Alaska natural gas pipeline czar Keith Meyer on Thursday joined a luncheon panel hosted by Commonwealth North to talk gas. He never touched his food. Maybe it was due to all the negativity in the air – a problem Meyer raised more than once.
“We need support. It’s tough out there when the negativity is coming from the home state,” he said.
“This project is challenged,” he said. “(But) it can be competitive. It takes all of us to go fight.”
Gov. Bill Walker’s half-million-dollar hire – an Alaskan since June – peppered his talk with a lot of “us” and “we”. It didn’t seem to help his case much with the audience of business and political leaders.
Commonwealth North was brought together by long-gone former Govs. Walter J. Hickel, a Republican, and William A. Egan, a Democrat, near the end of the 1970s. A public policy organization, it has long focused on improving the Alaska economy, and in that capacity has listened to a lot of natural-gas talk over the years.
There was plenty of gas at the Thursday forum on “Where’s The Alaska LNG Project Headed? ”
LNG, for those who’ve been living in a cabin in the Brooks Range for the last few years, is the acronym for liquified natural gas. Up until a few months ago, ExxonMobil, BP, ConocoPhillips and the state of Alaska were teamed to build a gas pipeline about 800 miles from the North Slope to the port of Nikiski on Cook Inlet, construct a plant there to liquefy that gas, and then start selling LNG somewhere – probably in Asia.
Costs for the project have been pegged at somewhere between $45 and $65 billion. Exxon was leading the pipeline effort until spring when it notified the other partners that because of low oil prices, which reduce investment capital, and soft global markets for LNG, it wanted to slow the development to reduce costs.
BP and Conoco were not in economic positions to take over. The state was a different matter. As one Exxon official tells it, when the company explained that the choices were to slow the project or for the state to take over, Walker jumped at the chance.
Walker has a slightly different spin on what happened, but not by much.
He was “approached,” he told a gas conference in Singapore, and told “you might want to think of transferring, transitioning, this project from a producer-led project to a state project.”
A “state-owned” project was the best way to go, he added, “which many of us have said for a long time.”
A native-born Alaskan, Walker is steeped in Alaska history, which starts with the 1867 purchase of the territory from Alaska. The deal to buy from the Russians the cold, faraway outpost on the edge of the foreboding Arctic was put together by Secretary of State William Seward when Alaska was even farther from the Lower 48 than it is today.
Now it is a few hours by airplane from Seattle. Then it was a few days by steamer from the same city.
Despite a bargain basement, $7.2 million price ($136 million in today’s dollar), the purchase quickly became tagged as “Seward’s Folly”, although it would eventually prove to be anything but. Walker would like to pull a replay.
Since long before an entity called the Alaska Gasline Port Authority was formed almost 20 years ago, Walker has had Seward-esque visions of building a pipeline that would enrich Alaska in the ways Seward’s Folly enriched the United States.
In Singapore, he said, he’s been plotting the gasline for almost 40 years and “my goal is to finish this project.”
The problem the governor faces is that it’s impossible to tell the visionary from the dunderhead before the history is written, and the pipeline plan he is suggesting entails signficant risks for a state that already has huge financial problems.
Transplanted Texan Meyer is getting paid a lot of money – $550,000 per year plus a bonus of up to $200,000 – because of his resume. Most notably, it includes his stint as Cheniere LNG where he oversaw the development of pipelines and a major LNG terminal in Louisiana. It was an import terminal, not an export terminal, but there is no doubt Meyers has a lot of experience with LNG.
Walker likely could have hired the former head of the Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects, longtime Alaskan and one-time deputy state Revenue Commissioner Larry Persily for a lot less, but Alaska – a state where the motto used to be “we don’t care how they do it Outside” – has very much become a state where “we really, really, really care how they do it Outside.”
Meyer had cachet.
“It’s exciting to have somebody on board with his credentials, his background. It’s great to finally have somebody on the team that’s actually built gas pipelines before,” Walker said after it was announced Meyer had been hired to head the Alaska Gasline Development Authority.
“He’s absolutely worth the money. There’s no question about that. He’s uniquely qualified.”
To build a pipeline, maybe. Nobody knows the answer to that because the pipeline hasn’t been built yet.
To sell the pipeline, maybe not.
Meyer largely bumbled his way through an appearance before a hearing of the Joint Senate and House Resources Committees at the end of August. He was better before Commonwealth North, but not great.
