Increased state control of the Alaska Liquefied Natural Gasline project was a concept first proposed by the state’s producer partners to lower the cost of the $45-$65 billion project, Gov. Bill Walker said Monday.
Walker spoke about the prospect of a state-led AK LNG project to members of the Anchorage Chamber of Commerce at its weekly meeting.
Walker said he felt it was important he correct the record regarding “misinformation” that has been circulating about what his administration and the producers are doing to continue the project.
The producers first floated the idea of growing the state’s 25 percent ownership stake in the project in the April or May, according to Walker. It would allow the project to capture the benefits of the state’s federal tax-exempt status and reduce its immense cost, particularly at a time when world LNG markets are more competitive than ever, he said.
“The tax aspect is a real significant piece of a project this size,” the governor said during an informal press briefing after chamber speech.
At this point is unknown exactly how much money being at least partially tax-free could save the AK LNG project, but sources with extensive knowledge of the proposal say it could be in the low billions of dollars over several decades.
Since February, BP, ConocoPhillips and ExxonMobil and the state have been investigating ways to keep the project on track for startup in about 2024-2025, when all involved held a press conference acknowledging a lack of progress on internal agreements and market concerns that could delay or kill it outright if the existing equal-equity share arrangement was continued.
Walker further confronted hearsay that a state-led project would mean the State of Alaska would “go it alone” and build the project regardless of economics.
“It’s not a build it and they will come,” he said.
Walker also emphasized that using the $54 billion Permanent Fund to pay for the project in any way is out of the question.
New Alaska Gasline Development Corp. President Keith Meyer roundly dismissed that as well at the corporation’s July 14 board meeting, separate from Walker’s comments.
He said Walker has told him using the Permanent Fund to pay for the project “is not even open for discussion.”
Senate Resources chair Cathy Giessel, R-Anchorage said in an interview that the governor “may have jumped to conclusions that the producers said the state needs to lead this project,” and that she has been told there are different approaches to moving ahead in a low price environment.
“I’m concerned the governor wishes to drive ahead a project that is marginal at best and uneconomic at worst,” Giessel said.
[Poor relationship with lawmakers the biggest gasline hurdle]
She added that the administration appears to be abandoning Senate Bill 138, the legislation that passed in 2014 and established the equal equity-share framework.
When asked whether the producers brought the idea of a state-led project to the table, ConocoPhillips Alaska spokeswoman Natalie Lowman wrote in a statement that the company is “open to evaluating various options for the (AK LNG) project, including the approach described by AGDC.”
ExxonMobil spokesman Aaron Stryk wrote: “As ExxonMobil has stated many times, one of the prerequisites for entering FEED (front-end engineering and design, the next stage of the project) is a mutually acceptable fiscal agreement with the necessary predictability and durability to underpin a project of this magnitude.
“Once it became obvious that the governor’s plan (to have numerous agreements in place by early in 2016) was not going to be met, other concepts to potentially progress a project were discussed.”
Stryk added that exploring other options to provide access to ExxonMobil’s share of North Slope gas if the state elects a new project structure was part of those discussions.
A confluence of depressed LNG and oil markets has challenged the current and more traditional equity financing structure, with each participant — the state, BP, ConocoPhillips and ExxonMobil — financing equal shares of the project that could cost upwards of $50 billion or more.
An oversupplied LNG market has chopped the near-term price of the commodity by more than two-thirds over the last two years, which eats into the potential profits of the Alaska LNG Project. And the project’s 800-mile pipeline from the Slope to Nikiski is a major cost that will always eat into its margins. It’s also a major cost most competing LNG projects worldwide don’t have to deal with.
• Elwood Brehmer is a reporter for the Alaska Journal of Commerce. He can be reached at elwood.brehmer@alaskajournal.com.
