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Alaska Needs to Act Like A 'Sovereign' in Gasline/LNG Talks, Governor Says

For decades, multiple Alaska governors have tried to push through a pipeline to commercialize the state's North Slope natural gas. Gov. Bill Walker's strategy so far has been to keep a close eye on the project timeline and to emphasize Alaska's role as a "sovereign" in dealings with partners.

Walker told NGI that since the 1980s he has believed a pipeline and liquefied natural gas (LNG) export terminal that could access Asian markets were a better bet than a just a pipeline to carry gas to Canada and the Lower 48 states.

The AK LNG project as currently proposed includes a liquefaction plant and terminal in the Nikiski area on the Kenai Peninsula; an 800-mile, 42-inch diameter pipeline; up to eight compression stations; at least five offtake points for in-state gas delivery; and a gas treatment plant to be located on the North Slope (see Daily GPIMay 7, 2014).

The U.S. Department of Energy recently gave its conditional blessing to non-free trade agreement exports from the planned terminal (see Daily GPIMay 28). The project is a partnership of the state, the Alaska Gasline Development Corp., BP plc, ConocoPhillips, ExxonMobil Corp., and pipeline company TransCanada Corp. (see Daily GPIFeb. 11).

The state has arrived at the current plan after spending "lost decades on other options," Walker said.

"I think we have the right people at the table, and now it's a matter of...working out the commercial negotiations that are necessary...I've been perhaps a bit more aggressive on moving the schedule along because we need the gasline decision sooner [rather] than later.

"Right now the proposed track is to have the FEED [front-end engineering and design] begin in the second quarter of 2016, and we're looking forward to that process. We're working through details, and I have inserted myself into the process a bit and probably have three meetings a week on the LNG project."

Critics say Walker has also inserted a fly into the ointment by insisting that a proposed in-state gas pipeline could be scaled up to include LNG exports and stand as a backup to the AK LNG project of the producers and TransCanada should that project fall through (see Daily GPIMarch 4).

Opponents have said such a move -- intended to keep pressure on AK LNG backers and assert state sovereignty -- has muddied the waters around the No. 1 AK LNG project. Earlier this year Walker vetoed state legislation (HB 132) that was intended to block him from upsizing what is known as the Alaska Stand Alone Pipeline (ASAP) (see Daily GPI,April 2).

Growing the scope of ASAP has always been a backup, Walker said, and it still is. "We're still evaluating that [ASAP]. I think that will remain a sort of as an option probably until we either get it [AK LNG] into a FEED or certainly a FID [final investment decision]. There is only going to be one gasline. It also is a large-volume gasline...There's a lot of details that have to be worked out..."

And if the AK LNG project is the one that advances, partner TransCanada might end up not holding a stake in the project, according to Walker, who has expressed dismay that Alaska in the past has been a second to other project partners.

"I inherited a structure as governor that included TransCanada effectively in our seat at the table on the pipeline, the midstream portion of it," he told NGI, adding that the agreement in effect allows the state the option to buy out TransCanada's interest, with the first opportunity to do so by the end of this year.

"I'm in the process of having my gasline team evaluate the pros and cons of doing that," Walker said of the potential TransCanada buyout. "It would cost about $100 million to do that. I think it's important that Alaska, as a sovereign, has a seat at the table. I never have understood why we didn't have one to begin with....It's no reflection on TransCanada in any way at all. It's just a matter that I've long felt that Alaska needs a seat at that table."

Such a buyout could be the subject of a special session of the legislature this fall, Walker said. Another item that could be considered is an amendment to the Alaska constitution that Walker has said he believes is necessary before the state may enter into a long-term natural gas tax agreement with the producers. And he is also pondering whether the state should collect production royalties in-kind as natural gas or as a payment. Current plans call for payment in-kind.

The would-be gas producers have expressed doubt that a constitutional amendment is required to enable a tax agreement between themselves and the state. Putting such a matter before Alaska voters could be dicey as they have proven resistant to modifying the state constitution in the past.

Asked whether styling ASAP as an AK LNG backup and talking of amending the state constitution were ways of exercising leverage in talks with the project participants Walker said, "I'm not sure I'd use the word 'leverage.' I think it's a matter of Alaska taking control of our destiny. I've never been comfortable sitting back and letting others make decisions about the future of our state, and I think that's what has happened on the gasline issue. Really my approach is more as a sovereign acting like a sovereign.

"We very much need this project. It's not so much a matter of leverage as forward momentum on our schedule to get to a decision about building this project."

"The market is not going to sit back and wait for Alaska to come online. They're going to continue to sign long-term [LNG] contracts and we need to make sure we're in the queue for that."

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