New direction for Alaska gasline ends in questions



The governor has spent the past two days in Jackson Hole, Wyoming at the Federal Reserve conference talking about sovereign wealth funds. With him was Lieutenant Governor Byron Mallott and former Attorney General Craig Richards.

Meanwhile, back in Anchorage, his pet project the Alaska gasline, was being scrutinized by the board of directors of the State of Alaska, also known as the Alaska Legislature. Like any good loan officer, they were asking: How does this get paid for? The response from Keith Meyer? An emoji shrug.

At the close of two days of detailed testimony and a parade of witnesses, the Alaska Legislature’s consultant, Nikos Tsafos of enalytica, gave a strong closing presentation, during which he raised questions for members of the House and Senate Natural Resources Committees to consider.

But before the committee members had assembled their paperwork and left the building, the governor had already fired off a press release with his directive: Now is the time to move ahead with a government-owned gasline project. The man knows what he believes when it comes to the gasline.

Tsafos didn’t indicate that a rush to judgment is merited. He pointed out that early on in the project’s history, during the writing of the SB 138 enabling legislation, there were two primary contacts — Joe Balash and Mike Pawlowski, who were with the Parnell Administration.

But since the Walker Administration took over, producers and consultants have dealt with a parade of people in charge: DNR’s former Commissioner Mark Myers, his Deputy Marty Rutherford, then Audie Setters, then the governor’s million-dollar man Rigdon Boykin, and then back to Marty Rutherford. Then Marty also quit. Now it’s Commissioner Andy Mack. There was AGDC’s Dan Fauske under Parnell, and now Keith Meyers under Walker.

Under the Walker Administration, the gasline team has been a fast-moving parade. Fair point, Mr. Tsafos.

Tsafos asked why, when there are so many permutations that a project could take, did Gov. Bill Walker take the project from a majority private sector project to something completely owned by the government.

The consultant asked rhetorically who the target investors are. He said he had not seen similar projects that had attracted investors, and that it’s reasonable for the Legislature to ask for examples in the world where such investors exist for this type of project.

He raised a red flag about risk, and stated that the direction that Gov. Bill Walker is taking the gasline project puts all the risk on the State of Alaska. “How far are you willing to for to get this project? How badly do you want it? If you are willing to lose $50 billion it’s very easy to build a $50 billion project.”

“I would be a lot more worried than I feel folks are worried,” he said of the governor’s plans for the Alaska Gasline Development Corporation. “There is a whole other world of what you are getting into. One should be a little skeptical.” He kept apologizing for his candid remarks, but he seemed to want to indicate that this project is bad.


Governor Walker issued a statement quickly at the close of the two-day hearing. He lauded the testimony of his consultant, “world-renowned energy analyst Wood MacKenzie on the viability of the current AK LNG project.  This independent analysis, contracted by our producer partners and AGDC, indicated that the traditional model of a producer owned and financed gasline is not likely appropriate given today’s market environment.  However, I was very pleased to see that there remains a strong potential for an economically viable Alaska LNG project, even at $45 /bbl oil prices, by exploring some of the alternate project structures currently being investigated by AGDC.  Alternate ideas such as third-party investors, project financing and other advantages resulting from a state led project could make the difference.”

But the Legislature’s consultant said that the market viability remains marginal, even after removing all income taxes and property taxes, as the governor envisions. Under the governor’s plan, Alaska would be giving up all of its taxing authority and would only be left with production tax and royalties.

Tsafos asked how much the State is willing to give up just to build this pipeline project

He might have also raised the a question about the constitutional obligation for the “maximum benefit” for Alaskans. Does the governor’s plan meet that fuzzy standard?

The governor continued on, “I am pleased the AGDC Board and staff continue to work with our industry partners and the Legislature to advance viable options that could bring billions of dollars of revenue to Alaska each year, while lowering the cost of energy state-wide.  If the AK LNG project can prove to be competitive on the world market, we would see untold advantages of what it would do to propel Alaska’s economy, well beyond the bounds of this project alone.

“What is most needed now is a collaborative cooperative spirit by all decision-makers and stakeholders to adapt to changing conditions and work together to determine if there is a viable path forward,” the governor said.

Unfortunately, Walker has not set up the conditions for collaboration and cooperative spirit with legislators, who have the power of the purse and may ultimately decide to defund the Alaska Gasline Development Corporation, at least for a while.

As one legislator said after today’s hearing, ” We’d be giving up our taxing authority and what will we have for collateral? It appears that the cost of the project is exactly the amount that is in the Alaska Permanent Fund. That should give everyone pause.”

The governor, however, was quick to say it’s a misconception that the project would be financed by the Permanent Fund.

“If economically viable, it will be financed by long-term purchase contracts secured before the first piece of pipe is laid, not by the permanent fund.  This is how projects around the world are financed and Alaska’s will be no exception,” he said.

Who would finance something for which you have no idea what the costs will be? As Tsafos told the committee, long-term contracts are not where the market is going these days.

The governor said, “Now is not the time to shelve that excellent work and start again at a future date.”

For a person who has said the number one priority is the fiscal situation and stability to be so cavalier about taking the state into $50 billion or more debt is troubling. It appears that no amount of information will dissuade him from his gasline dream.