Commentary

Totally flummoxed

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Alaska pipeline/U.S. Bureau of Land Management photo

News commentary

Journalism has a lot in common with intelligence gathering. Journalists take bits and pieces of information of which they never have enough and try to construct from that a narrative about what is going on in whatever little niche of the world they are covering.

Good journalists understand they almost never have a complete picture of anything for the simple reason journalists are seldom inside the fishbowl where decisions get made. Journalists are invariably outsiders observing what goes on in the fishbowl.

Sometimes the bowl is covered with a blanket for security or quote-unquote “privacy” reasons. Sometimes the water in the bowl is murky, and it’s hard to discern anything for sure. Sometimes the fish duck behind those pesky little fishbowl structures and you can’t tell what the hell they’re up to back there.

Sometimes everything gets lost in the weeds.

Sometimes the fish volunteer information honestly. Sometimes they won’t talk at all. Usually their memories of what happened in the bowl are self-serving in ways tiny or giant and thus somewhat distorted. Fish are like that; they’re fish.

Any journalist who thinks she knows what is going in the fishbowl is a twentysomething still wet behind the ears or an idiot. Sometimes both.

The search

All of this is being explained as a prelude to a confession by someone who has been deep, sometimes too deep, in Alaska journalism since the 1970s. Yes, I’m old. I’m a little tired, too, but I’ll wager I can still kick the asses of 80 percent of the people reading this.

And my brain still finds itself racing at 100 percent or more much of the time.

Little has changed since the days when I was the kid driving friends, family and neighbors crazy taking things apart to figure out how they were put together: furniture, electronics, small engines, cars, buildings, animals (comparative anatomy might have been the best ever class at university) and most of all ideas.

The “New Journalism”, now old, and I were made for each other. I was doing “explanatory journalism,” often with the extremely valuable help of an editor named Mike Campbell, before journalism knew what to call it.

By the time the Pulitzer Prize for “Explanatory Journalism” was created in 1998, I’d been trying to explain things for 20 years. When the luxury cruiseship Princendam caught fire and sank off Southeast Alaska in 1980, I didn’t want to report just a simple ship sinking.

I wanted to know how the hell it happened, and how it was that the U.S. Coast Guard, with help from the Royal Canadian Air Force, managed to get all 520 people off without a serious injury let alone a death.

I was then a Juneau Empire reporter who thought all journalism was supposed to be explanatory. What the hell else would it be? Isn’t all journalism supposed to help people understand what is going on in the world around them?

But then, I had similar reactions to “investigative journalism.” Isn’t that what all journalism is supposed to be? Isn’t journalism supposed to probe and question? Isn’t it supposed to try to get to the bottom of what we don’t know (or what those in power don’t want the masses to know) and explain it?

I always kind of thought of those people who called themselves “investigative journalists” pompous asses. A lot of what they seemed to be doing was making excuses for not being reporters:

“I’m sorry I haven’t written anything in three months. I’m investigating.”

Right.

Dazed and confused

Ok, this has rambled on long enough. Please excuse me for that. I’ve always had a bad reputation in the journalism community for backing into stories, and I’ve really backed into this one.

But here’s the deal, as that information gathering operative described above, I have never in a lifetime of journalism run across a story that left me totally flummoxed, baffled, unable to figure out what is going on.

I’ve never found a story I couldn’t begin to explain in some way.

But after two days of sitting through Alaska natural gas pipeline hearings before the Joint House and Senate Resource Committees, I am clueless as to what is going on. This is a story that makes no sense. The official line as to what happened, according to the office of Gov. Bill Walker, is this:

“I was very pleased to see that there remains a strong potential for an economically viable Alaska LNG (liquified natural gas) project, even at $45 /bbl oil prices, by exploring some of the alternate project structures currently being investigated by AGDC (Alaska Gasline Development Corporation).  Alternate ideas such as third-party investors, project financing and other advantages resulting from a state-led project could make the difference.

“I am pleased the AGDC Board and staff continue to work with our industry partners and the Legislature to advance viable options that could bring billions of dollars of revenue to Alaska each year, while lowering the cost of energy statewide.”

First off, most of this just never happened. Not only was there no mention of “billions of dollars of revenue to Alaska each year” during these hearings, there wasn’t even a hint of millions of dollars of revenue to the state. And the “strong potential for an economically viable LNG line” was more of a maybe, sort of, should the state be willing to settle for little return on its gas, and if the Internal Revenue Service can be convinced to give the gasline tax-free status because the state is running it.

The legal realities of the latter appeared slim. The political realities were not even discussed, but think about what happens when national environmental organizations find out Alaska is teaming with the devils of Big Oil to ensure the latter make PROFITS (a seven-letter words used as a four-letter word) selling Alaska natural gas.

Whatever hope there is of tax-free status, and the hope seems small, would surely die there.

So you can ignore what the governor, who wasn’t at the meetings, says, and take my word for the sole, obvious fact coming out of the hearings:

The state has taken over.

Alaska Inc.