At one point, in trying to justify the pipeline to Nikiski because it would make natural gas available in Fairbanks, Meyer disclosed a recent phone call from someone in the Interior city who explained there is an air pollution problem caused by people burning wood to heat their homes.
“I didn’t realize that,” Meyer said.
It was a major faux pas. There was no audible or visible reaction in the room, but there was one you could feel. Fairbanks has been engaged in a very public dirty air battle for years now although things have gotten a lot better as the price of crude oil has plummeted globally, and along with it the price of heating oil in Alaska.
Ironically, the falling oil prices, which have shattered the oil-fueled Alaska state budget, are helping to improve air quality in Fairbanks as more people shift back to oil. Unfortunately, the market is also undermining a possible conversion to gas and the demand for expensive LNG that shipped north by train from Anchorage to Fairbanks for the first time this week.
And if all of that isn’t enough of a problem for an 800-mile gasline that has built part of its pitch on how North Slope gas could help Alaskans – Meyer was enjoying Singapore with the governor as he made the case that Alaska had to sell gas globally to subsidize gas in-state – there are rumors that Doyon Inc., an Alaska Regional Native Corporation, might have made a major gas find not far outside of the Interior city.
Alaska gas piped to Fairbanks from Nenana through a 12- or 16-inch pipeline would be considerably cheaper than any gas brought hundreds of miles south from the North Slope in a 42-inch pipeline.
Given all of this, it was probably no surprise Meyer ran into a pack of “nattering nabobs of negativism” as the late Vice President Spiro T. Agnew called Nixon adminisration critics long before media-bashing became one of the country’s favorite pastimes.
Maybe, then it was only fitting that one of the natterers on the panel with Meyer was Persily, a former reporter, editorial writer and one-time owner of the feisty Wrangell Sentinel newspaper.
Persily didn’t mince words after Meyer touted how Wood-McKenzie, a state consultant, said an Alaska gas pipeline had a chance of success. Persily pointed out Wood-McKenzie once wrote a report for AGPA – Walker’s original gasline plan now being mimicked by the state – that projected an Alaska gasline would earn the state “half a trillion” dollars.
“I thought that half-trillion study was junk,” he said.
“A couple rebuttal comments,” Meyer said, taking back the microphone as his lunch grew colder on the plate. “This is sort of what we’re dealing with.”
He then proceeded to castigate the naysayers, arguing that any in-state criticism of the project – especially in the media – coud kill it. Walker launched a similar attack on the media in Singapore when he noted a Forbes story saying “the Alaska LNG Project has crashed and burned.
“I was disappointed in that…they didn’t take the part that said, ‘here’s what will work.'”
The Wood-McKenzie story, however, never said “here’s what will work.” At best, it said the state might have a shot of gasline success if it can hold down construction costs, is willing to settle for a low rate of return as the pipeline operator, and can get the Internal Revenue Service to grant the project tax-free status, something the state’s legal consultant called highly unlikely.
The “Wood McKenzie report earlier this week conclud(ed) the Alaskan project ‘is one of the least competitive’ of proposed liquefied natural gas plants worldwide,” the Wall Street Journal summarized.
Even Meyer conceded Thursday that today’s market is “very competitive. It’s going to get worse. (But) there’s a window out there.”
The magic window – the 2023-2025 delivery date Alaska has to hit if the pipeline is to succeed – has been cited repeatedly by Meyer and Walker in trying to push the project. It is dismissed as silliness by almost every expert in the gas business.
“There’s always going to be a window,” said Roger Marks, the former senior petroleum economist for the state and now a consultant on oil and gas issues.
Reporter Tim Bradner, the moderator for the panel, asked for a show of hands from those in the room after the discussion was over. Three came up to back the Walker plan. Three or four more came up to support a “do nothing” option, which Meyer touted as the only option to the Walker plan.
A bunch came up to support a third option – move the project slowly forward as Exxon suggested.
But there were a lot who didn’t vote. Almost everyone in Alaska would like to see an Alaska gasline built, but the devil, as always, lives in the details. An Alaska gasline would mirror the $8 billion Alaska oil pipeline which was in its day the biggest, privately financed construction project in the world. It cost $8 billion in 1977, about $32 billion in 2016 dollars, and temporarily turned parts of Alaska upside down.
CORRECTION: This story was edited on Sept. 30, 2016 to fix a typo in the salary of Keith Meyer.