Gov. Bill Walker has for years taken heat from critics over his quest to build a pipeline that taps Alaska's huge reserves of North Slope natural gas.
But the thrust of his proposal -- shipping liquefied natural gas by tankers to Asian markets -- was the same concept Gov. Sean Parnell and oil companies began pursuing in 2011. Before that, the state and industry had spent years pursuing a different approach -- a pipeline through Canada to reach U.S. markets.
Parnell, saying excess gas production in the Lower 48 meant Asia was the better target for Alaska's gas, switched the state's course and launched what would become AKLNG, a liquefied natural gas export project involving BP, ConocoPhillips, ExxonMobil, the state and TransCanada.
Walker says the state needs a backup project in case the AKLNG partners back out and that effort fizzles. He says the state needs to take the lead in preparing a second pipeline concept by increasing the gas volume that would flow through the smaller Alaska Stand Alone Pipeline, an in-state project the state has studied in recent years.
There's no certainty that any gas line would ever be built. But Walker's approach has left some observers with questions, including the former federal pipeline coordinator, Larry Persily, who recently asked how the state could foot the bill on such a costly effort. Below, the governor responds to a variety of questions, as posed by Alaska Dispatch News.
ADN: Do you have a catchy new acronym for a supersized or an upsized ASAP?
Walker: Not really. It might be the Right-Sized ASAP.
Why is it important for the state to have its own project?
It is really about the state having a backup plan. There will be only one project actually built but by having a backup plan, I strongly believe it improves the prospects of a project finally being built. Although it is certainly my hope that AKLNG is successful and in five years or so moves to financial close and construction, history demonstrates that putting all of our eggs in one basket does not make sense. Alaska cannot control investment decisions by these companies, and cannot be left without an option if one or more producers decide not to go forward.
How can the state afford to pay for a big LNG project that, let's say, costs $50 billion? I understand potential utility investors have generally invested small amounts in projects, so it seems the state would still have to invest tens of billions of dollars of its own money.
A couple of things. First, these kind of energy projects are typically financed on a project-finance basis with the revenues from the long-term contracts being the collateral, if you will, for the financing. Many projects include multiple entities as owners. They are typically financed with 70 percent debt and 30 percent equity ratio. The debt portion is borrowed from lenders. The equity piece is divided up amongst the various owners. Just like for AKLNG, Alaska would attract other project participants to help offset having to pay the full equity amount itself.
The Big Three producers hold rights to most of the discovered natural gas on the North Slope. How do we get access to their gas if it turns out that they are not part of a project?
There are certain rights/obligations associated with holding a lease on the North Slope. One such obligation is to take the gas associated with the lease to market if there is a reasonable expectation of profit. I have never heard any of the producers state that they would not ship their gas. All of the discussion has been about their return on their investment should they be the owners of the gas line, which is separate from the infield gas (used to produce oil). If AKLNG does not move forward because one or more producers do not want to make the capital investment, I genuinely believe they will be glad to have a project to sell their gas into.
To get an export license and other approvals for liquefied natural gas, the state needs to show that it has access to gas. If the producers are not on board, how does the state do this?
While I agree a project cannot proceed with construction until it has firm transportation commitments and the requisite access to gas that represents, a project can move to the conclusion of the permitting process (like a smaller ASAP was doing) without them. For instance, Yukon Pacific Corp. obtained an export license for export of LNG and otherwise fully engineered and permitted an LNG project to tidewater without access to the gas. Also, the state of Alaska is a gas producer as well and has access to a significant amount of gas.
How do you provide the long-term fiscal stability that producers want, while also ensuring Alaskans are not locked into a multi-decade deal that does not provide sufficient revenue?
First, make sure you have a backup plan to get the gas to market. No backup option gives away too much leverage. Remember, this discussion is all about the gas line infrastructure and not the gas itself. In years past, the requested fiscal stability would have required a modification to the Alaska Constitution, which is a lengthy process and there is no guarantee it would pass. As I have said many times, it is just a piece of pipe. These projects are done all over the world in countries that are in serious unrest. We do need to be mindful of making sure the deal negotiated can last the test of time. It has never been about the pipe but the resources that will flow through the pipe.
How can a state-led project be expedited? AKLNG has pre-filed with the FERC (Federal Energy Regulatory Commission), has received one export license and applied for another and conducted early work on a liquefaction plant. A state-led project would have to make up ground here.
Having a backup plan will in itself move the AKLNG forward at a faster clip. It is not about catching up. It is about having a backup option in the event AKLNG hits a roadblock because of a decision being made or not being made about the project by one of the partners in AKLNG.
As a former mayor of Valdez, you have a long familiarity with the oil industry in Alaska and in particular Exxon, including with the Exxon Valdez oil spill and Exxon's efforts to limit what it owed fishermen. You also fought for development at their Point Thomson field. To what extent do you trust the industry to complete the AKLNG project?
I believe each partner is genuine and working hard to bring the AKLNG project to FEED (the point at which detailed engineering plans are developed). ?I also trust each of our partners in AKLNG to fulfill the commitments they make. The issue is none of the companies have made any final decisions about whether they will or will not go to construction, and will not be in a position to do so for several years. The necessity of having a backup option is what is in our best interest if the AKLNG project does not move forward. Time and time again the state has committed everything on one gas line process, and every few years we start over when that process fails. We all hope AKLNG works out, but if it does not Alaska must be in the position to rapidly advance an alternative.
Do we really need an 800-mile-long pipeline? Is anyone at the state looking into other options, such as liquefying gas at Prudhoe Bay and piping it to ice-breaking LNG tankers and barges for delivery in Alaska and worldwide?
These options have been looked at in the past by various companies and governmental entities. However, my administration has not had time to explore alternatives like tanker loading on the North Slope. It is my understanding that the water depth off Prudhoe Bay is not sufficient for the world-class-sized LNG tankers. Before the TAPS oil line was built, there was one shipment of oil from Prudhoe Bay to the East Coast on the T/V Manhattan. That was not deemed successful and therefore the oil line was built. I do believe bringing the gas to tidewater through Alaska provides the maximum benefits to Alaska by bringing affordable energy to Alaskan homes and businesses.