Revenue commissioner outlines a new direction for Alaska’s gas pipeline project

Sen. Cathy Giessel, R-Anchorage, and former Sen. Mike Dunleavy, R-Wasilla, listen to former Alaska Gasline Development Corporation President Keith Meyer, during a Senate Finance meeting focusing on corporation’s budget on February 14, 2017, in Juneau. (Photo by Rashah McChesney/Alaska’s Energy Desk)

Alaska’s natural gas pipeline export project is headed in a new direction.

And that direction looks a lot like a previous version of the project: one that was led by the oil companies on the North Slope.

The state corporation in charge of developing a natural gas pipeline project has new board members, they’ve installed a new president — and they have new direction from Gov. Mike Dunleavy’s administration.

That direction is similar to the one the Alaska LNG project was following before former Gov. Bill Walker took office. One that was led by the “big three” oil producers in the state: BP, ConocoPhillips and ExxonMobil.

New Department of Revenue Commissioner Bruce Tangeman laid out some of the philosophy of the Dunleavy administration at an event for the Alaska Support Industry Alliance in Anchorage on Friday.

Right now, he said they’re in fact-finding mode.

That is, the new administration wants to get more information about exactly where the project is in the process of getting permitted and built.

“Is the project economic, and is there a way for us to share the risk in this project?” Tangeman said. “There’s a lot of, well, there hasn’t been a lot of information publicly on the project for the last couple of years.”

Once they get that information, Tangeman said it needs to go back to the Legislature.

To accomplish that, the state is going back to a stage-gate approach. That’s a style of project management that divides projects into stages, each one separated by a decision on whether to move forward.

“That’s the process that we had been using prior to the Walker administration,” Tangeman said. “There’s no secret to it, there’s no science. It’s merely — this is how big projects that companies like Exxon, BP and Conoco, this is the process that they have used and continue to use to build projects around the world.”

Tangeman said the Alaska LNG project moved away from that phased process when former Gov. Walker took over and installed Keith Meyer at the helm of the gasline development corporation.

The pipeline project was a key issue for Walker, who said the oil producers had too much control over it. In 2016, the oil producers stepped away from the project, saying it didn’t make economic sense at the time.

Meyer and Walker championed a state-led project and pushed for an accelerated schedule to get it permitted and built in time to meet what Meyer said would be a global surge in demand for natural gas.

“After a certain amount of time, there was discussion of FID, final investment decision, and breaking ground and hiring 10,000 people. Well under the previous stage-gate approach, we probably would have gone through a couple more stage-gates before we would even be talking about that,” Tangeman said. “It just seemed like it was too good to be true.”

A final investment decision is essentially when the project gets a final go-ahead and starts planning for shovels in the ground. And for the last few years, the message from the gasline corporation has been that the state is aiming to get that by next year.

“Yeah, 2020 for an FID was not realistic,” Tangeman said.

The project will now be driven by economics — does it make financial sense for the state to get it built right now? — instead of a schedule, Tangeman said.

Another problem for the Dunleavy administration is the current structure of the project — that is, that it’s state-led and there are currently no partners. Tangeman said that means the state is taking on all of the risk.

“State government is not exactly set up to build $50 billion projects,” he said.

The gasline corporation is negotiating with three potential partners in China who could buy the gas or put money into the project. Tangeman said he doesn’t think the changes at the Alaska Gasline Development Corporation will scare them off.

“Our customers, potential customers, you know if China is a potential customer down the road — they understand what this governor is doing,” he said.

Tangeman said the Dunleavy administration would like to see its former oil and gas industry partners — that’s BP, ConocoPhillips and ExxonMobil — come back to the project, though it’s not clear if they will.