Gov. Bill Walker has ordered a 45-day review of the state’s participation in the Alaska LNG Project with an eye toward possible changes in the partnership with North Slope producing companies and TransCanada Corp.
In a speech April 1 to Commonwealth North, an Anchorage business group, Walker said he had received the consent of the industry partners for the review, which would be done under terms of confidentiality.
The governor acknowledged he did get some pushback, however.
“There were more discussions with one company than the two others,” among the producing companies, he said, but did not say which one.
BP, ConocoPhillips and ExxonMobil are partners in the deal along with pipeline company TransCanada, with ExxonMobil acting as project manager in the preliminary front-end engineering and design, or pre-FEED, effort now underway.
Company officials were cautious in their responses to the governor’s announcement.
ExxonMobil spokeswoman Kim Jordan said, “We have spoken with the governor but we do not comment on our discussions with public officials.”
BP spokeswoman Dawn Patience said, “We’ve always supported the state being involved in this on an equal basis,” but would not comment on the governor’s review of the project.
One company official, asking not to be identified as he is not authorized to make official statements, said the governor is entitled to review project details at any time because the state is a full partner in the gas project as a 25 percent owner of the gas to be shipped through the pipeline.
“We have no problem with this as long as the participants sign the appropriate confidentiality agreements,” the official said.
The concern is what changes the governor may ask for after the review, he said.
In his speech Walker said, “I want our team to look deep into the details of the project. After that, we will determine what to do.”
The governor is assembling a group of advisors to do the review, but he did not identify who he would ask to participate.
Grace Jang, Walker’s press secretary, said the team participants are being chosen based on their experience with large projects. They will be paid for their work, she said.
“We expect to begin soon, before the end of the legislative session,” which is April 19, the governor said.
Larry Persily, former federal gas coordinator for Alaska and now an oil and gas advisor to the Kenai Peninsula Borough, said he is concerned that uncertainties raised by Walker’s 45-day review could upset the timeline for the current negotiations.
“It’s April now, so if we do this review he (the governor) would get the conclusions in mid-May. With that delay it’s hard imagine the negotiating teams wrapping things up in time for a special session in the fall,” Persily said.
Legislators have discussed a special session this fall to ratify several agreements for the project.
“This isn’t fatal but these delays can be cumulative,” Persily said. “We all have our eyes on the target of a decision to move to FEED in 2016 and if we can still do that (with the added 45-day review) there should be no problem.”
However, if the governor seeks substantial changes to the partnership deal it could cause more delays, Persily said.
The current schedule has the partners, including the state, making the decision to move to full Front-End Engineering and Design in mid-2016, but the partnership agreement allows the decision on FEED to be made anytime in 2016.
However, another pending decision is a December deadline for the state to sign a long-term contract with TransCanada Corp. to move state-owned gas, which is 25 percent of the total production, through TransCanada’s share of the pipeline and Gas Conditioning Plant on the North Slope.
The schedule now calls for a final investment decision to come in 2018, which would allow the project to be constructed and operating by 2024.
The governor’s announcement of a review of the project comes amid a heated dispute with the state Legislature about the governor’s instructions to the state gas corporation, the Alaska Gasline Development Corp., to scale up a smaller state-led North Slope gas pipeline that is planned as an alternative to supply gas to Alaska communities in case the large Alaska LNG Project fails.
The governor has asked AGDC to develop a plan for a pipeline that would move up to 2.6 billion cubic feet per day of gas from its current design of 500 million cubic feet per day.
While the two decisions — the scale-up of the small state-led gas project and the new review of the large industry-led partnership — appear not to be connected, legislators who are criticizing the governor for scaling up the state pipeline say the timing of the decisions appear more than coincidental.
Legislators argue that the scaled-up state pipeline plan could be viewed by industry partners in the large project as the state veering off to a competing project.
In his speech to Commonwealth North, Walker said he has assured the large project partners he won’t pursue a competing project and that he remained committed to the joint-venture.
The intent is to do planning and engineering for a scale-up and then let things sit until the industry partners and the state agree in 2016 whether or not to take the large project to the FEED stage, Walker said in his speech.
However, House Speaker Mike Chenault and Senate President Kevin Meyer had asked Walked to hold off spending money on the new engineering for a year until the FEED decision. The state gas corporation has $180 million available to do the work.
Walker told Chenault and Meyer “no,” that he didn’t want to lose a year of doing no work on the fallback project.
In response to that, the Senate passed House Bill 132, approved earlier by the House, blocking the governor from spending any of the the $180 million on the backup project.
Walker is defending the plan to scale-up the state-led pipeline.
“I’m not comfortable going into negotiations (with industry partners) without a more viable backup plan,” meaning a larger, more viable state project, he said. “The industry partners have options for other projects and so should we.”
The political dustup is viewed by many as arm-wrestling between Walker, a political independent who took office in December, and the Republican-led Legislature, but the effects are rattling industry partners in the gas project who are unsure of the governor’s intentions.
The controversy also comes at a time when the Alaska gas project is reaching a critical point. Basic terms of the partnership among industry partners and the state were agreed last year, to the point that the industry partners and the state agreed to undertake the $500 million in pre-FEED work.
The pre-FEED will also update cost estimates, which are now estimated at between $45 billion and $65 billion. As now designed the project would produce 15 million to 18 million tons of LNG per year for export markets.
However, key elements of the partnership with the state are still to be negotiated, including an agreement between the producing companies and the state on fiscal terms on gas production covering tax and royalty administration.
That negotiation is expected to be completed this summer.
Separately, the state needs to sign a contract with TransCanada later this year for the pipeline company to ship state-owned royalty gas, about 25 percent of the total production, through TransCanada’s share of the 42-inch pipeline.
The Legislature will have to approve both the contract on fiscal terms and the shipping contract with TransCanada and a special session of lawmakers is tentatively planned for later this year to do that. Walker’s actions may change that, however.
Walker said in his speech that he still supports the larger Alaska LNG Project and wants to keep it on schedule.
Tim Bradner can be reached at tim.bradner@alaskajournal.com.
