Ex-commissioner calls for Alaska energy mega-projects analysis, and ‘call bluff’ on North Slope gasline

A drilling rig sit on Oooguruk Island off of the coast of Alaska's North Slope on 2007. (Steve Quinn / AP)
A drilling rig sit on Oooguruk Island off of the coast of Alaska’s North Slope on 2007. (Steve Quinn / AP)
With Alaska’s government now in the red but still blowing hundreds of millions of dollars on multiple energy mega-projects, it’s time for a comprehensive analysis of those projects to help Alaska leaders prioritize the public’s money and stop wasting money on pipe dreams.

That was the take-home message from Harry Noah, a former Alaska Department of Natural Resources commissioner under Gov. Wally Hickel, who spoke at a Commonwealth North discussion Wednesday about the blizzard of state-subsidized efforts — including everything from dueling pipeline proposals to a power-producing dam that, if built, would be the second largest in the country.

First of all, Noah recommends the state cut to the chase on the biggest project of all: The $65-billion, industry-led pipeline proposal to tap North Slope natural gas for sale outside Alaska. The project has been studied for decades by the major oil producers who own the rights to the Arctic region’s vast natural-gas reserves. But time and again, the companies have pulled the plug on the huge effort, citing unfavorable market conditions.

The project would be a game-changer for the state’s economy, so Alaskans have endlessly waited. But the hope that it might one day happen has helped strangle other ideas, Noah said.

‘Call their bluff’

It’s time to offer a fiscal deal on natural gas taxes and royalties to the oil producers — ConocoPhillips, BP and Exxon Mobil Corp. — and give them a limited time to accept. The deal should include a second contract stating that if they don’t agree to the project, they’ll need to sell gas to the state at inexpensive, stranded-gas rates.

“My thought is you call their bluff,” he said.

Do nothing, and the state will continue waiting, and paying pipeline builder TransCanada Corp. — which is working on the gas project with the oil producers — under a $500 million state subsidy created during the Palin era. The state has paid or is on the hook for about $280 million of that subsidy so far. Yet gas won’t be flowing for nearly another decade.

If he were in charge, Noah would immediately give pipeline builder TransCanada “a big hug and kiss on the cheek and say, ‘Thanks, see ya.'” And he’d start negotiating with the oil companies.

His comments were unusually frank in a state that’s grown complacent as billions of dollars have flowed into the treasury, the result of high oil prices and high production taxes. But the good times screeched to a halt in the recently ended fiscal year, with the state some $500 million in the hole.

The yearly deficit is expected to be even larger by next summer, exceeding $1 billion. And that doesn’t even count Senate Bill 21, the tax cut for oil producers expected to cost the state hundreds of millions of dollars, said economist Scott Goldsmith.

Future of big projects

The state’s new, direr fiscal situation means the state can’t just continue throwing money at big, exciting projects, Goldmsith and other panelists said.

The other projects include:

• The Alaska Stand Alone Pipeline, pushed by lawmakers as a way to get natural gas to Alaskans. The so-called “bullet line” is viewed by many as a competitor to the larger industry-led line. The 737-mile line from the North Slope would move much less gas than the bigger line. The cost to build it — $8 billion — doesn’t include a liquefaction plant that would cost billions more. The Legislature has appropriated more than $400 million to the project.

• The Susitna-Watana hydroelectric project, a 735-foot-tall dam that would supply half the electricity needed along the state’s populated Railbelt. The Legislature has already approved $172 million for the project, which is under management of the Alaska Energy Authority and would be in operation by 2024. Another $300 million would be needed for additional upfront work. The total project cost is $5.2 billion, to be paid for with “a combination of bonds, state investments, and other financing solutions.”

• The Alaska Interior Energy Plan, trucking liquefied natural gas from the North Slope to Fairbanks. The project includes some $275 million in bonds and loan assistance from the state, and would reduce energy bills in the Fairbanks area by an estimated 40 percent. The Legislature appropriated $58 million for the project this spring. Backed by the Alaska Energy Authority and the Alaska Industrial Development and Export Authority, the proposal calls for gas and propane deliveries starting at the end of 2015.

• Cook Inlet gas exploration, which provides some tens of millions of dollars yearly in subsidies to encourage exploration.

Other options for North Slope gas

Longtime journalist Tim Bradner, one of the panelists, said the state needs to consider other non-pipeline options for using its North Slope gas. One of those projects wasn’t discussed at the Commonwealth North meeting, which focused on huge projects receiving state subsidies. The All Alaska Energy Project has been led by private industry to electrify gas at the North Slope and send it by electric lines to villages across the state. Backers say benefits include eliminating scores of small, diesel-fed power plants that serve villages, while also reducing pollution and costs.

Noah said the state needs to put together a committee, similar to the National Commission on Fiscal Responsibility and Reform that considered recommendations to put the nation on a course toward fiscal stability.

Lawmakers in the audience included Rep. Dan Saddler, R-Eagle River, who said he was open to such a review of the projects, though he warned that solutions won’t come easily. Rep. Bob Lynn, R-Anchorage, said it makes sense.

“These studies have become an industry unto themselves. They’ve cost a hell of lot of money. It’s time to get off the dime and make some decisions,” Lynn said.

Contact Alex DeMarban at alex(at)alaskadispatch.com

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