Authority over and responsiblity for management of the long-hoped-for pipeline has shifted to the AGDC from ExxonMobil, the globe’s most successful private oil and gas company, and the former managing partner on a gasline development plan that involved the state, Exxon, BP and ConocoPhillips.

What does a state takeover of management mean? I’m clueless, and I saw nothing to indicate anyone else has any real idea either. The fish were all spinning around in the fish bowl like the state had just sprinkled the water with some really high quality dope in place of fish food.

They offered many and sometimes contraditory views of what was going on.

Keith Meyer, the half-million dollar man who now heads the AGDC, and the leaders of Big Oil were clearly in agreement that the state is in charge.

Nobody seemed to have any idea of what the hell that means or what happens next. There was a lot of talk about cooperation and collaboration and no hint of a plan on which to collaborate.

The oil companies have an estimated 130 people, a lot of them engineers and other professionals, working toward completion of front-end engineering and design (FEED) on the gasline. There the 32 employees in AGDC, two of whom are nothing but public relations mouth pieces.

Exxon said it plans to reassign its gasline staff. It’s unclear what BP and ConocoPhillips are going to do, but would you spend your money paying employees to work on someone else’s project over which you now have little or no control?

It may well be the state has cut the gasline work force by 75 percent or more in the interest of speeding up the process of getting the gasline built sooner. If that sounds bizarre to you, you will understand why my head is about to explode in trying to figure out what is going on here.

This is how ExxonMobil explained it:

“…In February, we offered two concepts to the project participants to progress the project:

“1. Support transition to a state-run project, or

“2. Place AKLNG project work to match current market conditions while continuing to advance regularly approvals and cost reductions concurrently with work on fiscal and commercial agreements to provide the information for a FEED decision.”

Devilish details

Admittedly, there’s more than a little gobbledygook there, but the translation is simple. Exxon decided it was spending too much money on development of a highly speculative gasline and wanted to slow down work (and thus cut its costs) going forward.

The state was told it was that or Alaska could take over cooking the turkey. The state’s response, all parties agree, was something along the lines of “That’s great; get out of the kitchen.”

Going forward, Exxon said it is willing to offer all the help it can on the project and would be happy to discuss “mutually agreed, commercially reasonable terms” for selling the state the gas to fill its pipeline.

Oh but I bet it would. The same I’m sure for BP and ConocoPhillips. This the Big Oil dream scenario: Get someone else to take all the financial risk of building a $45 to $65 billion, 800-mile pipeline and related facilities, and then start flowing gas through that pipeline.

The profit on the gas might be a wee bit smaller than if you built the gasline yourself, but the risk is gone. If the project runs into problems because of litigation or cost overruns and fails, you don’t lose anything.

The state? Well, Walker was adamant he’s not going to use the $53 billion in the Alaska Permanent Fund to build the pipeline of which he has so long dreamed. But if the state gets into the pipeline construction business and finds itself with bills needing to be paid, there is really only one source of money.

The banks don’t care if Alaskans call it the “permanent fund.” If the banks are due payment, they’ll be happy to get court orders turning the Permanent Fund into the pay-us-now fund.

None of which has left me baffled.

I can basically understand it all. Or understand it well enough to explain it here.

What is  baffling is this:

The project was moving forward. Exxon said it wanted to slow the project down. The state objected and said it would take over. So now the project is stopped instead of slowed while everyone tries to transition to a new management team.  And there is no telling how long that transition might take.

Let alone how much this shift might cost the already financially strapped state. In the long term, the governor and Meyer are talking about bringing in Outside investors (PT Capital’s Hugh Short is already on the AGDC Board) which might be good, but in the short term they still need the technical people to keep the FEED process moving forward in preparation for actually building a pipeline.

I understand the governor’s desire for a pipeline sooner rather than later. I and a majority of Alaskans are probably all with him on that. I don’t understand how this particular state takeover speeds up the process. It would appear to do more the opposite.

One of the things I learned early on as a reporter is that sometimes a story doesn’t make sense. It just is what it is. But damn that is a difficult thing to deal with when you’re watching a system which is supposed to be driven by rational people making rational decisions and little seems rational.

 

 

 

 

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8 replies »

  1. Can we please start calling the PFD the “PUN” (Pay-Us-Now)? With respect to the gas line, the joke’s certainly, and sadly, on us. As a transplant to Alaska, I still can’t get over how “sacred” this pot of money is considered. Craig is totally right to point out that NO ONE else cares. A pot of money is a pot of money. If the state insists on taking over this project – which it is completely unqualified to handle both technically and economically – I absolutely say leverage the PUN. Put the money to work on something other than ensuring Jack and Jill Alaskan can buy a new ATV.

