Alaska Gasline Development Corp. President Keith Meyer laid out an ambitious list of “to-dos” the state needs to check off if it is going to lead the $45 billion-plus Alaska LNG Project to fruition at a board of directors meeting on Thursday.
Before the calendar turns to 2018 the project must be restructured to capture any and all potential tax and financial benefits available to a government-owned project, he said.
Meyer and Gov. Bill Walker have repeatedly said — although an official opinion from the Internal Revenue Service is still needed — they believe there is the potential to shave billions of dollars from the cost of the massive project with at least partial tax-exempt status that would be tied to having the state in the lead.
Also over the next 16 months or so it is “absolutely critical” that the project secures customers before other key elements can be resolved, according to Meyer.
“The sales process takes about a year if things go well,” he said.
Those customers could be the state’s current partners, the North Slope producers, in a fee-for-service or tolling scenario in which they would pay to use part or all of the project infrastructure — the North Slope gas treatment plant, the 800-mile pipeline or the Nikiski liquefaction facility. Or they could be more traditional Asian utilities or global LNG traders, Meyer surmised.
“At the end of the day we need customer contracts because those customer contracts are what underpin the financing,” he said.
AGDC and the Walker administration began investigating the prospect of shifting from the current equity share model for the Alaska LNG Project after it became apparent earlier this year that the confluence of depressed oil and LNG markets worldwide had at least one of the producers — ConocoPhillips — publicly balking at the idea to move forward with the massive investments needed to build the project or to spend its share of the costs for final engineering and design, or FEED.
That equity project structure has BP, ConocoPhillips, ExxonMobil and the state each owning a portion of the project equal to their share of North Slope gas reserves, which for the state would be 25 percent. A fiscal structure establishing the state share still has to be approved, and a decision has to be made whether to take the state share in gas (in kind) or in cash (in value).
For the state to enter a long-term tax structure for its ownership share a constitutional amendment would have to be approved in a state general election. In its current iteration the Alaska LNG Project would be the largest infrastructure project ever built in the United States.
The producers have all said to this point that they support efforts to commercialize North Slope gas, including the prospect of the state taking a larger role in the project.
Meyer and Walker are pitching a shift to a state-led project that would use third-party financing from backers willing to accept lower returns than the producers in exchange for the security of a long-term, stable infrastructure investment.
If sales contracts can be pinned down, Meyer said the next move would be to obtain equity investors, followed closely by secured lenders for non-recourse debt financing.
“The debt parties really don’t want to be engaged until you’ve got some of these other pieces in place,” Meyer said to the AGDC board.
The list concludes with finding an engineering, procurement and construction management, or EPC, firm to turn the more than 30,000 pages of environmental, technical and resource information the project has already gathered into a pipeline in the ground with massive facilities at each end.
“We need quality construction management firms. AGDC cannot manage this project on its own in terms of the construction aspect,” Meyer said.
He added that AGDC has already interviewed a couple firms over the last few weeks and will hold more meetings with “globally competent, large-scale (EPC) firms that have the competency not only to manage the project but to construct the project.” Only after all that would the formal decision to enter the FEED stage of the project be made, according to Meyer’s presentation.
He has also emphasized a state-led project would not mean the full-fledged, $2 billion FEED first envisioned for the AK LNG Project, but would likely entail a “FEED light,” with work spread schedules relying less on the regimented stage-gate process preferred by the producers.
While it has been the main Alaska LNG topic of discussion all summer, the official transition to a state-led project should start “around the Octoberish timeframe,” Meyer said, when an agreement resolving issues around land ownership for the LNG plant, all sorts of intellectual property and other matters is hoped to be signed.
“It’s paperwork, basically, that has to be done,” he said, describing the transition.
A quarterly project update to the joint House and Senate Resources committees has been scheduled for the afternoons of Aug. 24 and 25 at the Downtown Anchorage Legislative Information Office building.
AGDC Houston office approved
The AGDC board unanimously approved a resolution authorizing the corporation to open a Houston marketing office.
The State of Alaska entity needs a Texas presence because the project’s prospective LNG buyers from Asia all have offices there, in what has become “the energy capital of the world,” Meyer said. Board member and Labor Department Commissioner Heidi Drygas said she supports the idea but noted a foremost need to “keep fiscal restraint in mind.”
Currently, the Alaska LNG Project has a Houston office staffed with about 120 individuals. That office will shrink and potentially dissipate as the pre-FEED stage wraps up and the transition to the state lead occurs, according to Meyer.
He said the Houston space would primarily serve as a simple meeting space with requisite video conferencing equipment to allow Alaska personnel to meet with potential customers without continually flying back and forth.
The exact cost of the new office is unclear because the space has not been selected.
“This is going to be a very austere office, not a downtown high rise office,” Meyer said.
He added that it would likely have a “handful” of project management staff, a receptionist and the aforementioned meeting space. Some staff continuing to work on the project would be relocated to Alaska from Houston, Meyer said. Board vice-chair Hugh Short said AGDC should try to get as many of the project jobs in Houston to Alaska as it can.
“Our presence in Texas should be less than it is in Alaska,” Short commented.
Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.
