4-20-18 Should Alaskan Politicians Align Their State’s Future With Communist China’s?

Alaska’s Imprudent LNG Project

Reader question: Should Alaskan Politicians Align Their State’s Future With Communist China’s — or, instead rely on free enterprise development of Alaska’s natural gas transportation system–WHEN IT BECOMES ECONOMICAL?  Scroll down to answer in comment section.

By

Dave Harbour

(NGP authorizes reprint of its editorials with condition that links be provided to such reprints.)

As my kids would might say, it blew my mind this week when China’s news blog, Xinhua, announced, “The Alaska Gasline Development Corp. (AGDC) said on Thursday that it has signed up the state-run Bank of China (BOC) and leading U.S. investor Goldman Sachs to help raise funds for its 43-billion-U.S.-dollar liquefied natural gas (LNG) project.”

We must note before proceeding that $43 billion is the lowest estimate from a bureaucratic Alaska agency (AGDC)of an LNG project that has no FERC approval, no financing plan, no final investment decision, no long term customers and a scheme that is not competitive in today’s highly efficient, low-price LNG trading world. An earlier high-end estimate for the Alaska scheme is closer to $60 billion.

Why would Alaska, climbing into bed with China on a long-term, multi-billion dollar energy deal, raise the hackles on the back of my neck?

Well, to start with, The United Nations, including the U.S. and South Korea, are still at war with China and North Korea, having signed only an ‘armistice’ on ‎27 July 1953.  Defying logic, Alaska seeks a good faith, long term relationship with communist China–not the paragon of good faith partners.  That could change with ongoing negotiations, but our experience tells us to view Chinese/North Korean promises skeptically.

The state’s governor, Bill Walker, a lawyer, has been a decades-long advocate for failed LNG export projects.  Two years ago, as governor, he took over the LNG study project led by Alaska’s three world-class producers, BP, ConocoPhillips, ExxonMobil.  After many hundreds of millions of dollars spent on Arctic gas transportation project research over the decades – and more recently — they had concluded that the time for an Alaska LNG project had still not yet come.  Yet the long-time advocate, Walker, was now in a position to ask the three if they minded if he took over the project.  What could they say?  No doubt the three must have doubted the wisdom of such a decision, especially since the governor’s deep pockets had a large hole in the bottom, now referred to as Alaska’s fiscal crisis!

Over the past two years, Walker and his AGDC team have opened “LNG Marketing Offices” in Tokyo and Houston.  Some say he’s spent more time working on this bureaucratic pipe dream than on the state’s threatening fiscal challenge.  Various state financed entourages have made many pilgrimages to China, The Republic of Korea and Japan.  Korea and Japan energy officials have provided diplomatic “Memoranda of Understanding” that express polite interest in importing Alaska Gas, someday.

China has shown greater interest.  Somehow, Walker was able to convince Commerce Secretary Wilbur Ross, and President Trump, that supporting Walker’s dream with President Xi would be a winning idea that would support Trump’s infrastructure plans.  At a meeting last November in China, Trump and Xi witnessed the signing of a so-called “Five-party Joint Development Agreement (JDA)”.  Two of the five parties are Alaska state government interests and three are Chinese government-run oil and finance corporations.  Like the Japanese and Korean documents, these are largely diplomatic agreements to someday reach some type of binding, commitments.

To overcome a growing skepticism, the Alaska administration is conducting a full-court-press effort to convince Alaskans that China is a valuable trading partner, not deserving of a bad rap.  The China Daily recently promoted an upcoming, May trade mission Walker and his staff are planning.  It quoted Alaska officials as saying that, “China is the biggest customer of Alaska seafood, buying over $796 million last year, more than any other country and an increase of 27 percent from 2016, they said. Alaska has profited from selling other resources to China, including over $355.8 million worth of metal ores and millions of dollars of forest products in 2017.  China’s purchase of these resources adds significantly to a healthy and diversifying statewide economy across Alaska without ceding control or management of these resources….”

Of course, China need not have Alaska “cede” control or management of its resources in order to make its influence felt as the state’s largest trading partner—especially if it plays a major role in a multi-billion dollar LNG project upon whose royalties & taxes the state might come to depend.

And, we would observe that private companies selling fish, minerals and timber to China are far different than politicians committing the entire state to a long term relationship with a communist government that may or may not be backing North Korean aggression in the near future…and which may or may not become more aggressive as America seeks with its Japanese and Korean and Taiwanese allies to take a stand for protecting traditional East and South China Sea neutral transportation corridors.

The major Alaska producers are not a part of the Alaska LNG project because they believe that this is not the time.  Are the Iditarod state’s politicians better gas traders, economists, pipeline/LNG engineers than the world’s greatest energy companies?

