural gas sellers included a provision in the gas sales agreement that said if the FERC or any other regulatory authority introduced a new regulation that caused the seller to receive a lower value, then the seller had the right to re-open the agreement for negotiation. It could be possible that the seller could cancel the agreement.
In Alaska there is always the possibility of the FERC introducing rules that could impact the net back price the seller receives for his natural gas or the price the market will pay for the delivered gas. An Alaska based project has at least two regulators who can change the rules almost at will. The FERC and the State of Alaska. In a free market the “market” could chose to buy its natural gas from a different seller or cause the seller to receive a lower net-back price or the owner of the transportation infrastructure to receive a lower return with a lower tariff. Today, however the FERC doesn’t regulate the transport and sale of exported LNG except if the pipeline crosses state borders – potentially not an issue for Governor Walkers proposed LNG export project. The Alaska Government can change at will the production tax a producer pays and it has over the years. The State can also change the property tax a project pays and in fact Governor Walker as an attorney successfully raised the assed value of the Trans-Alaska Pipeline System (TAPS) from its depreciated value back to $9 billion so that communities that provide little to no services to TAPS could extract more money.
No natural gas seller is going to commit to sell natural gas without a “FERC Out” or an “AK Out” in the contract. No one is going to lend billions to an Alaska LNG Export project unless the State of Alaska is prevented from changing the rules to collect more money during the term of the debt service repayment. No market is going to commit to buy LNG from an Alaska project where the State can charge higher fees that will be passed on to the market. Actually today with so much competition to supply LNG, the markets will only pay the “market price”.
So for Mr. Meyer to succeed with the Alaska LNG Export Project he will need Alaska to change how it does business. That means the people of Alaska will have to stop saying “it’s our resource” and we will change how we tax it to meet our financial needs and say we will live with whatever contract the Administration and Legislature agrees to, for the term they agree to.
That takes an amendment to the State Constitutional. Something Administrations have promised to pursue but haven’t yet. I hope Mr. Meyer can get Governor Walker on board with this issue because if he can it will improve the chances of financing all mega projects in Alaska.
Richard: You are one of Alaska’s most well-studied energy citizens and an expert industry player in your own right. I could not argue with you on a single point you made above. Hopefully, our elected and appointed leaders will take note. If they don’t properly respond to the issues raised here, history will not fondly remember them. -dh