Alaska gas line agency chief recaps visit from Chinese delegation as funding remains unresolved

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Visitors representing Chinese state-owned corporations interested in the Alaska LNG Project took a few turns at the helm of a giant LNG tanker docking at Nikiski with the marine simulator at the AVTEC trade school in Seward. (Photo/Courtesy/Alaska Gasline Development Corp.)

State officials leading the $43 billion Alaska LNG project touted a productive visit from potential Chinese partners in the project while funding for the effort remains unresolved in the Legislature.

Alaska Gasline Development Corp. President Keith Meyer told reporters during a Thursday press briefing that a six-day trip to Alaska from March 25-30 by leaders of the state-owned Chinese companies Sinopec, Bank of China and China Investment Corp. was the foreign contingent's opportunity to see for themselves that the Arctic-sourced LNG export plan is as achievable and real as Gov. Bill Walker's administration has insisted.

Meyer said he expected the three companies to send "a couple handfuls of people" across the Pacific; 38 arrived.

"We had a pretty large group," he said. "It really shows their level of interest, activity, commitment to the project so we were really happy to see that."

[Here's what the Trump-China trade negotiations could mean for Alaska's gas pipeline]

Among other activities, the group toured the proposed pipeline route from the North Slope to Nikiski.

AGDC signed a nonbinding joint development agreement with the three Chinese mega corporations last November. At the highest level, the agreement outlines the possibility of the companies joining forces to fund 75 percent of the project in exchange for 75 percent of the project's planned capacity of 20 million tons per year of LNG.

Sinopec, one of the world's largest oil and gas companies, could be simply a buyer of LNG from the project or a partner in it involved in engineering, design and construction. The Bank of China and China Investment Corp. would raise debt and equity financing under the model.

The development agreement calls for AGDC to have the framework of final deals with the three in place by the end of May, with firm commitments signed before the agreement expires at the end of the year.

Right now, according to Meyer, AGDC and the Chinese companies are establishing roles for the project, such as how involved Sinopec will be.

On March 27, AGDC announced the Bank of China, along with Goldman Sachs, have been hired to assist the corporation in raising funds for the project.

Accepting funds solicited by Bank of China or Goldman Sachs will require the Legislature to approve third-party receipt authority for AGDC, which remains unresolved after the House and Senate operating budgets diverged on granting it.

Meyer said the entire group toured production facilities at Prudhoe Bay and witnessed ice road construction to gain comfort in the fact that something as critical as LNG shipments needed to heat and light homes and businesses can be reliably sourced from an often-harsh Arctic environment.

"They really got a sense that there's a lot of installed infrastructure, labor and companies up there on the North Slope," Meyer said.

Experts in the different aspects of the project then broke into five groups to evaluate the pipeline route, North Slope geologic samples, the Nikiski LNG plant site, and the prospect of sending massive LNG tankers into the silty, shallow, sometimes ice-laden waters of Cook Inlet.

A group traveled to Seward to test docking a roughly 1,000-foot long Q-Flex LNG tanker — the second largest series of LNG tankers on Earth and the largest that could call on the Alaska LNG marine terminal, according to Meyer — with the ship bridge simulator at AVTEC, the state's trade school.

"They got to see those simulations and they actually got to berth the ship at the Kenai facility," Meyer said during AGDC's board of directors meeting before the press conference.

Meyer has downplayed the impact of President Donald Trump's 25 percent tariff on Chinese steel on Alaska LNG; stressing most of the $43 billion project's costs are in construction and pre-fabricated equipment and modules that fall outside the purview of the tariff.

"The underlying issue is really trade with China and the reason that Secretary of Commerce (Wilbur) Ross really fostered the trade mission to China from the United states is for the Chinese to buy more stuff from the United States and one of those things identified was LNG," Meyer added.

He also emphasized that AGDC has not decided from where it will source steel for the 807-mile, 42-inch gas pipeline if the project gets that far, but even if it comes from China the tariff would cost the project roughly $200-$500 million.