The government of Alaska has, in effect, expropriated the Ak-LNG project which is now owned, managed and operated by temporarily elected and appointed Alaskan politicians and bureaucrats making long term deals with communist China. What could possibly go wrong? 

Though LNG prices are trending away from long term contracts, toward spot and short term contracts, Alaska needs long term gas sales/LNG purchase agreements to create a successful finance plan.  However, the project in any case is infeasible because it must force a costly 800 mile Arctic pipeline into any finance plan which would compete with highly efficient tidewater projects around the world.  The majority of those venues are in milder climates with better logistics and cheaper labor.

The socialist-leaning governor is now trying to convince his Legislature to cede a constitutional responsibility by giving him carte blanche authority to accept funds from third-party investors in connection with the LNG project.  His bureaucrats would allocate borrowed funds for some purpose, under some terms, committing some collateral or good faith that will escape the requirement for a legislative appropriation and associated legislative hearings, etc.   Twin specters of corruption and the probability of unacceptable risk rise.

What chutzpah!

We have observed, not altogether in jest, that this entire scheme reflects the bold and imprudent action of a huge state with a tiny population – and a correspondingly tiny gene pool — overseeing what may be a majority of the country’s remaining natural resources.  Adding to the spectacle, we should remind readers that Alaska’s Governor pursues this pipedream fantasy while trying to create a subsidized, uneconomic natural gas utility in Fairbanks and has acted to voluntarily increase Medicaid coverage — further exacerbating the state’s fiscal deficit.

Meanwhile, the state struggles amid a multi-billion dollar fiscal crisis caused by overspending, mushrooming of what has become a world class ‘welfare state’, and imprudent dependence on oil as the source for over 85% of its operating budget.  Today, its leadership tries to convince rating agencies, the White House and editorial boards that the state’s management is prudent.

We are certain that China’s government-owned banks and oil companies do not care whether Alaska is prudent or spendthrift.  China’s long term planning obviously involves values not limited to profitability.  We have witnessed China’s imperialistic values at work while recently observing their economic hegemony sprouting like hothouse mushrooms from Panama and South America to Africa and back to the East and South China seas.

Alaska’s political management is not, in our opinion, prudent and the hackles on the back of this Alaskan’s neck are stiffer than ever after writing this.

-30-


­­­­­­­­­­­­­­Dave Harbour is former Chairman of the Regulatory Commission of Alaska and the Export Council of Alaska.  He also served as Chairman of the Alaska Council on Economic Education and the Anchorage Chamber of Commerce.  One of Harbour’s earlier Washington Times Op-Eds, “Fishing on the Korean DMZ”, also dealt with China.  He is a Commissioner Emeritus of the National Association of Regulatory Utility Commissioners and Chairman Emeritus of the Alaska Oil & Gas Congress.  Harbour is a former President of the Alaska Press Club.

Friday Headlines

Boroughs,  university, private companies to explore trade with ChinaKTOO.  … would travel with the state during the 11-day trip. They’ll have opportunities to meet with potential customers and government officials on the trip. They’ll also be traveling with Alaska’s Gasline Development Corporation. The state corporation is working to develop a $45 billion natural gas export project; ..    NOTE: WE OPPOSE A LONG TERM-RELATIONSHIP WITH CHINA VIA A SOCIALIZED, GAS TRANSPORTATION PROJECT CONTROLLED BY TEMPORARILY ELECTED AND APPOINTED ALASKAN POLITICIANS AND BUREAUCRATS.  HOWEVER, WE FULLY SUPPORT TRADITIONAL TRADE WITH CHINA AMONG ALASKAN PRIVATE ENTERPRISE COMPANIES WHOSE RISK CAPITAL AND MANAGEMENT ARE PRIVATE, NOT PUBLIC.  -DH


OUR FRIENDS AT RDC URGE US TO ATTEND A SCOPING MEETING TODAY ON THE PEBBLE PROJECT.  RDC SAYS THAT, “The Corps welcomes scoping comments on the proposed project and encourages the public to attend scoping meetings: seven in the Bristol Bay region and one each in Homer and Anchorage. Participants can bring written comments to the meeting or submit them online or by mail. It is important for supporters of responsible resource development to help ensure the Corps review includes analyzing all of the potential benefits to the communities around the project and to the State of Alaska.  Stop by the Anchorage Public Meeting today, April 19, at the Dena’ina Center, 11:00 a.m. – 9:00 p.m., with a Corps presentation at 3:00 p.m.

