Only a day after the Alaska Gasline Development Corporation blasted bad Alaska press as the problem threatening construction of the 49th state’s longest-lived pipe dream, a high-profile analyst of global markets dumped a bigger and equally negative assessment on the short-term prospects for construction of expensive, new natural gas projects.
“Cheap, abundant US supplies of natural gas combined with forecasts of growing global LNG demand early next decade are not enough to ease the uncertainty facing the next wave of LNG,” reported S&P Global Ratings.
The problem is simple micro-economics. Supply at the moment exceeds demand, and though demand is expected to grow significantly into the near future, it is going to have a hard time gobbling up all the surplus supply.
The International Energy Administration doesn’t expect liquified natural gas (LNG) prices to rise until sometime well into the 2020s.
“We will see massive amounts of new LNG capacity coming to the market … so we will probably continue to have well-supplied markets into the middle of the 2020s,” Keisuke Sadamori, director of energy markets and security at the IEA told Reuters last week.
“It’s not good for us if you have a prayer for this decade,” said Larry Persily, the former director of Alaska Natural Gas Transportation Projects for the federal government and now a natural-gas consultant for the Kenai Peninsula Borough.
A one-time deputy commissioner of the Alaska Department of Revenue who has worked for both Republicans and Democrats, Persily lost his federal job when the U.S. government decided a long envisioned gas pipeline from Alaska through Canada to the Lower 48 states was an economic no-go.
Walker’s vision
Enter the all-Alaska gasline, a dream of Alaska Gov. Bill Walker for decades. As an attorney and activist, he pushed the administration of Gov. Frank Murkowski to build it in the early 2000s.
Instead, Murkowski tried to work out a deal with the major North Slope oil producers that hold the rights to the gas for a pipeline to the Lower 48, but that didn’t work out.
Walker thought his idea had a shot when Sarah Palin soundly defeated Murkowski, whose close links to the oil producers were questioned, and took over the governor’s mansion in Juneau.
“Murkowski viewed us [Walker’s Alaska Gasline Port Authority] sort of as the enemy,” Walker told Natural Gas Intel in December 2006. “I think we were really just focused on what was best for Alaska and not so much what was necessarily best for the leaseholders in Prudhoe Bay. He had a philosophy that what was good for them was good for Alaska and the time frame for the leaseholders would be whatever’s best for them and we just didn’t see the world that way.
“The leaseholders are conflicted with other projects throughout the world, and they have to prioritize what they do, and we understand that. But we don’t think Alaska should necessarily be in a queue on that.”
In interviews, Walker has expressed the belief the major oil producers in Alaska – BP, ConocoPhillips and Exxon-Mobil – are sitting on Alaska gas as money in the bank instead of making solid economic decisions as to the present value of the gas.
Palin tried to use the Alaska Gasline Inducement Act, which she rammed through the Alaska Legislature with the assistance of Democrats, to force the companies to build the gasline. That didn’t work, and Walker was left unhappy with Palin because AGIA had settled on the route through Canada to the U.S. while Walker wanted an all-Alaska route to tidewater.
As the Republican candidate for vice-president of the U.S. in 2008, Palin famously declared, “I fought to bring about the largest private-sector infrastructure project in North American history. And when that deal was struck, we began a nearly 40 billion-dollar natural gas pipeline to help lead America to energy independence.”
The reality was that the project hadn’t turned a shovel of dirt and never would.
Frustrated by the inaction, Walker launched his first bid for governor in 2010. It was all about the gasline.
“Republican gubernatorial candidate Bill Walker has positions on many Alaska issues, but he has passion for developing the state’s huge reserves of natural gas,” Juneau Empire reporter Pat Forgey wrote at the time.
Walker lost the Republican primary to incumbent Gov. Sean Parnell, who had stepped up from the position of lieutenant governor after Palin’s surprise announcement she was resigning. That followed her failed bid for the vice-presidency as the running mate of Republican Sen. John McCain. Palin went on to become Alaska’s best known pol-ebrity.
Parnell abandoned AGIA and negotiated a deal with the producers; TransCanada, a pipeline company; and the Alaska Gasline Development Authority, a state entity, to begin work on a new gas pipeline project.
Walker was unhappy and launched another bid for governor as an independent candidate. This time, he won the support of Palin and help from Alice Rogoff, then publisher of the state’s largest newspaper, and from an agreement with Democrat gubernatorial candidate Byron Mallott to run as a “Unity Ticket.”
Mallott, the one-time head of a regional Native corporation in the Alaska Panhandle, abandoned his bid for governor to sign on as Walker’s number two. With Rogoff’s newspaper pounding the drum about Parnell’s failure to aggressively pursue charges of sexual misconduct involving the Alaska National Guard, Walker and Mallott beat Parnell and his running mate 48 percent to 46 percent.
In with the old
One of Walker’s first acts in office was to bring back to the Alaska Department of Natural Resources Mark Myers and Marty Rutherford, who had championed Palin’s AGIA plan to pressure the oil producers to build the gas pipeline.
The duo signed on to lead the old Parnell plan to build a pipeline in cooperation with the oil companies. The project was then run by Exxon-Mobil, the most successful privately owned oil and gas company on the planet. (Globally, it ranks fifth but all of the oil giants in front of it are government-owned entities.)
Parnell’s friendly partnership between the state and Big Oil didn’t last long. Exxon lost the leadership role shortly after it suggested that global energy markets indicated work on the project should be slowed down to plan for construction sometime after 2020.
Walker took that as another attempt on the part of Big Oil to stiff Alaska and announced the state was going to take the lead on the plan for construction of the $45 billion to $65 billion pipe from the North Slope to tidewater at Cook Inlet where a liquified natural gas (LNG) plant was to be built to prepare the gas for export.
So far, the state has spent millions on studies, hiring and travels to Asia to try to sell China, Korea or Japan on gas. Keith Meyer, the governor’s half-million dollar man and gas czar, was back there making another pitch for gas in mid-October when the Gasline Corp. reiterated a year-old complaint about all the Alaska negativity.
Only a month earlier, Walker had claimed international interest in Alaska gas was “unprecedented.” The claim might well have been true.
The problem comes in the difference between shoppers and buyers. Asian gas consumers after the best deal would be fools not to talk to Alaska with proven gas reserves of more than 45 trillion cubic feet, enough to power Russia’s Surgot-2, the world’s largest gas-fired power plant, for the next 120 years. That power plant produces about 40 percent of Russia’s electricity.
Alaska’s got gas. What it doesn’t have is a gas pipeline, and the high-cost of building one will make Alaska gas costly. A study prepared for the state by a consultant estimated global oil prices would have to top $70 per barrel before Alaska gas would become close to competitive in the world market.
Natural gas prices have historically been tied to oil prices, but have started to decouple in recent years because of the oversupply of gas. Most oil analysts don’t expect gas prices to reach $70 per barrel until sometime in the 2020s.
Day-by-day, it looks more and more like ExxonMobil was right and the governor was wrong, something Walker seemed to suggest weeks ago in an appearance before the Alaska Resource Development Corp.
He conceded then it might be time to give up, and added that “some people are starting to talk about direct-shipping of LNG from the Slope,” according to a report in the Mat-Su Valley Frontiersman.
The Russians are already producing LNG in the Artcic and shipping via ice-breaking tankers with the Koreans and Chinese partnering to build more of those ships. according to Marine Link.
Persily doesn’t, however, expect any of this to stop the state push for a gasline.
“Keith Meyer is never going to say it’s over,” Persily said.
And that’s understandable. If you were making $500,000 a year to sell the idea Alaska’s gas can be sold, would you say its unmarketable?