Alaska’s natural gas megaproject is moving forward.
With a 39-0 vote, the Alaska House approved spending $161.25 million to advance the AKLNG project, which promises to bring natural gas from the North Slope to an export terminal at Cook Inlet.
Much of that figure will be used to end the state’s relationship with TransCanada, the Canadian firm that has been financing the state’s share of the project.
Rep. Louise Stutes, R-Kodiak, was absent from the House on Wednesday and prevented House Bill 3001 from being unanimous.
“Although the TransCanada buyout might have been contentious, once we got here, we realized it was the right thing to do,” said House Majority Leader Rep. Charisse Millett, R-Anchorage.
Rep. Jim Colver, R-Palmer, best summarized the decision before the Legislature in his speech before the final vote: “Financially, for me this is a no-brainer. Pay now or pay later plus 7 percent,” he said, referring to the interest rate charged by TransCanada.
The vote effectively ends the Alaska Legislature’s third special session of the year. The House was expected to gavel out after its vote, and the Senate is expected to gavel out Thursday.
“I can’t help but feel we are at the cusp of a major achievement,” said Rep. Cathy Muñoz, R-Juneau.
AKLNG is expected to generate as many as 10,000 construction jobs if work begins in the mid-2020s, and current estimates indicate the state will earn about $1 billion to $1.2 billion per year in revenue once gas begins flowing.
“I see no other way we can continue to pay the state’s bills without this pipeline,” said Rep. Mark Neuman, R-Big Lake, and chairman of the House Finance Committee.
As envisioned, AKLNG includes construction of an 800-mile natural gas pipeline from the North Slope to an export terminal on the Cook Inlet at Nikiski. It has been estimated to cost $45 billion to $65 billion, and the state has partnered with North Slope oil and gas companies BP, ConocoPhillips and ExxonMobil to pay that price and build AKLNG.
“This is a megaproject,” said Rep. Liz Vazquez, R-Anchorage. “It will upon completion … supply 5 percent of the LNG supplies in the world.”
The state’s share of the project is estimated to be between $12 billion and $18 billion, and in return for spending that sum, it takes one-quarter of all gas that flows through AKLNG.
To avoid paying up front for its one-quarter share in the project, the state entered into a contract with TransCanada. Under the terms of the agreement, TransCanada pays all of the state’s direct costs until construction begins, then half of the state’s share of construction costs. In return, the state gives TransCanada a cut of its revenue once gas starts flowing.
If the pipeline deal were to fall apart for any reason, or if TransCanada wanted to walk away from it, the state would be required to repay TransCanada every dollar plus 7.1 percent interest.
That’s a high interest rate compared to the open market, which is why the state pushed for a buyout, an an “offramp” built into the TransCanada contract. If the state doesn’t act by Dec. 31, its next offramp is years (and hundreds of millions of dollars) later.
“This bill is about saving the state money,” said Rep. Les Gara, D-Anchorage, as he spoke before the final vote. “It’s about saving the public money, and it’s about making more money for the state if this project moves forward.”
Before the House vote, Neuman said the pipeline deal shouldn’t be considered a buyout.
“It’s not a buyout, it’s just us paying our portion of the bill,” he said.
The House’s vote Wednesday calls for $68.5 million to repay TransCanada’s costs to date, and the Canadian company will exit the project.
Another $75.6 million will pay for the remaining part of the state’s share of the first phase of AKLNG. The money will come from the state’s Constitutional Budget Reserve, which contained $9.09 billion as of Sept. 30.
Despite an official tally overwhelmingly in favor of the bill, many lawmakers said their support was conditional and they hoped for more organization and disclosure from the administration of Gov. Bill Walker.
“Alaskans want to see what’s going on,” said Rep. David Guttenberg, D-Fairbanks.
Said Vazqauez: “It has been apparent the administrative has not been fully cooperative.”
To put force behind those hopes for openness, the House and Senate have each passed non-binding resolutions that “(urge) the governor to be open and transparent”.
“The eyes of the world are watching what this Legislature does and how we act,” Neuman said.