Gov. Bill Walker is fond of quoting Walter Hickel. One of the things Gov. Hickel used to say was: "Invest only the money that you can afford to lose." How much money can the state of Alaska actually afford to lose?
Gov. Walker is the sixth governor in a row who is going to be "the one" to bring Alaska a natural gas pipeline. Since 2000, the state has appropriated over a billion dollars in hard cash for a group of studies. In addition, Walker is committing unquantifiable billions of future dollars of public money to pay for Alaska's share of an LNG project that currently does not have any assurance of profitability.
In the short term, Gov. Walker is going to call a special session to ask the Legislature for $100 million to buy out TransCanada for work done on the project. This could be a tremendous windfall for TransCanada, but not so positive for Alaska. There is a legitimate question whether TransCanada should have been brought into the project, but that was three governors ago. Each new governor has legislatively changed or significantly modified the preceding governor's gas line plan. Each iteration costs the state more money and delays implementation of the project.
Gov. Walker wants to spend public money on a very, very questionable project that has no publicly available feasibility numbers as to its cost, no publicly available agreements to sell gas at a particular price, no publicly available agreements to purchase gas, no permits, and no idea how long it will take to achieve first gas given the multiple lawsuits that the project will surely face (ask Shell). The LNG project that is currently being discussed is extremely speculative and risky, and there are not enough answers to justify spending public money at this stage.
Moreover, the terms of the deal between the state and the producers have not yet been agreed, much less reduced to a written contract. How can the Legislature agree to a deal that is still being negotiated? What's the point of a special session?
The state of Alaska should make a real effort to encourage the development of a gas line project, but before the Legislature agrees to spend money to buy out TransCanada it should consider doing the following:
- Estimate the price for which gas will need to sell for the project to break even. Let the public know the level of confidence the financial experts have in those numbers and the level of confidence marketing experts have in achieving that price.
- Determine how Alaska is actually going to pay for its share of the project -- where is the money going to come from? How much risk is involved in the proposed financing? How will cost overruns be paid by the state?
- Estimate how long and how much money Alaska will have to pay out for project planning, engineering design, construction, start-up and operation funds before the cash starts to flow back into the state.
- Identify the assumptions upon which these estimates have been based.
The Legislature and the public have come to believe that the major gas line project is almost here and will solve the current fiscal problems. This is allowing the political class to avoid the financial issues that are here now. There is no reason to spend money on a TransCanada buyout right now, and there is no hurry to worry about a future gas pipeline until there is an actual agreement to consider and there are answers to the questions posed above.
The fiscal issue on the other hand is real and needs the governor's leadership right now. Even if the governor and Legislature do not deal with the state's fiscal condition before the gas line, it will be the first to impact the state with or without their direction and oversight.
Cruise ships now transit the north passage in summer! Will it soon be possible to transport gas direct from the North Slope by ship? Won't the producers look to marketing Alaska gas when it can be done profitably?
The state's bond rating is at risk in 2016 because the state has not yet addressed its fiscal issues. Shouldn't the governor be concentrating his energy on cost reduction and shorter term revenue generation so that Alaska will be a financially stable state in the next few years?
Harry Noah was commissioner of Natural Resources under Gov. Hickel, senior manager of the Yukon Pacific LNG pipeline project, and was a state coordinator of the in-state gas pipeline project known as the "Bullet Line."
Pat Ryan was former chief of staff to Gov. Hickel, including during Hickel's post as secretary of the U.S. Department of Interior.
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com.