AK LNG talks ‘unlikely’ to meet deadlines

  • By ELWOOD BREHMER
  • Thursday, February 11, 2016 8:38pm
  • News

A lack of progress in negotiations between the state’s producer partners on major Alaska LNG Project agreements is likely to throw the project off schedule, according to a key member of the Walker administration.

Deputy Department of Natural Resources Commissioner Marty Rutherford said in an interview that BP, ConocoPhillips and ExxonMobil are still working on the structure of the Alaska LNG Project’s critical Gas Balancing Agreement after more than a year of negotiations.

Rutherford is the state’s lead negotiator for commercial terms on the project, Gov. Bill Walker has said.

The Gas Balancing, or gas supply, Agreement is the underpinning contract for at least seven more issues that must be resolved within several months to keep the project on track, according to the administration. It provides a framework for the companies — each with a different share of North Slope natural gas dedicated to the project — to pull their gas from the fields at certain times without upsetting the overall operations of the project.

Even if the Gas Balancing terms were reached immediately, she said, it would still be “highly, highly unlikely” that all the agreements could come together in time because it still takes months to finalize agreements met in principle.

Rutherford noted she always thought the Alaska LNG Project commercial terms would be wrapped up in time for a spring 2016 special session, but she also characterized the general challenge of several-party negotiations, regardless of the topic.

“Two-party negotiations are tough; three are very difficult and four are — it’s hell,” she said.

Company representatives acknowledged the slow pace of the negotiations in recent testimony before state legislative committees.

Gas supply agreements are common in joint-venture LNG projects, but disparate ownership in the Alaska LNG Project’s two major gas fields, Point Thomson and Prudhoe Bay, makes this negotiation particularly challenging, ConocoPhillips Vice President of Commercial Assets Leo Ehrhard told the Senate Resources Committee Jan. 27.

The agreement dictates how gas is “lifted” from the field under normal operations, but also during downtimes for maintenance on one field or the other. Gas draws must also jive with when customers want LNG from the $45 billion-plus export project, further complicating matters.

On top of all that, each party comes to the table with differing risk perspectives and policy goals in a time of particular financial stress, given the state of world oil markets, Rutherford noted.

“There have been some pieces we haven’t even begun (negotiating) yet because the foundational, what I call the threshold agreement, hasn’t been landed, even structurally,” she said.

Walker sent a letter to the company leaders in Alaska on Jan. 18 expressing his concern over the lack of progress. He said the state would seek other alternatives to commercialize its gas if the parties don’t reach an agreement by the end of the regular legislative session, which is in late April.

The governor has said for several months he hoped to have a comprehensive set of project agreements in place for the Legislature to review late in the regular session so a special session to vote on the agreements could be held shortly thereafter.

A special session would also include a vote on a constitutional amendment needed for the state to enter into long-term contracts — tax policy — for the initial 25-year life of the project. The Alaska Constitution prohibits one Legislature from taking the authority to tax away from future bodies, which locking the state into a 25 percent share of the project’s gas would seemingly do.

“There is an absolute certainty that a constitutional amendment is needed if the fiscal agreements that the producers want contain the Legislature suspending their power to tax,” Attorney General Craig Richards said to the Senate Resources Committee Jan. 29.

Richards noted many, if not most, states have similar clauses in their constitutions. He also said the Stranded Gas Development Act, an earlier attempt to monetize North Slope natural gas, included fiscal terms that would have required an amendment as well.

Because the public must vote on the amendment in a general election, the Legislature’s vote needs to happen in time to get it to the Division of Elections before June 23, the deadline for getting it on the November ballot.

If any of that falls apart, the project is all but delayed for at least two years until the 2018 general election.

The timeline was imposed by the producers’ prerequisite to have fixed project tax terms, Rutherford said, which added deadlines for the fiscal term sheets and the subsequent constitutional amendment.

Ehrhard also said the agreements are necessary for the project to enter the full-fledged front-end engineering and design, or FEED, stage. The decision whether to enter FEED has been expected sometime next year.

“We’re working hard to try to get breakthroughs on all fronts with the hope that the unlikely could happen,” Rutherford said. “We’re totally focused on trying to make these dates.”

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

More in News

Kenai Fire Marshal Jeremy Hamilton is seen by one of Kenai Fire Department’s Tower trucks on Friday, Sept. 30, 2022 at Kenai Fire Department in Kenai, Alaska. (Jake Dye/Peninsula Clarion)
‘Get up, get out and get safe’

Kids taught about fire safety as part of prevention effort

Bob Bird, left, chairman of the Alaskan Independence Party, and former Lt. Gov. Loren Leman make the case in favor of a state constitutional convention during a debate in Anchorage broadcast Thursday by Alaska Public Media. (Screenshot from Alaska Public Media’s YouTube channel)
Constitutional convention debate gets heated

Abortion, PFD factor into forum.

Carol Freas (right) helps a voter fill out absentee election materials in Kenai City Hall ahead of the Oct. 4 municipal election on Thursday, Sept. 29, 2022 in Kenai, Alaska. (Ashlyn O’Hara/Peninsula Clarion)
Absentee voting already underway

Absentee in-person voting has been made available across the borough

Graphic by Ashlyn O’Hara
Graphic by Ashlyn O’Hara
What’s on the ballot: Reapportionment, new field house, school bond

Voters will decide on ballot measures that address schools, public safety and legislative bodies

Cars line up ahead of dismissal at Mountain View Elementary School on Thursday, September 29, 2022, in Kenai, Alaska. A bond package up for consideration by Kenai Peninsula Borough voters on Oct. 4 would fund improvements to the school’s traffic flow. (Ashlyn O’Hara/Peninsula Clarion)
‘Critical needs’: Parking lot problems

Lack of space for pickup and drop-offs creates traffic jam at elementary school

Soldotna Elementary School Principal Dr. Austin Stevenson points out elements of the school building on Friday, Sept. 30, 2022, in Soldotna, Alaska. (Ashlyn O’Hara/Peninsula Clarion)
‘Critical needs’: Aging school on the brink

Renovations are cost prohibitive at Soldotna Elementary

Rep. Mary Peltola, an Alaska Democrat, delivers a speech on the U.S. House floor before Thursday’s vote approving her first bill, establishing an Office of Food Security in the Department of Veterans Affairs. It passed the House by a 376-49 vote, although its fate in the Senate is undetermined. (Screenshot from official U.S. House video)
Poll: Peltola’s a popular pol

Food for vets bill passes House, pollster says she is “the most popular figure in Alaska right now.”

A parking sign awaits the new executive director of the Alaska Permanent Fund at its Juneau headquarters, Three finalists will be interviewed for the job during a public meeting Monday by the fund’s board of trustees, who are expected to deliberate and announce the new director immediately afterward. (Mark Sabbatini / Juneau Empire)
Interviews, selection of new Permanent Fund CEO set for Monday

Three finalists seeking to manage $73.7B fund to appear before trustees at public meeting in Juneau

Principal Sarge Truesdell looks at cracked siding outside of Soldotna High School on Tuesday, Sept. 27, 2022, in Soldotna, Alaska. The siding is one of several projects in a bond package Kenai Peninsula voters will consider during the Oct. 4 municipal election. (Ashlyn O’Hara/Peninsula Clarion)
‘Critical needs’: Split siding at SoHi

The damage has been given patchwork treatment over the years

Most Read