The notion of a state-owed gas pipeline conjures visions of an 800-mile-long grain elevator sitting financially high and dry, too expensive to ship gas at a price the market will accept.
That is a very real and realistic worry. State governments generally don’t do those things well — and the state’s record on publicly owned and managed properties is horrible. Think the grain elevators built to support Mat Valley farmers, the railroad passenger terminal at International Airport, the Point MacKenzie Dairy Project, the Anchorage seafood plant and the rest.
From Alaska Dispatch News: As usual, we are on the same page with Jenkins on most state policy issues. -dh
Alaska shouldn’t even be a partner in a North Slope gas line, let alone take control
Here is another in a long, twisted line of bad ideas: Gov. Bill Walker thinks maybe Alaska should seize control of the massive Alaska LNG Project because its industry partners, hammered by lousy oil prices and a global gas glut, are taking a cautiously slow approach to the perhaps $65 billion effort.
Two questions Alaskans should ask: Should the state be a partner in the project? Should it lead or take over? The short answers are no and no.
The megaproject — now in a deciding-whether-to-decide-to-build phase — aims to daily move up to 3.5 billion cubic feet of North Slope gas south via an 804-mile pipeline to the small Kenai Peninsula community of Nikiski for liquefaction and shipment to Asian markets.
If construction started this minute it would be a decade before the system was operational. It is superlatively complex and almost indescribably colossal, with more tiny pieces than a crate of broken china and plans rivaling D-Day preparations. When — make that if — it was completed, it would rank among the world’s largest energy projects. It is detailed in a descriptive report to the Federal Energy Regulatory Commission.
Alaska is a partner in the project with ExxonMobil, BP and ConocoPhillips, and now the Walker administration — galled by industry caution — is making noises as if it wants to shoulder ExxonMobil aside and take control or go it alone. Walker says the companies think it is a swell idea. They say, “Huh?”
Walker’s long, combative relationship with the oil and gas industry evolved over the years as he pursued his white whale, a government-controlled gas line. Nowadays, he appears to think the state’s partners are sandbagging, planning new projects elsewhere to the state’s detriment.
He is not bashful about locking horns with the industry and Legislature over just about anything and everything pipeline-related. He bolstered the $10 billion Alaska Stand Alone Pipeline to prod producers into action. He bought out TransCanada to increase Alaska’s project share He fought them on confidentiality and oil tax credits. He threatened to tax gas reserves and in January warned he would “consider other options” if the companies did not get hustling on the project.
Now his administration is holding up approval of Prudhoe Bay’s 2016 development plan until the producers cough up marketing data they refuse to provide. Consider: Walker demands they provide marketing details 10 years into the future for gas shipped through a pipeline nobody has even decided to build.
For most of his adult life, Walker has pursued his quixotic quest (A term we have used for the last two years. -dh) for a gas line owned or directed by government. He has surrounded himself with people he worked with at the Alaska Gasline Port Authority — represented by his law firm — which backed another gas line project that went unbuilt. His administration was home for Palin administration true believers who thought the major producers should butt out of gas line decisions.
In all that, Walker never tripped over the obvious: Government is not business. The two have differing, competing interests and responsibilities. Business is about profit. Government is about governing and is constrained by regulations and laws — records transparency laws, for instance — that, were they applied to businesses, would bankrupt them.
Legitimate government tasks include taxing and regulating business; ensuring fairness in the economic sphere; and making it easier for businesses to succeed, bringing jobs and attendant wealth creation and revenue.
How can government even pretend to be a partner in a business, much less be in charge? How would its partners know whether they were dealing with a sovereign taxing authority, a regulatory master or a business partner? How would citizens know necessary regulations were being enforced, or taxes collected, or inspections completed? Who would check?
Then, consider competence. Who knows more about gas pipelines or their economics: ExxonMobil, BP and ConocoPhillips or the worrisome revolving-door bureaucracy in Walker’s administration — or any other — that has absolutely no skin in the game? How many more bureaucrats and consultants and engineering companies would we have to hire to make this thing fly? At what cost?
Then, there is this: What happens when Walker is out and the next governor wants to chase a different white whale? Frustrated ExxonMobil CEO Rex Tillerson once observed that Alaska has a history of flip-flopping after elections, and he opined, “Alaska is their own worst enemy.”
He was absolutely right.
Paul Jenkins is editor of the AnchorageDailyPlanet.com, a division of Porcaro Communications.
Juneau Empire Editorial
If you’re going to pursue a new business opportunity, you want a partner who can balance a checkbook.
That’s why we have second thoughts about the possibility of the state of Alaska taking sole responsibility for a trans-Alaska natural gas pipeline.
The state has spent $11 billion in savings in the last three years, and the Alaska Legislature has been unable (or unwilling) to bring expenses and revenues in line.
Now, the new head of the Alaska Gasline Development Corporation, Keith Meyer, is indicating the state may go it alone on one of the biggest gas pipeline projects in the world.
That’s a scary proposition given Alaska’s track record. Going down this path alone will incur more risk and debt than the current parternship. We also don’t trust our government and state leaders to handle this responsibly.
The Alaska Legislature has already proved itself incompetent at balancing the state’s regular budget. Through an unchecked system of oil and gas tax credits and a refusal to raise new revenue, lawmakers have become deficit accomplices. When Alaska received a windfall from the 2008 surge in oil prices, it should have kept the brakes on the natural inflation of government. It did not. Oil prices have plunged, and we are feeling the consequences.
Unfortunately, falling oil and gas prices have also caused our state’s pipeline partners to question their involvement in the multibillion-dollar Alaska Liquefied Natural Gas pipeline.
It appears interest is waining from BP, Exxon and ConocoPhillips. A ConocoPhillips official said recently it’s doubtful the oil giant will commit money to the front-end engineering and design (FEED) phase scheduled for early 2017. About $2 billion would be due from all parties involved in the $45-$65 billion project. He added, however, that ConocoPhillips would still make its share of North Slope gas reserves available.
The 800-mile pipeline wouldn’t produce gas under the best-case scenario until 2025, and our estimate of gas prices in the future is as good as yours. If oil prices’ plunge has left the North Slope giants without the funds to pursue a natural gas pipeline, it might seem logical for the state to pick up the burden. After all, most Alaskans believe that a natural gas pipeline is the only thing that might come close to replacing the receding tide of Alaska oil production.
But we fail to see how the state can afford to bankroll such a massive project with dwindling savings and a collapsing credit rating. We can’t even afford to …
We need AK LNG more than ever to replace lost oil revenue, but a project this size can’t be forced without financial consequences. The open market will ultimately decide when the time is right. If several of the most successful for-profit corporations in the world are showing doubt, the last thing our state should do is charge ahead without caution.