Upsized ASAP may rattle AK LNG Project

  • By Tim Bradner
  • Sunday, March 1, 2015 9:49pm
  • News

JUNEAU — Finance subcommittees in the state House were closing out budgets for state agencies this week, while other legislative committees heard updates on the Alaska LNG Project and worked on energy legislation.

A bill dealing with regulation of now-legal marijuana is also being worked on in House and Senate committees.

On the gas pipeline, legislators and the state’s industry partners in the big project are still scratching their heads on the implications of Gov. Bill Walker’s Feb. 18 announcement that he would like to scale up the state-backed “plan B” gas project being planned by the state’s Alaska Gasline Development Corp.

That “plan B”, the state’s Alaska Stand-Alone Pipeline, or ASAP, is now planned to move only 500 million cubic feet of gas a day as a backstop project to supply communities with gas. Walker, however, wants to expand the project to move 2 billion-plus cubic feet of gas per day, a scale that would be a competitor to the big project in which the state is now a 25 percent partner.

House and Senate leaders say Walker’s plan will confuse potential LNG buyers just as the North Slope gas producers are beginning gas marketing efforts for the big project.

The companies said they are studying the governor’s announcement to see if his proposal does actually create a competing project. If it does, it could affect their partnership with the state and the project itself, they said.

ExxonMobil Corp. spokeswoman Kim Jordan said, “Now that the governor has announced that the State of Alaska is sponsoring a project in direct competition with the Alaska LNG Project, we are assessing the impact on our forward plans.”

ExxonMobil is leading the project development for the consortium, which includes the state.

Another project partner, ConocoPhillips, is taking a wait-and-see position.

“We are still reviewing the announcement and looking forward to understanding what, if anything, has changed,” company spokeswoman Natalie Lowman said.

Miles Baker, spokesman for the state Alaska Gasline Development Corp., said his group has not yet received any directions from the governor to take steps to expand the gas “throughput” for the ASAP pipeline, or any authorization to spend money.

Walker said in his announcement that he still supports the large gas project and that a larger state ASAP project would move forward only if the industry partners do not want to move forward.

According to the Associated Press, Revenue Commissioner Randy Hoffbeck told the House Finance Committee on Feb. 24 that a short-term issue for the state will be to ensure that information doesn’t leak from one project to the other.

State legislators were to be briefed Feb. 25 on the status of the project but the hearing, before the House Resources Committee, was delayed until March 2, at the request of the state administration, the committee said.

Meanwhile, the Resources committee listened, somewhat wistfully, to a presentation by state geologists and tax officials Feb. 23 on what an opening of the coastal plain of the Arctic National Wildlife Refuge might do for new oil production and revenues to the state treasury.

ANWR isn’t likely to be opened for oil and gas exploration anytime soon, and Interior Secretary Sally Jewell wants to make that permanent with her new proposal for wilderness designation, but legislators still wanted to know what Alaskans are missing out on.

The analysis showed a potential $2.5 billion in new petroleum revenues at an $80-per-barrel oil price, or $4.8 billion a year in new revenues if oil was at $110 per barrel.

However, a surprise for lawmakers was that under the state’s current tax code ANWR’s initial exploration and development would be subsidized by the state, to the tune of about $8 billion to $9 billion, because of tax credits for explorers.

Because of the tax credits the state would be paying out money for six years until production revenues exceeded the tax credit deductions, according to financial modeling done by the Department of Revenue and presented to the House committee.

The budget is what has everyone’s attention in the capitol building, however.

State revenues are about half of what were estimated earlier, at about $2.5 billion, mainly because oil prices have dropped by about half over the last six months, from $110 per barrel last July to about $55 per barrel now.

The state will run a $3.5 billion budget deficit this year and will cover that by withdrawals from reserves but in the meantime the governor and the Legislature are making sharp cuts to the budget for Fiscal 2016, which begins July 1.

One of the first House subcommittees to finish its work this week as one for the University of Alaska.

The university would suffer a $34 million cut to its state funding if the subcommittee proposal is accepted by the full House Finance Committee and ultimately the Senate. The university’s current-year appropriation of state funds is $375.8 million.

Walker had proposed a $9 million reduction in the budget but the House subcommittee added another $25 million in cuts, for a total of $34 million in reduced spending.

Rep. Tammie Wilson, R-North Pole, had pushed for a $43 million cut on top of the governor’s $9 million reduction, for a total of $54 million, but other members of the subcommittee, including other members of the House Republican majority, did not go along with Wilson.

It’s unclear how the cuts would be apportioned among the university system’s three major campuses in Anchorage, Fairbanks and Juneau as well as satellite facilities in smaller communities. One clear casualty will be the university’s sports programs. The subcommittee budget would cut travel by 50 percent on top of a 15 percent travel reduction implemented in the current year budget, University of Alaska Fairbanks Chancellor Brian Rogers said.

“Our university sports teams won’t be able to compete if they can’t travel,” Rogers said.

He was at the closeout of the university’s budget late on Feb. 24.

Some legislators wanted to cut sports entirely out of the university’s budget.

The impact of the reduction will actually be greater because the university will have to absorb much of the $18 million in scheduled pay increases for employees, which are mostly provided for in collective bargaining agreements.

On legislation, the House Energy Committee passed out House Bill 105, the governor’s bill changing a state program of grants and low-interest loans for the Interior Energy Project, which would bring liquefied natural gas to the Fairbanks area.

Current law requires the LNG to come from a plant on the North Slope. The change proposed in HB 105 would allow the LNG to come from anywhere.

The Alaska Industrial Development and Export Authority, the state’s development finance corporation, is considering plans to get LNG to Fairbanks from Southcentral Alaska after costs for the earlier plan, a North Slope LNG plant, came in higher than expected.

HB 105 also makes revisions in law updating AIDEA’s capabilities to undertake development financing.

On issues relating to electricity generation, the House committee is considering a House Bill 78, bill that would aid Alaska independent power producers in selling power, mostly from renewable sources like wind and small hydro, to regulated utilities.

The measure would require utilities to pay for their avoided costs, such as using fuel oil, when wind or hydro is purchased, on the basis on the incremental high cost, such as if an oil-fired unit could be idled, rather than the average cost of the utilities with all sources even very low-cost coal, included.

Independent power producers argue the utilities can use the current law to cite cost disadvantages in buying power from independent producers, in effect cutting out competition. Virtually all other states require utilities to purchase power at the avoided cost on an incremental basis, such as proposed by HB 78.

Regulated utilities are opposing the measure. The committee held a hearing on HB 78 on Feb. 24 but did not move the bill.

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