National politicians could learn a lesson or two from lawmakers here in Alaska. While the United States Congress is mired in inaction, the State of Alaska has taken important steps to secure what could be North America’s largest energy production and infrastructure project.
Legislation signed into law last month by Gov. Sean Parnell represents a crucial step toward designing and building the Alaska liquefied natural gas project. The project would include an 800-mile state-of-the-art pipeline connecting a gas treatment plant on the North Slope to a liquefaction plant in Nikiski. The pipeline and liquefaction plant would deliver gas to Alaskans which would then be liquefied and shipped to market, meeting huge demand abroad.
Estimated to cost at least $45 billion, the Alaska LNG project’s size and scope would surpass another storied North American pipeline project, the Trans-Alaskan Pipeline System, ushering in a new era of energy investment in the state. Ultimately, state officials believe the state could earn $2 to $3 billion annually from natural gas sales as a result of the deal, which is significant — even critical — as Alaska relies on oil and gas money for nearly 90 percent of its revenue.
Now that the state has enacted the legislation, it will join along with its private-sector partners to quickly sign off on front-end engineering and design work plans. Known as pre-FEED, that’s a process that will entail many boots on the ground — immediate jobs, in other words — and is estimated to cost at least $400 million and take between 18 and 24 months to complete. The job potential cannot be overstated, especially given the oil and gas industry’s leading role as the largest private employer in the state. According to a recent study by the McDowell Group on behalf of the Alaska Oil and Gas Association, for every one job created by an industry company, some 20 more are created throughout the Alaska economy.
While the state has had starts and stops before, the massive supply of gas on the North Slope of Alaska and growing demand for LNG around the world make this new endeavor truly different. The advent of LNG, the ability to liquefy gas so that it is compressed to a tiny fraction of its normal volume, has made the economics of moving gas long distances possible.
Previously debated Alaskan pipelines had a fixed start — the North Slope — and usually a fixed end — most recently, Canada or the continental United States. Now, that fixed end is a growing worldwide market of demand for LNG via special tankers.
And yet, all this hard-fought progress could very well be undone by an Alaskan ballot initiative on the August primary ballot. That initiative, Ballot Measure 1, has the potential, as Dan Fauske of the Alaska Gasline Development Corporation warned, to put the project “on the back burner,” perhaps indefinitely.
At issue is oil tax reform, SB21, passed in 2013. Designed to address the volatility inherent in the previous tax structure, Alaska’s Clear and Equitable Share (ACES), SB21 creates stability, allowing companies to make the investments necessary to undertake a massive project of this size. ACES set a variable tax rate tied to the price of oil; SB21 enacts a higher, flat tax rate less reliant on the price of oil. Under ACES, tax payments varied each month, which inhibited a company’s ability to make investment decisions on projects — including large megaprojects. But now that reform could be subject repeal if Ballot Measure 1 passes on Aug. 19.
Alaskans have long dreamt of a pipeline to move North Slope gas to market. It has been a 40-year aspiration, thwarted multiple times by exorbitant development costs and a dearth of gas buyers. Recent and rising demand for LNG in Asia and around the world has together created the market to render that dream a reality. But first, Alaska will face a very important decision this summer.
• Jack Rafuse is a former White House energy advisor and lontime energy executive, including a longtime member of the Unolocal management staff duing the days of TAPS construction.