However, it's unlikely the tariff would add to the overall cost of the project, according to Meyer, because the $43 billion estimate includes $9.3 billion of contingency reserves for unexpected costs or overruns such as the steel tariff. He also noted the U.S. has a 30 percent tariff on steel from Japan, so the issue is not China-specific.

"It's just one of the aspects of globally sourcing material," Meyer commented.

AGDC regulatory Vice President Frank Richards said during the Thursday board meeting that corporation officials — hosted by Sinopec — visited four Chinese steel mills in early March to evaluate their capabilities to produce and roll steel for the pipeline.

He said U.S. mills could roll the plate steel into pipe, but are not equipped to first produce the plate to the project's specifications.

There are mills in China, Europe, India and Japan that could fill an order for Alaska LNG pipe, according to Richards.

Senate budget removes AGDC receipt authority

Meanwhile, the Legislature is still uncertain as to how much autonomy it wants to give AGDC in paying for the Alaska LNG project.

Gov. Walker requested open-ended authority for AGDC to receive third party funding for not only actual construction but also for the corporation's operations in the coming years in his 2019 fiscal year budget proposal.

The House capped AGDC's receipt authority at $1 billion per year for 2018 and 2019 in its version of the operating budget.

The Senate did not include Walker's request for receipt authority in its operating budget passed late Thursday.

Both bodies did allocate $10.3 million from the state's existing Alaska LNG Fund for AGDC's annual operating budget, which is consistent with prior budgets.

According to AGDC Finance Manager Philip Sullivan, as of March the corporation had $63.2 million in previously appropriated gasline funds and expects to have $34 million left at the end of the calendar year 2018.

Last year, in what was largely a political statement, the Senate quietly and unanimously approved a budget amendment that would have pulled $50 million from the Alaska LNG Project Fund and sent it to other state agencies. The funding was eventually restored in a House-Senate conference committee on the budget.

Meyer said the third-party funding ability is necessary to keep the project on track for a late 2024 in-service date and that he is confident the issue will be resolved favorably.

"I think now, that the state (Legislature), now that we've gotten all this traction, does not want to give it away too early and so it just wants to be engaged," Meyer said at the press briefing.

"I'm convinced we're going to get support all around."

Legislators in both bodies and from both parties have indicated concern that giving AGDC receipt authority signs away the Legislature's remaining purview over the corporation and the Alaska LNG Project — the Legislature's fundamental appropriation authority.

However, some in the Senate are particularly worried that giving AGDC any authority in the budget to accept third party funding opens the door for the administration to circumvent the Legislature.

According to the Legislative Budget and Audit Committee handbook, state law allows the governor to request an expansion of existing receipt authority in the budget to the LB&A Committee after the budget is passed. The committee then has 45 days to issue a recommendation to the governor on the request, but has no formal authority to deny it.

Walker used this mechanism in 2015 to accept additional federal funds for Medicaid expansion without legislative approval.

FERC meeting

AGDC Vice President Richards said the outcome of a March 22 meeting in Washington, D.C., between the company and Federal Energy Regulatory Commission officials was favorable in that the corporation will not have to conduct major field programs this summer to answer FERC's latest round of 570 questions on Alaska LNG environmental impact statement data.

AGDC will have to conduct fieldwork identifying cultural resource sites along the pipeline route to satisfy FERC, Richards said. The exact scope and intensity of that work is still being defined, but he estimated it will cost AGDC about $3 million to answer all of FERC's outstanding questions by September.

Many of the remaining questions — specifically those related to evaluating Valdez and Port MacKenzie as LNG plant site alternatives — can be answered with "tabletop exercises" using existing environmental data, according to Richards.

[Federal agency wants state to consider Valdez and Mat-Su for gas line port]

FERC sent AGDC its latest data request with the 570 questions in mid-February, shortly after Richards' team finished answering the initial round of 801 questions. Gasline Corp. leaders have repeatedly noted that such requests are common in the EIS process, but the size and public nature of the Alaska LNG Project has brought them to the forefront in this case.

According to Richards, AGDC has now submitted over 100,000 pages of information to FERC on the Alaska LNG Project.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.