It wasn’t long ago that Alaska led the world in energy development. The 1968 discovery of oil at Prudhoe Bay brought energy boom times to the Last Frontier. The development of Alaska’s North Slope oil and the construction of the Trans-Alaska Pipeline System put thousands of Alaskans to work and created an unprecedented revenue stream to fund the state’s future.
With oil production in decline, the state wisely started the transition last year away from its largely single-resource dependent economy by targeting for development the large – and mostly untapped – natural gas reserves located on the North Slope. As I wrote for the Juneau Empire last year, this transition was the start of the next chapter in Alaska’s energy legacy.
For decades the state has tried to turn the page to natural gas. Proposals to ship gas to the Lower 48, to Canada, or even to in-state communities have never made it very far because of excessive costs, political infighting, or a lack of alignment among energy producers. However, the most recent proposal to develop Alaskan gas is different. The project known as Alaska LNG is a partnership between the state and the major energy producers in the project known as Alaska LNG. All the partners had been working since 2012 on what was the best and most viable plan for developing the natural gas. That is, until the state’s new chief executive took office last November.
Be it fights with the state Legislature or ill-timed opinion pieces that contradict campaign promises to develop a natural gas pipeline, Gov. Bill Walker’s first few months in office have been a case study in questionable decision making.
Just recently, the governor announced his intention to conduct a 45-day review of the Alaska LNG project. Being familiar with the work of a predecessor is prudent and certainly within his right as the state’s new executive. But as a recent Alaska newspaper editorial put it, his indecision is confusing. “For someone who’s made a natural gas pipeline his life’s work, it is puzzling that he didn’t start getting up to speed on AK LNG on his first day in office. Instead, he’s spent more than four months dithering, sowing confusion and in general mucking up the process,” wrote the Alaska Journal of Commerce.
Even more puzzling is the governor’s laser-like focus on a backup pipeline project at the expense of advancing Alaska LNG. Residents in Fairbanks and communities throughout Interior Alaska have always wanted access to affordable natural gas. Yet over the years, one project after another has failed in part because building a pipeline from the North Slope to only deliver gas to the state’s small populace was never economical. The gas would be too expensive for Alaskans to purchase. Any pipeline project needs to be large enough and include an export component in order to work. It would need economy scale, as the Alaska LNG project envisions.
Another complicating factor that the governor has ignored in his quest to secure a proper backup plan is the fact the state doesn’t actually own the gas. The North Slope gas reserves have been leased by the state to private entities, such as the partners in Alaska LNG. This historical arrangement has always made sense for Alaska. Producing and extracting natural resources like gas and oil is an expensive and complicated undertaking. Unlike BP or Conoco-Phillips, the state has no experience doing it. Alaska lets the energy companies do what they do best and in return, more than 90 percent of the state’s budget is covered by the revenues generated from energy development. Moreover, royalties from production created the Alaska Permanent Fund which, to this day, continues to pay yearly dividends to all Alaska residents. Even if the inexperienced governor wanted to move Alaska into energy production, there is no ‘overlift’ provision in place allowing the state to take back the natural gas leases from the private entities.
The governor’s move seems very similar to that the approach of President Obama on a different pipeline project. In ignoring the reality that Alaska doesn’t have its own gas to produce, the governor appears to be echoing the indecision of President Obama in spite of the countless studies showing the benefits of approving the Keystone XL pipeline.
Gov. Bill Walker campaigned for office on a promise to build a natural gas pipeline for Alaska, and the state’s transition away from full dependence on oil may yet happen under his watch. But the many missteps by a rookie governor in such a short period of time have left many wondering if the state is any closer to returning to its spot as a global leader in energy development.
