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Tuesday, December 12, 2017
HomePolitics and PolicyChina takes all?

China takes all?

A LOOK UNDER THE HOOD OF THE JOINT DEVELOPMENT AGREEMENT

This won’t take long.

The six-page “joint development agreement” signed by the Walker Administration with China will be part of Monday evening’s agenda of the Alaska House Natural Resources Committee. It will be television worth watching because the governor has signed a pact with China on behalf of all Alaskans.

Hawkins

The meeting starts at 6 pm at the Anchorage Legislative Information Office in Anchorage, and Alaska Gasline Development Corporation President Keith Meyer will be the lead presenter.

Meyer has spent much of the year in China forging relationships. On Nov. 9, he and Gov. Bill Walker signed an agreement with the Chinese to build the AK-LNG project.

BUT IT’S A TWO PAGE AGREEMENT

Take out the cover page, and the signature page, and there are four pages left, and half is written in Chinese. Once the Chinese characters are removed, it’s a two-page agreement, and a quarter of that is made up of the “Whereas” clauses. It’s less substance than Alaska signed in an MOU with Korea earlier this year.

WHAT IT GIVES CHINA

The joint development agreement is a a nonbinding agreement to develop a binding agreement.

The agreement gives China 75 percent of the LNG coming out of the gasline that would run from the North Slope to Nikiski on the Kenai Peninsula for export, “on a cost-based and stable price utilizing the benefits of strategic financing and investment.” The other 25 percent would go to Asia.

Page 4 of the agreement gives the Chinese hope for even more: a real role in the manufacturing of the gasline.

Item 4 on the page describes “Potential for Sinopec’s involvement in engineering, procurement, construction, and project management opportunities and in the overall development of the Alaska LNG System (including, but not limited to, progressing detailed engineering and design work, procurement of equipment and facilities, modular fabrication, construction activities, project management).

By May, 2018, the agreement says that Alaska and China will have identified the ability for Sinopec to engage in aspects of engineering and construction.

Sinopec, owned by the Chinese government, has never actually built a pipeline. China has no ability to roll this type of steel needed for a pipeline. Currently, Korea, Germany, India, and Japan do have that capacity. But that’s a hurdle that can be overcome.

There is no mention of a project labor agreement, Alaska hire, or use of local manufacturers. Alaska’s labor unions have remained silent on the issue. Joey Merrick, President of the Laborers Union, sits on the board of the AGDC. Project labor agreements in a union-dominated state like Alaska is a essential: No gasline will be built without one.

QUESTIONS FOR AGDC’S KEITH MEYER

BUSINESS MODEL: What is the AK LNG business model? This is the largest project in North American history, to cost at least $40 billion, or as high as $60 billion, some say. The previous project had a business model, but there is none evident now. The state has simply gone from country to country and signed similar agreements to build the gasline.

Is it a tolling model, where state owns infrastructure and gets money from gas coming through it?

Is it a joint venture with a national company owned by another nation?

How does it make money for Alaska? Under what price scenarios?

AK LNG originally had state of Alaska owning 25 percent of the proceeds of a project that involved selling gas to world markets with three other companies, which own the molecules of gas. There were clear and proportional shares of the costs.

The answer is not that “It is a classic integrated project.” That is the project design. That is not what the question is.

It’s a banker’s question: What are the investments? Where do the funds come from? What is the cost of the money? How does it make money? What are the operating costs? Who are the owners? Who are the customers? Who owns the risk?

STATE OF ALASKA’S ROLE: What part does the State of Alaska play in this project? Are we a regulatory authority? Owner of gas molecule? Owner of ultimate infrastructure? Are we a debtor? What is our role in the partnership? To get the tax exempt status, will we have to retain ownership during the construction, but do we then turn over ownership to the Chinese?

MEASURING SUCCESS: What is the measurement of success for the State of Alaska? If you have a business model and you know what Alaska’s role is, you may be able to be answer this question.

LOCAL COMMUNITIES: Is the option of getting gas to Alaska’s communities even viable considering the expense of fitting the offtake points?

RISK: What is the scope of the risk? How much risk is too much risk? How much risk are is Alaska willing to take on? In the original AK LNG project, everything went back to the question of risk. The plan was to stage-gate the project to prevent politicians from getting the State too far out over its skis, and prevent us from being in a “no going back” position in a world where the markets were awash in cheap gas. Are we still using a stage-gated approach?

PERMANENT FUND EXPOSURE: Is the Alaska Permanent Fund being exposed, and does the governor still intend to use it as collateral?

TRANSPARENCY: Legislators who have asked to see the finances of AGDC are now being required to sign a confidentiality agreement. Why is the appropriating body of the people of Alaska not able to see the finances?

