Maybe No Big Alaska Projects Are Feasible Without A Robust Oil Pipeline Paying the Freight!

Commentary: Last Thursday and Friday we heard from Alaskan and Lower 48 entrepreneurs about the growing feasibility of an Alaska North Slope propane wholesale and retail distribution project. Your author addressed the conference on Friday, noting that a fully functioning Trans Alaska Pipeline System (TAPS) and ANS infrastructure would have to "outlive" the financed life of any propane project in order for it to attract financing. And, there’s the rub. Wouldn’t a robust TAPS be a likely assumption for any gas pipeline project; if not, who will fund this greediest of all state governments when TAPS closes: the gas line owners and shippers? And who wants to put in a big fish processing plant or hard rock mining operation or oil or in-state gas pipeline or hydro project other than spendthrift government bureaucrats and elected politicians who would be the first to argue for higher taxes on any new corporate citizen if oil goes away. Watch Alaska’s Native Regional and Village corporations. When you see them beginning to pull in their horns on Alaska investments you’ll know to take cover because the economic end is near. But the end doesn’t have to be imminent. Governor Sean Parnell (NGP Photo) took a strong stand last week at the huge pro-tax relief rally in Anchorage. Anticipating opposition in a pro-government Senate, he said, "I will not stand by while some legislators feed government at the expense of jobs." He observed in that speech that, "Some opponents say we can’t afford it (i.e. tax reform); I say you can’t afford to do nothing". He said there is no question that the past is a good predictor of the future and that, "What you tax more of you get less of." He said, "Some of these senators feel they need to tax as much as they can to spend as much as they can. To legislators who think HB 110 is too risky, I say inaction produces greater risk. Don’t do nothing!" His powerful rhetoric produced a standing ovation. Then Thursday, he continued pressuring the federal government for access to our OCS oil and gas resources, that could also give new life to TAPS. It is amid this chaotic political jousting that propane entrepreneurs and possibly a thousand other investors in other sectors are now settling back wondering, "Will Alaska’s Senate stubbornly insist on squeezing the turnip dry for this generation of Alaskans, or will they demonstrate faith in the free enterprise system and improve the unfriendliest tax regime in North America so investments can sustain future generations?" If they do the former and call it "victory", it may be a pyrrhic event better known as achieving 100% of nothing at the expense of our children. Investors will also be watching to see how effectively Governor Parnell can lead the Nation’s leaders into creating a realistic domestic energy policy. Within a few months, we’ll have pretty good State Senate and federal government signals as to whether we can be planning for new prosperity or preparing for poorer times. -dh P.S. Fairbanks News Miner. The editor believes more time is needed to consider whether Alaska’s oil provinces should be made more competitive, and his blogger followers believe everything is just fine, thank you. If this sentiment controls legislative decisions then we might as well put the house on the market today. Our hope is that statesmen and stateswomen in the legislature will simply decide that inaction is harmful action, that reducing the confiscatory tax burden established without sufficient consideration in the first place should be moderated, that we should be competitive with other oil and gas investment areas, and, that with TAPS declining so rapidly we are out of time.

* * *

See Friday’s Propane Report of the Thursday Kick-off and Photos Here

See Presentations Here

The Propane Conference continued on Friday kicked off by introduction of special guest, Cecil Patterson (NGP Photo). Patterson is Vice President of Phillips & Jordan, Inc., a company that performs emergency and specialty contracting services worldwide, most recently in connection with the Katrina hurricane. The company formed over 60 years ago to perform a land clearing job for the Tennessee Valley Authority and is now interested in doing the same sort of work for Alaska projects, though its expertise also extends to roads, landfills, airports, industrial sites or anything related to land clearing or earth moving. It is also a contractor to the Federal Energy Management Agency, on retainer to assist in the event of a future Alaska emergency. In 2002 the Corps of Engineers named it Civil Works Contractor of the Year.

Speaking for the National Propane Gas Association and Pacific Propane Association, Baron Glassgow (NGP Photo-L) said Alaska had been involved in the trade groups for just ten years, largely represented through AmeriGas, with operations throughout Alaska managed by Randy Bradford. The national association has 3200 companies in 50 states with 38 state and regional affiliated associations. Purpose of the group is to advance safety and increase use of propane through sound public policy. The group is currently lobbying the federal government to qualify as an "alternate fuel" that would provide financial incentives for the entire propane industry, including the fledgling propane automotive industry. The association is also working for federal research funds that would kick start a bio-propane industry. In 1966 the industry managed to have Congress pass the Propane Education and Research Act (PERC) that finances education and research programs with a .04 cents per gallon tax. Demand for propane is 10 billion gallons/year. Of 101 million households, 8 million rely on propane for heating. It is also the most common alternative fuel for autos in the world, with 8 million vehicles powered by propane or a propane fuel mix.

All speakers were impressed with the potential of Alaska’s huge propane energy potential. Colorado propane consultant Larry Osgood (NGP Photo-R) provided a detailed explanation of the diverse use of propane fuel. In particular, he briefed attendees on new propane generators being released for retail sale that could provide reliable, multi-hundred hour service in rural villages or serving as back-up for fuel and electric power systems in urban Alaska. If ANS propane became widely available the popularity of the new generators and co-generation machines would likely spread like wildfire in the state, but are very economical even at today’s imported propane fuel prices. Asked if the Alaska Energy Agency was aware of this technology, he reported that, "I tried to obtain an appointment but they said that they were too busy to meet with me while I was here for this conference." He observed that since the AEA says on its Webpage that its mission is to "Lower the cost of energy" in Alaska, it seemed strange that they could not make time during the week to hear of new technology that could lower fuel prices in rural and urban Alaska.

Robert Dillon (NGP Photo) of Senator Lisa Murkowski’s office invited participants to keep close to his Senator’s office due to her interest in supporting both expanded in-state use of resources but also new cost-saving technologies. Responding to a question about the EPA’s successes in stopping Alaska OCS development by application of the Clean Air Act, Dillon said that, "EPA Administrator Lisa Jackson has been on a tear and the Obama Administration has not really been able to rein her in. We believe," he said, "the Obama Administration is making an attempt now to work with Shell Oil." Questioned about the Murkowski-Landrieu revenue sharing bill that would divert most of the shared funds around the Legislature directly to coastal governments, he said, "to get things like this passed you need to take care of everybody…." He spoke about Washington’s attitude toward domestic energy. "In Washington," he said, "people love to hate the energy industry. We appreciate the importance of the industry."

Since your author is weary of (but still dedicated toward) defending our economy, it was enjoyable, educational and entertaining to hear Todd Mouw’s (NGP Photos) discussion of his company’s exciting propane vehicle advances and national fleet sales. Todd serves as vice president of sales and Marketing for ROUSH CleanTech specializing in fitting ford truck (and other) products for propane use. The technology is now so advanced after five years of intense research and development, Mouw says, that propane vehicle use averages 30–40 less expensive than gas powered vehicles. Mouw has positioned a Ford F-250 in Alaska and proven that during the winter cold of Prudhoe Bay and Fairbanks and Anchorage, it has never failed to come to life from a "cold start". This is due to the use of the propane liquid as fuel as opposed to propane gas, which is easy to find at stores and many gas stations that also sell propane tank fuel. The range may be 10% less than a gas truck with the same sized tank, but with the cheaper fuel cost, customers will should be very happy operating their new technology. Don’t forget that electric autos use the same amount of electricity – on average – as does a complete household, with a very restricted range–and you can’t just stop at a station and say ‘fill ‘er up when the battery goes down. Welcome to Alaska, Roush! -dh