Parnell Signs Gasline Legislation

Surrounded by state legislators, cameras, and heavy machinery, Gov. Sean Parnell signed a measure that could serve as a starting point for a major natural gas project. He put his name on the bill Thursday, at a pipeline training center in Fairbanks.

PARNELL: So with my signature today, Alaska will be on its way to becoming an owner in an Alaska LNG project, and the project will officially get underway.

The proposed natural gas project is seen as a lifeline for the state, as North Slope oil production declines and state revenue dwindles. Its construction has also been attempted many times without success.

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More than 40 years ago, trillions upon trillions of cubic feet of natural gas were discovered on the North Slope. And ever since, Alaska’s leaders have been trying to figure out a way to sell it.

“In 1968, when they discovered oil and gas at Prudhoe Bay, the whole play was you build a pipeline to take the oil to market, take the weekend off, turn the equipment around, and go build a gasline,” says Larry Persily, the federal coordinator for an Alaska natural gas pipeline. “Didn’t happen.”

In the 1970s alone, you had companies with names like Arctic Gas, El Paso, and Alaska Northwest all making plays to build a gas line. Congress was supportive, too. Permits were issued, federal regulations were met. There were a lot of people who wanted the project to work.

“So you had three legit proposals in the Seventies,” says Persily. “None, as we know now, worked out because of the economics.”

The demand for natural gas just wasn’t enough to justify tapping the supply. The price for natural gas was so low that there would be no way to cover the costs. And on top of that, natural gas on the North Slope had value insofar as it made oil recovery easier.

“Everyone said, ‘Oh, this isn’t going to make any money.’ So, no one wrote any big checks to order pipe or go ahead with it,” says Persily. “That’s the simple answer.”>>

Through the decades, there were other private attempts at a gasline.

And since the late 1990s, there have been three major legislative efforts to get a gasline built. Gov. Tony Knowles got behind the Stranded Gas Act, which would have let the state enter into negotiations with firms to build a line. No one bit. Gov. Frank Murkowski tried to get through his own version of that, but it didn’t even come to a vote because of concerns that it prevented future legislatures from making tax increases. Then there was Sarah Palin’s Alaska Gasline Inducement Act, which offered a half-billion dollars in subsidies to get a project kickstarted.

“Stranded Gas Act 1 didn’t work. Stranded Gas Act 2 didn’t work. AGIA didn’t work,” says Persily.

So, what’s different this time?

“Well, what’s different this time around is the state would be an investor,” says Persily. “So, when you think about a business, every dollar that the state invests as a partner the companies don’t have to invest.”

Parnell’s gasline bill sets the state up as a partial owner of the project. The major North Slope producers — that is, Exxon, BP, ConocoPhillips — each get a 25 percent share in the project. The state will also get a quarter, but it will be giving the pipeline-building company TransCanada a cut to effectively serve as the state’s bank. Instead implementing a traditional tax on the natural gas, the State will simply get a share of the gas itself.

Persily says the economics for selling the natural gas to Asia are different, too.

“It wasn’t until about 2008 that LNG prices in Japan looked to be high enough to cover the costs of an Alaska LNG project.”

The politicians behind the bill are quick to call it the real thing. At Thursday’s bill signing, more than one person said they believed this piece of legislation would truly get a gasline built.

But there are skeptics, too. Gubernatorial candidate Bill Walker puts the odds that the legislation will lead to a gasline at zero. He says it commits the state to a hundred-million-dollar studies without a guarantee that anything will be built.

For his part, Persily is cautiously optimistic.

“If the market grows like many people expect. If prices in Asia stay high. If the producers do their engineering and environmental permitting work and don’t find any surprise and don’t find any big problems. If the producers and TransCananada and the state pass the political test with the public and the Legislature,” says Persily, before pausing. “Yeah, we have a decent shot at this, we really do.”

Lawmakers hope so, too. They will revisit the deal in 2015, when they are presented with more enabling legislation to allow the project to go ahead.