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Parnell's missed LNG benchmarks & market opportunity

Posted: July 1, 2013 - 12:00am

Last week Governor Parnell acknowledged that the North Slope leaseholders, ExxonMobil, ConocoPhillips and BP, have not met the latest benchmark for progress on the LNG (liquified natural gas) gasline project. The companies said they will spend up to $100 million in field work this year, not the hundreds of million required to timely advance the project. Exxon’s spokesperson said the State must provide “the right fiscal environment to support an LNG project.” The multi-billion dollar tax cut the leaseholders received with passage of Senate Bill 21 in April has proved insufficient to secure the governor’s benchmarks for this critical project that would provide affordable energy to Alaskans, thousands of jobs and billions of dollars in annual state revenue.

Ironically, in the same news cycle we learn that ExxonMobil plans to build a large LNG facility in British Columbia to export 30 million metric tons of gas per year. Last fall ExxonMobil and TransCanada, pursuant to their obligations under AGIA (Alaska Gasline Inducement Act) held a second open season and received interest from major Asian companies for a comparable amount of Alaskan gas. These companies received absolutely no response.

ExxonMobil is also developing other LNG projects to serve Asian markets and is awaiting export license approval from the U.S. to build an LNG facility on the Texas Gulf Coast. ExxonMobil CEO Rex Tillerson recently expressed frustration with waiting up to five years for approval. Alaskans, however, have waited decades for Exxon to move gas out of Point Thomson. I personally have taken major Asian gas buyers to Exxon’s board room, and Exxon refuses to sell Alaska’s gas.

Just last month, the Alaska Journal of Commerce reported that Japanese-owned Resources Energy Inc. (REI) completed an independent feasibility study for an LNG project from the North Slope to tidewater. The study concluded that a fast track project that would deliver Alaska gas into the Japanese market by 2019 or 2020 is “very feasible.” The leaseholders’ date of project completion of 2023 or later is too late according to REI and the market could be saturated by then. REI’s study showed that Alaska LNG would have a significant competitive advantage over U.S. Gulf Coast projects in reduced shipping costs due to Japanese market proximity. And most importantly, REI brought the market to the table in meetings with the three major companies and TransCanada. REI delivered its study to state officials but Governor Parnell was “unavailable” to meet with them. REI is a highly reputable consortium representing top Japanese energy players with whom I have met with in Tokyo.

And why can’t REI or others proceed with this critical, viable project? The North Slope leaseholders refuse to sell the gas and the State sits idly by rewarding and enabling this dysfunctional decades’ long pattern that ill serves our people and makes Alaska a laughingstock on the global energy front.

As we give away every piece of leverage we have trying to coax three companies competing globally with one another, each with projects competing with Alaska’s, we further back ourselves into inescapable corners. Alaska’s resources are not being developed for our maximum benefit but are pawns on a worldwide chessboard that can be manipulated because we permit them to be while the market pounds at our door.

Governor Parnell noted that the failed benchmark might result in a less aggressive push for gas tax concessions next session. But he did not express any willingness to grab the bull by the horns, work with REI and other market leaders to monetize Alaska’s gas and exercise the State’s legal authority to enforce the North Slope leases that require gas sales when there is a reasonable expectation of profit to the leaseholders. Parnell appears comfortable setting toothless benchmarks while those very same companies enjoying the governor’s massive oil tax reductions aggressively advance LNG projects in neighboring British Columbia. It is well past time for Alaska to get back in the global energy game before it is “lights out” for our future.

Bill Walker is a lifelong Alaskan, businessman and owner of an Anchorage law firm that focuses on oil and gas and municipal law. He recently announced his candidacy for governor in 2014.

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