My Turn: Will Alaska cash in on its natural gas?

  • Wednesday, September 30, 2015 1:16am
  • Opinion

A recent Brookings Institution policy brief explored the impact that a cumbersome, and perhaps unpredictable regulatory environment coupled with massive capital investments, could have on the future of American liquefied natural gas exports. The brief noted there were 21 domestic export projects either underway or in the planning stages, plus an additional project being considered in Alaska. The report noted that while demand for LNG remains high abroad, particularly in Asia, other countries are already racing to meet that demand. The brief concluded “going forward, despite the presence of abundant resources worldwide, we believe it will be increasingly difficult to finance new LNG projects, due to high upfront costs in combination with a substantial number of uncertainties which influence supply and demand.”

It is clear that global uncertainty, particularly as it relates to oil prices and therefore capital expenditure budgets for major energy producers, has cast doubt on the viability of American LNG export projects. However, there is a case to be made that one project in particular has a unique opportunity to meet Asian demand: the proposed Alaska LNG project.

In many regards, Alaska remains uniquely situated to develop and commercialize its vast gas resources to markets abroad. First, there is a gas resource the size of at least 32 trillion cubic feet on Alaska’s North Slope. Second, Alaska’s location is closer in proximity to growing Asian demand than any other proposed project in the U.S. And recent investments to develop Point Thomson’s gas fields, coupled with decades of development at Prudhoe Bay, demonstrate that gas reserves on the North Slope are proven and won’t necessitate costly exploratory drilling. The proposed Alaska LNG project, where some estimates could cost more than $50 billion, may end up being the largest energy infrastructure project in North America when built.

But in order for the project to move forward, Alaska’s government, a partner in the project, must commit to supporting its advancement. So far, the messages have been mixed at best.

Just to the south, British Columbia is set to make history this month. The provincial legislature is set to debate authority for the premier to approve a $36 billion investment by Petronas as Pacific NorthWest LNG, and kick start decades-long energy investments in the province. For years, the governments of the province have put in place legislation to attract energy investment and grow British Columbia’s economy and employment. The LNG industry as a whole in British Columbia is expected to create over 100,000 jobs, as at least one LNG project would be up and running by 2015, and that five would be in operation before 2020. There are currently 18 projects in various stages of construction and planning.

Making energy a legislative priority isn’t done only for the sake of cozying up to industry for political capital — it’s essential to minimizing the risk both private investors and energy producers are taking when a project of such a large scale is proposed. In Canada, the government is acting as a partner by minimizing risk, enabling the development of natural resources and encouraging economic growth. Here in the United States, that’s exactly what Alaska must now do.

In June, the current Alaska administration released a letter expressing concerns about existing framework of the Alaska LNG project, signaling that additional political roadblocks could impede further progress. Political statements like these are seen as risks to investors, and in turn, it risks the state’s future diversified economy. In August, there were news reports that the Alaska government was looking to change its stake in the final project, and could even threaten a new tax on the energy producers if they will not comply. To minimize those risks, Alaska’s government should signal to production companies through supportive legislation and political commitment a willingness to act as a partner on this project. Already, there have been years of work and two signature pieces of legislation advanced to move the project forward. Further delay could imperil the success of the project, particularly given the current era of global uncertainty that the Brookings Institute brief outlined.

Natural gas development, both for export or in-state consumption, has been an issue for decades in the Last Frontier. All parties, including the Gov. Bill Walker’s administration and the Alaska Legislature, have responsibilities and commitments to make in order to keep costs for suppliers and investors down for the AKLNG project. Alaska’s resource, proximity to Asia and decades of experience are known quantities. But political uncertainty remains a potential obstacle.

• Guy F. Caruso served as administrator to the Energy Information Administration from July 2002 to September 2008.

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