In the recent article: “New AGDC president grilled by resource committees,” Gov. Bill Walker’s pitch man was not very convincing.
First, Alaska LNG Project Manager Steve Butts provides a reality check: “I think at the right time the known (natural gas) resource on the North Slope will be developed, I just don’t know if that time is today.”
True, it’s not.
Alaska’s oil and gas resources are part of a worldwide backlog of reserves. Alaska must compete against the relative costs and benefits of many other global alternatives. The pitch for Alaska to jump to the head of the line, even if possible, will come with added costs and risks we cannot afford.
Mr. Butts also states the high-cost for the project is unavoidable and “to make the project economic it has to be a mega project in the truest sense.” In other words, this is a world class investment requiring world class investors.
Yet Keith Meyer, the new Alaska Gasline Development Corp. president, admits that potential investors must accept a lower than average rate of return. Simple fact: natural gas markets are historically volatile and are not compatible with Mr. Meyers’ assertion of establishing lower but stable returns.
More importantly, Mr. Meyer correctly suggests that “if the State wants to further pursue the gas-pipeline it has to evaluate other options,” such as an option to delay the project (wait for its natural economic time) or to “look for something different.”
That something different is for the state to take the lead role. Mr. Meyer contends that a lead role would not equate to assuming added risk. Common sense dictates otherwise. If the State of Alaska wants to take its wine before its time by building a mega project within an ultra-competitive world market and only provide lower than average returns, then that is indeed the epitome of added risk.
So what is the alternative? Good question, as we are in a pickle and largely because we have been asleep at the wheel. Alaska needs to put its fiscal house in order with the first goal of minimizing the biggest bust Alaska has ever faced. Gov. Walker is correct in that we have the wealth to make some tough arithmetic work, but that means doing it all: more spending cuts including oil tax credit reform; shifting more costs for education and local services back to communities; fostering real economic development where benefits exceed costs; raising more taxes; and repurposing the Permanent Fund.
Lastly, Alaskans are fully capable of connecting the dots. Gov. Walker wants the PFDs and new taxes to kickstart the gas pipeline. His desire for the gas pipeline is a major misstep in surviving the economic pain of a $4 billion contraction of the state’s economy.
The simple fact is that Alaskans will go through some very difficult economic times in the near future, but the opportunity to reduce the severity is now and must be the first priority. A gas pipeline before its time is not the silver bullet.
• Joe Mehrkens lives in Petersburg.