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  2. Hard to understand why such latitude was given by the Legislature to the Walker Administration to alter the original structure of AKLNG created by SB138 in 2014. AKLNG was supposed to be a “stage-gated” process with clear delineations between Pre-FEED (Front End Engineering and Design), FEED,and FID (Final Investment Decision). The original presentation to the legislature by Parnell’s Department of Natural Resources in February 2014 specified that after 12-18 months of Pre-Feed a set of contracts would be presented to the Legislature for approval. Absent that approval the process would end. An absolute contract demand from the producers was to permanently set tax rates on the producers and for the State to commit to either taking payment for State royalty gas or to sell that gas on the market. To fix future tax rates would require a Constitutional Amendment which was to be voted on in the November 2016 General Election.
    As time passed (and especially after Parnell lost the election) the Legislature realized that their plan was not going to work. Personalities and current market conditions notwithstanding, after the Alaska fiscal situation deteriorated so rapidly the probability of that Constitutional Amendment to bind future legislatures passing became that of a snowball in hell. The Legislature rolled on ejecting Transcanada and readily approved the funds for the buy out in October 2015. The Walker Administration was allowed to completely ignore that stage-gate between the stages of FEED and now we find ourselves in a permanent Pre-Feed status with little or no hope of accomplishing anything but spending additional hundreds of millions to either “save face” and/or extract the maximum political advantage against opponents.
    This is turning into Alaska’s Vietnam War where we can’t win yet those in power dare not quit. The question to ask these Legislators in January is will they vote to stop all appropriations for any more effort on AKLNG or do we have to travel down this very expensive road when we least can afford it?

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  3. I understand to spend the principal of the Permanent Fund it takes a majority vote of the legislature. But what does it take to establish a lien against the Permanent Fund? Does that take a vote? Or can it be done by executive order? Has anyone considered this possibility before?

    It seems Asian gas buyers could get a good deal by financing the Walker gas line, if the terms were right. If I were a gas buyer or a hedge fund manager with deep credit I would offer: “OK, Gov – you want a gas line, so I’ll loan AGDC $45 billion at 5%. AGDC has 5 years to build the gas line and deliver gas to me at 50% of market price. You will put a lien on the Permanent Fund, by executive order, for the $45 billion plus a $10 billion penalty. If AGDC doesn’t deliver the gas to me in 5 years, we exercise the lien and I get Alaska’s Permanent Fund.”

    The buyer/financer gets cheap gas or $10 billion profit via a penalty clause. Bill Walker gets his dream, to be the guy that built the Alaskan gas pipeline. And Alaskans get flushed down the toilet.

    If the Permanent Fund only had $10 billion in it, I bet this project would be a dead as a stump. But because the fund has enough (?) to build the gas line (ie to be used as collateral), there are many out there who could care less about Alaska … but are salivating over this huge pile of money. Like Walker and Meyer.

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  4. As I’ve said numerous times, this project is never going to move forward until fixed royalty and tax rates are in place and that is tough to do and still stay in compliance with Alaska’s Constitution. No long-term customer is going to sign a contract to take X feet of gas if he knows that the price can change based on the whim of some Legislator from Kake. Frank Murkowski had a deal in place but it fell apart for this very reason. If the State enters into some sort of ownership position, that gets around that obstacle. Maybe.

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  5. I’ve watched this circus for years and years and flummoxed is a good word for it or even bumfuzzled. The project needs to be financed off of sales contracts. That’s how LNG projects are done – when FEED is complete the team can start working on sales contracts. That would get it done, but cheap Gulf Coast shale derived LNG is steaming through the Panama canal to the Asian markets that could have been captured by Alaskan LNG. Timing is everything and Alaska missed the window. BTW – I read the Wood Mackenzie report and it sounded like they concluded it was a commercial bust and the only possible hope was tax free state ownership – so hang on tight, it fixin to get even more bumfuzzled and flummoxisious,

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    • that’s funny, jk; but i’m not finding this easy to laugh about. you don’t think businesses would line up to sign contracts to buy gas from a pipeline that clearly isn’t ready to be built? maybe they would if the state financially guaranteed gas arrival by some future date certain…? of course, then you could get in a little trouble if you didn’t have a pipeline and gas by that date, but the state does have the permanent fund. it could buy its way out of contracts it couldn’t meet or buy gas eslewhere to use to meet the contracts. hey, wait. isn’t that kind of what’s happening in Australia now?

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      • Yep – the Aussies over committed and under delivered. Sometimes getting rich is a quick way to get poor. Unlike Alaska the Aussies (Like the Canadians in the Monterey shale) have yet to develop the upstream gas resource. The the newish AGDC President Keith Meyer has experience with Cheniere Energy and for years I’ve watched them get contracts (long term SPAs) before building LNG trains – of course Gulf Coast plants are more cookie cutter and inherently scale-able, i.e. a contract volume can be tied to an LNG train scale and the financing occurs in more more digestible chunks. Scaling increments in Alaska is pointless since pipelines are not all that scale-able. After reading your article I looked up the hearing documents – I’ll bet your head is spinning if you got exposed to all that tax talk first hand. What’s next ALASKALNG.ORG 503 tax exempt non-profit?? I wonder how helpful the Feds will be when they get cut out of the money pie!

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  6. That press release by the gov was so…so…I don’t even have a word for it. What hearing did his people attend?

    Suzanne Downing Communications Director Alaska Republican Party 907-903-0888

    Sent from somewhere in Alaska. Paid for by the Alaska Republican Party, http://www.alaskagop.org. Not authorized by any campaign or candidate’s comittee.

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