Walker says state won’t put more money into Alaska LNG

Alaska LNG involves an 800-mile, 42-inch gas pipeline from the North Slope to south Alaska along with a large natural gas liquefaction plant at the southern end of the pipe, on the Kenai Peninsula south of Anchorage, and a large gas treatment plant on the North Slope.

If built, the project would cost more than $40 billion and would export up to 20 million tons per year of LNG to export markets, although the state’s Alaska Gasline Development Corp. is exploring alternatives for starting up at a smaller scale.  

AGDC did receive informal proposals last week to reserve capacity in the project from two North Slope producers but those fall short of what the governor is expecting. The proposals are not binding and will be used mainly for project planning, AGDC spokeswoman Rosetta Alcantra said.

Walker has been the gas project’s biggest booster and his comments were uncharacteristically downbeat. The governor recognizes the state’s difficult financial situation, however, with multi-year budget deficits fast draining state reserve accounts.

“I’m doubtful that we can continue the project without firm commitments,” once the present state appropriation for the project is exhausted, Walker said. “If we can’t get engagement from the market we can’t go back to the Legislature to ask for more money. If we can’t get engagement we just move on,” the governor said.

The state previously partnered with three major North Slope gas owners BP, ConocoPhillips and ExxonMobil on doing preliminary engineering work, spending about $600 million, one fourth of it the state share. The companies withdrew from the project two years ago citing poor market conditions, but AGDC elected to continue marketing efforts along with work on an application to the Federal Energy Regulatory Commission.

The state corporation is using funds appropriated by the Legislature two years ago, and state budget officials said recently AGDC has about $70 million of that left. The three gas owners say they are supporting the state in its continuing effort and BP and ConocoPhillips are lending technical assistance, but they are not investing more money.

The state is meanwhile continuing to pay some FERC expenses on the application and will start paying a lot more once FERC begins work on an Environmental Impact Statement, which is expected next year.

If the state puts Alaska LNG on the shelf there will still be efforts to find makets for the estimated 35 tcf of gas reserves confirmed on the North Slope.

“Some people are starting to talk about direct-shipping of LNG from the slope,” with the Arctic Ocean becoming more navigable due to melting of the icepack, Walker said.

The governor said he has also been briefed on two proposals to use gas to manufacture chemicals for local use on the slope so chemicals don’t have to be trucked north. Another company is exploring an option to make fuel products for local use along with a larger volume of synthetic crude oil that could be blended with conventional crude in the Trans Alaska Pipeline System.

Because it is lighter, the synthethic crude would enhance the value of the TAPS throughput, persons familiar with the proposal say.

On other matters, Walker said he will soon issue a formal proclamation calling the Legislature into another special session later this fall. The governor did not identify what revenue measure he will introduce other than it will be a “broad-based tax.”

Responding to questions from RDC member about taxes on specific industries like mining or fisheries, the governor said there would be none.

“Two years ago I introduced a comprehensive fiscal plan that involved eight pieces of legislation,” included proposed tax increases on minerals, fisheries, alcohol and fuel. None of them passed.

More recently the governor advanced a plan to completely pay off $700 million in unpaid oil and gas tax credits to petroleum explorers, he said. “In the end we couldn’t do this while we were closing down state facilities,” and cutting state programs, Walker said.

Instead the state is making incremental payments on the debt at the minimum legal requirement, which is about $70 million this year.

Walker said the state has actually made progress on the fiscal issue, making about $1.7 billion in budget cuts over the last two years and shrinking the deficit from $3.7 billion to $2.5 billion over the same period.

If the Legislature were to pass the governor’s proposal to use a portion of Permanent Fund earnings for the budget the deficit would shrink to $700 million.

Both the House and Senate have passed different versions of bills allowing use of Permanent Fund earnings but a final bill was not enacted this year.

In his talk to RDC the governor was upbeat about other resource industries. The 2017 salmon harvest is excellent and prices were good, he said. The fish runs were so large in some areas, like Bristol Bay, that processors were short of workers, Walker said.

“Processors are telling me, ‘we need more people,” the governor said.

In an experimental program the state released 50 prison inmates to work in seafood plants in controlled, secure environment. “They (the processors) told me it worked out well, that they are good workers. These prisoners earned money to contribute toward restitution,” Walker said.

The seafood process program could be expanded next year, the governor said. The state now allows prisoners to work at the Mt. McKinley Meat and Sausage plant in the Matanuska-Susitna Borough, which was formerly state-owned but which is now in private ownership.

Walker was very upbeat about agriculture, too, possibly reflecting his years growing up on a homestead at Delta. He urged RDC members to participate in the Division of Agriculture’s “$5 a week” program in buying Alaska-grown products in grocery stores.

“If all Alaskans did this we could add $180 million a year to the state’s economy,” he said.

“When Alaska became a state we grew 50 percent of the food we consumed. Now we grow only 5 percent,” Walker said. He lauded experimental programs now underway in rural communities like Kotzebue and Dillingham to grow vegetables for local consumption.