Candidate Walker was outraged at the confidentiality agreements of the previous AK LNG project. But it is more secretive than ever under his management.

Even in the signed agreement, the actual Chinese who signed the document are kept secret, their names redacted by black bars.

PRICE: The leaseholders have said they will sell gas to the project at the wellhead at a commercially feasible price. What does that price profile look like? Wood-MacKenzie said this is the least competitive project in the world. It appears in order for this project to pencil, the gas will need to be practically free. Is it the governor’s plan to offer a low-ball price and then sue the producers for the gas, since the state does not actually own the molecules?

LAWSUITS: Speaking of lawsuits, the agreement says the project will start in 2019 for a window of selling gas in the mid-2020s. But it’s likely to draw a lawsuit from the Sierra Club or World Wildlife Fund. Does the project still work in five or 10 years after the lawsuit is settled?

NONBINDING FOUNDATION CUSTOMER: Regarding the sole foundation customer agreement AGDC got in September, is that binding? What is the level of commitment? Does that customer have gas, or are they going to be a shipper? Who is it? What amount?

GOVERNOR’S CAMPAIGN BROCHURE: This week, Alaska Gasline Development Corporation published a glossy insert in newspapers around the state. The brochure is a result of AGDC polling Alaskans earlier this fall to find out what they needed to hear to support the project,. The brochure now attempts to address those resistence points and persuade Alaskans that the project indeed answers their questions and concerns.

In the brochure, Alaskans are urged to learn more from the Dept. of Labor “about opportunities and what role you can fill.”  Where does an Alaskan find such information?

The glossy brochure is found here.

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Written by

Suzanne Downing had careers in business and journalism before serving as the Director of Faith and Community-based Initiatives for Florida Gov. Jeb Bush and returning to Alaska to serve as speechwriter for Gov. Sean Parnell. Born on the Oregon coast, she moved to Alaska in 1969.

Latest comments

  • Very interesting questions posed. Do not expect answers from our administration, however. Walker is doing and saying whatever he thinks will get him a second term. He will also take credit for development of the petroleum reserves on the north slope if they get approval. Problem is, that most Alaskans see through this slight of hand smoke and mirror approach. The letter of understanding will have a short half life and expire when Walker’s term ends in early 2018. Alaska and our country will never allow China to take 75% of our gas and turn over design, construction, and sale to a communist country that is a serious threat to world peace and which abuses human rights.

  • So tell me again why these clowns are runing our state???

    • Because a bunch of clowns elected Walker. Its proof if you try hard enough you eventually might end up governor, especially if you run in all parties.
      Party loyalty is a joke, personal gain and progressive globalism is the new political aim Walker is a fraud!!!
      First he bowed down to the Chinese President, now he sticks his mug out in the photo to let all Alaskans see him. He sure makes an ars out of himself!

  • In this gas line construction effort Bill Walker is very much like the guy who gathered up a herd of mice, and cut off their tails to show that the next generation of mice would then be born without tails. We all knew that the tiny, naked and blind baby mice would have tails, but we thought surely Walker knows that. Therefore we kept our mouths shut. Even when an Alaska State Senator proposed spending $50 million appropriated to the gas line on state troopers, prosecutors and education instead of the gas line we kept our mouths shut and that proposal was not adopted. Now Bill Walker is saying, “Look, those little tails really are smaller. It worked!” We have learned nothing about mice or the gas line but we can see that Juneau is happy to keep spending one-time financial reserves on the gas line. Are we going to wait to measure the tails on the next generation of mice? Are we expecting that one day AGDC President Keith Meyer will say, “Look, you Alaskans are paying me $750,000 a year to measure the tails on mice and that is a waste of money?”

  • Is the cost of a commitment to China worth it to each (including children) Alaskan?
    I read that the State of Alaska is spending $3 million a month on promoting the gas line. This doesn’t include what Walker has spent in secret!

    Are Alaskans ready to spend $400.00 per person per month to have a gas line by 2030 or whenever at the current rate of spending? So a family of 4 will be spending $2,000.00 per month. I wish I had a open checkbook with NO LIMITS.

  • These are very relavent questions that each must be answered completely by Walker/legislature, before Alaska citizens’ could ever take an informed position on this pipe-dream scheme. The profit math, and any associated benefits to Alaska does not add up to anything at this stage of developement. The State should be very sceptical of what Walker is pushing. Even with just a private investment backing this project, expect a much higher cost than what is being tossed about at this time. No to State building this thing.

  • How do you call it a joint venture when China and Asia gets 100% of the LNG? Please someone Stop this. All our natural resources are getting sold down the road and we get ZERO UNDERSTAND ZERO? Get that bunch of thieves out of there before they sell Alaska to them for a price. Come on people.

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