This editorial first appeared in the Alaska Journal of Commerce:
Amid the rubble of the week that began with the collapse of the legislative special session was a piece of expected yet welcome news.
The state approved a project plan amendment May 2 for TransCanada to formally shift its focus to an in-state, liquefied natural gas export project instead of a gas line connecting the North Slope to Alberta.
The amendment — anticipated after the March 30 announcement by North Slope producers to pursue an LNG export line to Alaska tidewater — defers the requirement under the Alaska Gasline Inducement Act for TransCanada to file an application with the Federal Energy Regulatory Commission, or FERC, by this October.
In terms of incremental progress toward the decades-old goal of commercializing North Slope gas, this announcement would surely be measured in inches.
However, anything that moves this effort forward is a good thing because while Alaska geographically has a head start on its North American competitors to serve Asian markets, it is still playing catch-up in the race to export LNG.
With the expanded Panama Canal set to handle massive LNG tankers beginning in 2014 and a glut of natural gas pushing domestic prices to a 10-year low, Lower 48 producers and their counterparts on the Canadian coast are angling to serve the Asian markets.
On April 16, FERC issued an approval for Cheniere Energy to convert its import terminal in Cameron Parish, La., for exports. The next day, Sempra Energy Inc. announced a $6 billion LNG export project, also in Cameron Parish, and the third LNG export project planned for Louisiana.
Two of the companies who have signed on to develop and market the Sempra facility are Mitsubishi Corp. and Mitsui & Co. Ltd. of Japan, a country Alaska has exported LNG to since 1969.
Japan is a vast potential market as it moves toward conversion to natural gas in the aftermath of the Fukushima nuclear accident that followed the devastating March 2011 earthquake and tsunami.
All but one of the nation’s 50 nuclear reactors are now idled, and imports of LNG surged 18 percent in 2011. That’s according to an April 27 Reuters report on Tokyo Gas Co. Ltd. and Sumitomo Corp. negotiating a 20-year deal with Dominion Resources Inc. to buy from its planned LNG export facility in Cove Point, Md.
All in all, there are nine pending LNG export permits in the U.S. and another handful of potential projects in British Columbia that could compete with Alaska for Asian markets. A Brookings Institute study released May 2 recommended approving them all and letting the market sort itself out.
One of those Canadian LNG projects is being contemplated by Imperial Oil Ltd. On the same day Alaska approved the TransCanada amendment, Imperial Oil CEO Bruce March said his company is considering LNG exports.
The twist is that Imperial is 70 percent owned by ExxonMobil, which is partners with TransCanada under AGIA, and one of the Slope producers who have agreed an LNG export project is the most viable way to commercialize Alaska natural gas.
The latest news coming May 8 is that the U.S. Export-Import Bank has approved a $3 billion loan to facilitate an LNG export project in Queensland, Australia, that would serve markets in China and Japan. The Ex-Im Bank action will allow American companies Bechtel International and North Slope producer ConocoPhillips to export equipment and services for the project Down Under.
In short, Alaska does not have time to waste.
That’s what was most frustrating about the state Senate refusing to even hold hearings on House Bill 9, which would have empowered the Alaska Gasline Development Corp. to pursue an in-state “bullet” line with a target of a 2013 open season and given AGDC a seat at the table for discussions on the LNG export project where it could leverage its work and the 417 miles of right of way it possesses.
If Alaska’s state senators have an alternative way to get gas to state residents and relieve crippling energy costs, they have yet to present it. They appear content to place the destiny of the state in the hands of others, namely the North Slope producers some legislators so enjoy vilifying.
The only thing this Senate appears to celebrate more than doing nothing is doing something shortsighted instead.
Some criticism of HB9 was the cost of environmental impact studies required to prepare for an open season in 2013, yet the Senate voted 15-4 to spend as much as $430 million on one-time energy vouchers dispersed to Alaska residents regardless of need.
It appears to escape the majority in the Senate that the high price of oil they depend on to justify keeping the status quo when it comes to production taxes is the very thing that is devastating the pocketbooks of so many in our state, or that indiscriminately shoveling $400+ million out the door without a long-term plan is the height of irresponsibility.
So rather than do the hard work required to find solutions for the state’s energy needs, the Senate took the easy way out and tried to put a Band-Aid on a bullet wound that is bleeding Alaskans dry.
Now that the North Slope producers and TransCanada have aligned on a vision to pursue LNG exports, the companies have additional benchmarks to reach by the end of September — identifying a project and a timetable. TransCanada is also required under the project plan amendment approved May 2 to submit a more detailed work schedule by early 2013.
If the companies meet those benchmarks, natural gas taxes must be on the table for the 2013 legislative session. A stable, predictable fiscal regime is vital to making a large-diameter gasoline possible.
Further, the current tax structure couples oil and gas production taxes and the state could stand to lose billions in revenue if gas is commercialized. Energy consultant Pedro van Meurs, who’s been retained by the legislature to advise on tax policy, said in February that the current regime is “the most nonsensical system in the world.”
It won’t be a simple task to restructure Alaska’s production tax regime to facilitate a large-scale LNG project, and based on the last two years, the current composition of the Senate leaves little reason for optimism
One encouraging event is on the horizon, though. There is an election in November.