Walker reflects on gasline effort as term winds down

  • Gov. Bill Walker smiles as ExxonMobil Alaska President Darlene Gates signs a gas sales agreement with the state to supply the Alaska LNG Project. As Walker's term winds down he said in an interview he's proud of the progress made over his four years in office and hopes the incoming administration will keep its momentum going. (Photo/Courtesy/Office of the Governor)

Bringing all of Alaska the benefits of lower cost natural gas has been Gov. Bill Walker’s career mission.

He often recalls being told as a young carpenter wrapping up work on the Trans-Alaska Pipeline System to get ready for work on a gas project. That was more than 40 years ago.

And while he won’t be in office to shepherd it across the finish line, during his four years as governor Walker has helped Alaska get closer than ever before to finally building “the gasline.”

“Obviously we’d like to be laying pipe, but that’s not realistic,” Walker said during an interview in his Anchorage office. “I think some very significant things happened during our four years. Most significant is the producers recognized that they would be in better alignment if they were selling gas or shipping gas rather than owning a piece of pipe. That’s more typical; that’s the norm.”

In its current form, “the gasline” is the $43 billion Alaska LNG Project, initiated by his predecessor, Gov. Sean Parnell and transformed by Walker’s administration.

The original Alaska LNG plan, similar to several gasline proposals before it, positioned the “big three” producers — BP, ConocoPhillips and ExxonMobil — to own much of the project and invest heavily in it while the State of Alaska took a minority role both in project ownership and development.

That was less than five years ago, but the global LNG business has changed drastically since. Lower 48 shale-sourced oil and natural gas flooded markets and changed energy economics. Once a high-value, niche market, the LNG trade is suddenly a booming but intensely competitive realm.

Walker and his hand-picked choice to lead Alaska LNG, Alaska Gasline Development Corp. President Keith Meyer, have continually stressed that the project is not the proper space for the producers as the economics simply don’t add up to the high rates of return large oil companies typically demand for their investments.

Then, in early 2016, when oil prices were bottoming out at less than $30 per barrel and the companies and the state alike were just trying to stay afloat, they presented Walker with an opportunity. The State of Alaska could take over the project or allow the producers to shelve it on the hope markets would eventually rebound to meet their return requirements.

For the governor it was a beacon of light during one of the worst storms the state had ever seen.

“When they came to me on their very own and made that proposal I — man, I get chills just thinking about that moment when they made that request and I was so happy to accept,” he recalled. “That was the game-changer by far when they made that proposal.”

Walker’s team has been in overdrive since. The state has received letters of interest from 15 potential gas buyers, AGDC officials repeatedly tout, although they won’t discuss most of them.

“That really allowed us to represent Alaska in a very different way with this project,” he says of the change in structure. “Because of that we went from a regional project to a statewide project to a national project to a world project. We went on the world stage.”

While many Alaskans disagree with Walker’s state-led approach to the gasline, on that point there is little debate.

On Nov. 9 of last year Walker and Meyer signed a joint development agreement with Chinese oil and gas giant Sinopec Corp., a potential anchor Alaska LNG customer, and the Bank of China and China Investment Corp. as potential financiers.

The JDA, as it is known, was far from a firm contract — those negotiations are ongoing — but the fact that it was one of a select group of trade agreements signed in Beijing in front of President Donald Trump and China President Xi Jinping proved up the legitimacy of the Alaska project on the world stage.

Walker added that it was a personal honor for him to host BP’s Bob Dudley and ConocoPhillips’ Ryan Lance in Juneau for lengthy gasline discussions following the JDA signing. He later met with ExxonMobil CEO Darren Woods in Washington, D.C.

The JDA also gave Walker and AGDC cabinet-level contacts in the Trump administration, which sees the project as a major step towards balancing the country’s trade deficit with China.

He said Treasury Secretary Steven Mnuchin recently called him wanting to discuss the project and asked the governor “Where should I land?” on a trip back to Washington, D.C. Walker agreed to meet him in Fairbanks.

“That’s the kind of attention this project now has. It is a world-class project,” Walker said.

