The state of Alaska is formally taking over the massive North Slope gas line project.
After months of mixed signals, Gov. Bill Walker’s administration and the state’s three current partners – ExxonMobil, BP and ConocoPhillips — told lawmakers this week that the state will take the lead on the Alaska LNG megaproject as soon as this fall.
It’s a stunning departure from the approach the state has pursued for the last two years, marking yet another phase in Alaska’s decades-long quest for a gas line. And at a joint hearing of the House and Senate Natural Resources committees this week, lawmakers were told the new approach comes with major new risks.
At about 3 p.m. Thursday, the legislature’s consultant, Nikos Tsafos of Enalytica, stepped up to the mic to give his verdict on the state’s newest proposal.
“Let me put this very candidly,” he said. “If I were taking over a $50 billion project, I would be a lot more worried than I feel folks are worried.”
“There’s so much stuff that comes with it,” Tsafos continued. “And most of the things that have been offered as reassurance, have yet to reassure me.”
Tsafos said the state’s decision comes with too many unknowns and a plenty of risk. During an hour of testimony, he sometimes had the air of a man frantically trying to flag down a train before it heads off a cliff, warning that if the three oil companies are stepping back, it likely doesn’t make sense for the state to step forward.
“You usually want to take over economic projects, not uneconomic projects,” he said at one point.
A combination of low oil and gas prices worldwide and the high costs of the Alaska LNG project have prompted the state’s three partners to reconsider their investment. ConocoPhillips testified Thursday they are unlikely to fund any project into 2017. ExxonMobil said they were willing to continue the current project, but on a slower timeline.
Gov. Bill Walker’s administration has rejected that proposal, arguing the project must not be delayed, and should come online as scheduled in the mid-2020’s. His administration is opting to push forward on its own.
Tsafos said the state is ignoring other options.
“There is a spectrum of where we are right now to the state taking it over, and I can think of about six permutations in between,” he said. “We’ve gone from one to the other, and I have no idea why we we’re not doing any of the things in between.”
At the end of the day, he said, a state-led project could make sense — but Alaska hasn’t yet done the homework to prove that’s true.
Walker administration officials acknowledge there’s work to do.
Keith Meyer, the new head of the Alaska Gasline Development Corp., said he’s considering two major changes: first, increased — or full — state ownership of the project. That could exempt all or part of the project from federal taxes, and drive down its cost.
Second, he hopes to bring in outside investors who might be willing to accept a lower rate of return than the state’s current oil company partners — for instance, pension or equity funds.
Can you do both at once? Meyer said right now that’s unclear.
“What we’re trying to figure out now, and it’s going to take some significant work, [is] can we have those two things live together?” he told lawmakers Wednesday.
A report from the outside consulting firm Wood Mackenzie offered some support for both of those approaches, suggesting that either could lower the project cost. But lawyers consulted by the legislature cast doubt on whether a project with outside investors would qualify to be exempt from federal taxes.
Speaking after the hearing, House Natural Resources Committee co-chair Dave Talerico, R-Healy, said the two days of testimony had raised more questions than answers.
“One of the biggest things I’m taking away from this is the amount of risk we may be taking on,” Talerico said. “I think that’s a consideration that we really need to think about.”
Lawmakers may not have much time to think. The project will begin to transition over to the Alaska Gasline Development Corporation in October, with the state expected to take full control by the end of the year.
Rachel Waldholz covers energy and the environment for Alaska's Energy Desk, a collaboration between Alaska Public Media, KTOO in Juneau and KUCB in Unalaska. Before coming to Anchorage, she spent two years reporting for Raven Radio in Sitka. Rachel studied documentary production at the UC Berkeley Graduate School of Journalism, and her short film, A Confused War won several awards. Her work has appeared on Morning Edition, All Things Considered, and Marketplace, among other outlets.
rwaldholz (at) alaskapublic (dot) org | 907.550.8432 | About Rachel