A full action alert and points to consider can be found here


Amid trade tensions, Alaska’s governor plans Chinese trade mission

Chinese lenders and corporations are backing a liquefied natural gasproject in AlaskaAlaska Gasline Development Corp. wants to build pipelines and associated infrastructure to process state gas into liquefied natural gas, a super-cooled form of gas that has more maneuverability than other piped …


Labor Dept. prepping for AK LNG job demand

More specifically, the Alaska Gasline Development Corp. estimates its $43 billion Alaska LNG Project will generate upwards of 18,000 new jobs in the state over about six years of construction. Nearly 12,000 of those jobs will be directly dedicated to the project itself: 1,300 heavy equipment operators; …




3 Comments

  1. Katherine Hicks April 20, 2018 at 7:55 am - Reply

    The main producers knew a long time ago that this project was not economical. The state blew it when it bowed to them and became the 4th leg of the stool. Government is not supposed to finance projects, it is supposed to clear the way for private enterprise. I can’t understand why Walker is spending fortunes on this while Alaska is in a recession. Get him under control, Legislature.

  2. Donald M. Bullock Jr. April 20, 2018 at 12:35 pm - Reply

    Very well written Mr. Harbour. It is painful watching the Alaska Gasline Development Corporation (AGDC) going down the same unproductive path as the dead Alaska Gasoline Port Authority (AGPA). At this time, AGDC has no gas to sell. The State of Alaska also has no gas to sell until those lessees that have the exclusive right to produce the gas actually produce and convey gas to the State as royalty and production tax. AGDC has described the market price the gas must hit with a fixed $1 per barrel equivalent for gas. Any cost overruns will reduce that dollar with the leaseholders taking the hit. Seems a better approach would be to assure a gas supply before selling an interest in an empty project.

    Should the State ever have gas to sell, the worst thing would be to have the State contractually commit an American valuable natural resource to any foreign nation, particularly a nation such as China with a track record of very poor international business practices. Any default by China or a Chinese entity would be hell to enforce and would lock up the resource indefinitely.

    The Walker administration is spending money for a no gas project that the State can’t afford and is approaching it backwards. A better approach would be to engage the leaseholders in potential gas sales that are subject to reasonable transportation costs (pipeline, LNG plant, and LNG vessel transportation). I fear the administration will repeat another misstep of AGPA, that is to sue the leaseholders in an effort to force them to produce. The State may end up with the gas leases returned to the State, with the lessees continuing to hold oil and gas leases that are producing oil consistent with lease terms. The companies can be expected to produce only if production is economically viable. The “commitment” letters waved by the governor commit to no more than commercially economic production.

    Engaging a country like China in the development of an empty project is the least of concerns with this project.

    • wpnorthern April 20, 2018 at 1:35 pm - Reply

      Your points are straight on, Donald. I hope you will continue to provide your expertise on these critical industry and fiscal matters. The problem with poor political management is that, as bad as it is and no matter what future damage it does, the politicians in volved will always say, “Well, if we hadn’t done A, B and C it could have been worse.” Since we can never know precisely how it would have been the other way, they escape unschathed. Sad. Yours truly, Dave

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About the Author:

Dave Harbour, publisher of Northern Gas Pipelines, is a former Chairman of the Regulatory Commission of Alaska, a Commissioner Emeritus of NARUC, NARUC's Official Representative to IOGCC and Vice Chairman of NARUC's Gas Committee. He served as Gas Committee Chairman of the Western Conference of Public Service Commissioners. He also served as commissioner of the Anchorage Bicentennial Commission and the Anchorage Heritage Land Bank Commission.He earned a Bachelor of Arts Degree: English, at Colorado State University, a Master of Science Degree: Communications-Journalism at Murray State University and graduated from Utility Regulatory School for Commissioners at Michigan State University. He served as a Vice President for Communications and Public Affairs at Alaska Pacific University, taught bank marketing classes at the University of Alaska and was an English teacher at Los Alamos High School.Harbour served in ranks of Private - Captain during a 4-year assignment with the Army in Korea, Idaho, Georgia and Fort Meade and received the Meritorious Service Medal among other commendations.Harbour is also a past Chairman of the Alaska Council on Economic Education, the Alaska Oil & Gas Association Government Affairs Committee, the Anchorage Chamber of Commerce, the Export Council of Alaska and the Department of Commerce's District Export Council. He is a past President of the Alaska Press Club, American Bald Eagle Foundation, Consumer Energy Alliance-Alaska and Common Sense for Alaska.Harbour was instrumental in founding the American Bald Eagle Research Institute (UAS), the Alaska Support Industry Alliance, the Downtown Anchorage Business Partnership, and Arctic Power.He also served as CEO of several small Alaska organizations, including the Anchorage Parking Authority and Action Security, Inc. Harbour is also Chairman Emeritus of the Alaska Oil & Gas Congress.Harbour's wife, Nancy, is a professional, performing arts administrator and his three boys, Todd, Benjamin and William work in the fields of environmental management, energy marketing and medicine.