Under Walker, AGDC also began the permitting process for the Alaska LNG Project in April 2017, another major gasline first. The Federal Energy Regulatory Commission is expected to publish the first draft of the project’s environmental impact statement in February of next year.

A record of decision is expected soon on the smaller, in-state Alaska Standalone Pipeline, or ASAP, project from the U.S. Army Corps of Engineers, but the economics of that project are highly questionable, officials acknowledge, given it does not have the export sales component.

Instead, ASAP is generally seen as permitting support for Alaska LNG given it follows about 80 percent of the big project’s route bisecting Alaska from Prudhoe Bay to Nikiski.

Walker highlighted that his administration has done this on a shoestring budget while also trying to pull the state out of multibillion-dollar budget deficits.

“We never asked for any money from the Legislature over these four years. (We used) the money that came with the project,” he said.

Going forward, he wants Alaskans to focus on the benefits lower cost energy could bring to Alaska and not solely what the project returns to the state’s coffers. Early estimates suggested Alaska LNG could be a yield upwards of $2 billion per year for the state; however, under the new, more realistic, according to Walker, project structure AGDC estimates it will generate roughly $250 million per year in revenue at least until the financing is paid off.

“It’s an absolute game-changer for our future. Plan B is so far down the hill from what this would do for Alaska, especially on the mining side — my goodness. Classic example is Red Dog (a lead and zinc mine in Northwest Alaska). They burn 40,000 gallons of diesel a day and I asked them what would happen if they had a six-inch gasline coming over to their facility,” Walker said, adding fuel is currently barged and then trucked 54 miles to the mine site.

“They just pointed to every mountain and said ‘we’d mine that mountain, we’d mine that mountain, we’d mine that mountain.’ So the mining industry has the most to gain from this project with what I call collateral benefits.

“That’s what has really driven me over the years. It’s not just shiploads of LNG over to Asia; it’s really what happens on the way. I think that pipeline should look like a centipede when it comes down through Alaska with as many offtakes as possible so every community, every village, every industry, every mine has the opportunity for low-cost energy.”

He continued to note that Alaska’s state ferries, which operate at a significant cost to the state, burn diesel, while British Columbia burns LNG in its ferries.

“The list goes on and on as far as the collateral benefits; so that‘s what really has gotten me and kept me excited with this opportunity,” he said.

Walker said he hopes the incoming administration of Gov.-elect Mike Dunleavy will continue to accelerate the project — with the acknowledgement it will soon need funding either from the Legislature or outside investors — and he’s ready to do whatever it takes to help in that effort.

Walker said he wants to introduce Dunleavy to many of the LNG industry and world leaders he has met through the Alaska LNG work.

“It’s not just all about number crunching; that’s important, but it’s also about relationships,” he said. “In this world, of this kind of volume of financial commitment, relationships are important and I want to make sure that they have every opportunity to pick up where we’ve left off and move forward. Whether they’re interested in that is up to them but I’m certainly going to extend that offer.”

Dunleavy, for his part, is consumed with everything that’s needed to prepare a new governor to take the helm of a state and he’s chosen former Gov. Parnell to advise him on the gasline during the transition.

Dunleavy takes office Dec. 3.

Parnell wrote via email that he has had several meetings lasting three-plus hours each with AGDC officials. He said the corporation officials have been very helpful in providing information and materials under a confidentiality agreement.

Additionally, Parnell said others with ideas for the gasline such as legislators and representatives from the producer companies have asked to speak with him.

As of Nov. 20, Parnell was still working to compile and summarize the initial information Dunleavy asked him to gather, so the governor-elect and his leadership team had not yet been briefed.

Walker said some of the pessimism from legislators and other industry experts regarding the prospects of the Alaska LNG Project has likely been an unfortunate result of his involvement and well-publicized enthusiasm for a gasline.

“We’ll see what happens this session but I certainly hope they stay the course on the permitting, that we’re able to sort of expedite a bit with the help of the small line,” he said. “I think there’s reason to be optimistic, absolutely.”

Elwood Brehmer can be reached at [email protected].

11/20/2018 - 10:25am