Palins new energy

Sarah Palin’s gubernatorial campaign slogan “New Energy for Alaska” promised a fresh look at Alaska’s future and hinted that the energy industry would feature high on her administration’s agenda. But now that the campaign dust has started to settle, it’s worth a look at what the governor-elect said and what it might mean for Alaska’s oil and gas industry.

The hoped-for North Slope natural gas pipeline clearly sits at the top of the new administration’s priorities.

“When we are sworn in, we can officially begin negotiations to get a gas line,” Palin said about her first actions after taking office Dec. 4. Palin said she hopes to meet with the North Slope’s three largest producers — Conoco Phillips, BP and Exxon Mobil — as soon as possible after the election.

Incumbent Gov. Frank Murkowski negotiated a contract on tax, ownership and other terms of the Alaska Stranded Gas Development Act with the three North Slope producers if they build a gas pipeline. That pipeline would follow the Alaska Highway into Canada to the Lower 48. But the Legislature has not ratified the gas line contract.

Critics say the contract cedes too much to the producers in incentives and lacks firm commitments from them to build a pipeline, leaving the timing up to the producers’ agenda.

PIPELINE TO VALDEZ

Palin’s association with an alternative gas line proposal from the Alaska Gasline Port Authority during her campaign has raised questions about her impartiality in dealing with the North Slope producers.

The port authority’s smaller pipeline would deliver gas to Valdez, where it would be superchilled into liquefied natural gas, or LNG, then shipped to the West Coast. The North Slope producers have adamantly opposed the port authority’s proposal, saying that the Valdez option is not economically viable.

“I’ve always touted the positives of that (Valdez) route and that project, and I will continue to say there are positives in that route. … I’m not vacillating,” Palin said in a speech at Anchorage’s Hotel Captain Cook on Sept. 7. She also said that Murkowski’s negotiations had “shooed away” all options other than the producers’ Alaska Highway pipeline concept and that the port authority’s Valdez route might turn out to be a viable option.

And at a gubernatorial debate at the Captain Cook on Oct. 26, Palin confirmed she is open to all pipeline ideas.

“Many Alaskans are absolutely against the LNG project. There’s a myth there in terms of my support,” she said. “I did and do see some of the positives there in that LNG project as an option, but I’ve never viewed it as the exclusive option. We live in a competitive environment here. We ought to be considering all options for this pipeline. It’s that important for the folks to trust that the state administration will choose the best project, based on all options that are viable being fairly and objectively considered.”

COMPETING PROPOSALS

With help and advice from Tom Irwin, Palin has prepared a plan to solicit competing gas pipeline proposals. Irwin was the state commissioner of natural resources who was fired a year ago after expressing concerns about how the Murkowski administration was handling gas line negotiations.

“Obviously we need a competitive process in order to judge the proposals that are out there, to make sure that we’re going to pick the best project to finally market our North Slope gas,” Palin said at a Commonwealth North candidate debate on Sept. 29.

Besides the port authority, the entities Palin was referring to include pipeline company TransCanada and MidAmerican Energy Holdings Co., a pipeline company and gas and electrical service provider controlled by Warren Buffett’s Berkshire Hathaway Inc. Both companies previously submitted North Slope pipeline proposals.

But what if the North Slope producers don’t agree to supply gas to a pipeline operated by one of them?

The state can force the producers to supply gas, because of some of the obligations in the producers’ oil and gas leases, Palin and former state Oil and Gas Director Mark Myers have said. The state has leverage because it owns the gas, she said.

According to a Fairbanks Daily News-Miner report, Palin also said that she would open the pipeline negotiating process to the public. However, she has not set a deadline for a gas pipeline contract to be signed, because guaranteeing a deadline was not realistic and “would be unfair and disrespectful to Alaskans.”

NEW GAS LINE LAW

Palin thinks that a North Slope gas line is now a commercially viable proposition and that, consequently, the Alaska Stranded Gas Development Act no longer applies to a gas line development.

The stranded gas act offers the possibility of concessions in taxes and royalties in a situation where concessions are needed to make a gas line project economic — in a period of low gas prices. Irwin has said the Murkowski administration negotiated a $13.25 billion subsidy in the draft contract with the three North Slope producers.

Instead of using the stranded gas act, Palin would introduce a law of general application at the start of the 2007 legislative session. The new law would set the terms and conditions for the construction and operation of a North Slope gas line.

“We have to get up from underneath the constraints of the stranded gas act and through a law of general application we can lay out the conditions that we, as resource owners, want to see met,” Palin said at the Commonwealth North debate.

Palin said that the requirements spelled out in the new law must include “a guarantee for in-state gas, a guarantee for jobs for Alaskans, a petrochemical spin-off industry that Alaskans should be capitalizing on and access to the line by other independents.” Requirements must also include guaranteed pre-construction benchmarks, to ensure pipeline construction. And Palin has also said a gas line plan must include provisions for supplying gas to Alaska communities and for reasonable fees for gas line usage.

Neither a gas line bill nor a gas line contract would include oil tax stipulations, Palin has said.

Incentives for an entity willing to meet the state’s terms could include tax deferrals during construction, rapid permitting and state assistance with road and bridge improvements for pipeline construction.

POINT THOMSON

Palin has expressed frustration at the lack of progress in developing the huge Point Thomson gas and condensate field on the North Slope. The field, which Palin described at a Soldotna Chamber of Commerce gubernatorial debate as “essentially our next Prudhoe Bay,” has been the subject of a 30-year dispute between the state and the unit owners — Point Thomson negotiations have involved multiple plans of development and periodic expansions and contractions of the unit.

“We’re trying to convince the rest of the nation to open ANWR, but we can’t even get Point Thomson open,” Palin said.

And at the Commonwealth North debate she directed her comments at Exxon, the unit operator.

“We need to hold Exxon’s feet to the fire,” Palin said. “It’s time to market that gas at Point Thomson, but make sure that Exxon is adhering to the provisions in their leases.”

PIPELINE CORROSION

Palin also thinks that the recent pipeline corrosion problems at Prudhoe Bay could cloud the national debate about opening the Arctic National Wildlife Refuge. The state has a duty to ensure a robust state infrastructure and the state’s responsibilities include oversight of privately owned pipelines, she thinks.

“It’s no secret that those (corrosion) problems were growing and now of course they’ve finally erupted,” Palin said at an Alaska Conservation Voters gubernatorial candidates forum Oct. 4. “It’s time we did something about it … We’re going to have to prove to the rest of the nation that we can provide this oversight that’s so necessary.”

LEASING BRISTOL BAY

Palin has also expressed views on the possibility of opening the Bristol Bay outer continental shelf offshore southwest Alaska for oil and gas leasing. Bristol Bay has significant natural gas potential and some oil potential. But concerns about possible impacts on the region’s salmon fishery have resulted for many years in a federal moratorium on offshore leasing.

In October 2005 the state held an Alaska Peninsula areawide lease sale along the southern side of Bristol Bay. And Palin sees her administration continuing to focus on onshore rather than offshore development in the region — although there has been offshore oil development success in Cook Inlet, she thinks that the Bristol Bay communities need to support offshore leasing.

“With the local input and the local concerns being heard, it is so important for the local communities to have a buy-in but also to have a lot of confidence that decisions are being made that will protect the environment and, in that area especially, protect those fisheries,” Palin said in the Captain Cook gubernatorial candidate debate.

ALTERNATIVE ENERGIES

Palin sees alternative, renewable energy sources as a key component of Alaska’s long-term future.

“We need to start going into alternative energy sources and to see if Alaska can be the leader in a U.S. energy policy, which is a plan that is sorely lacking in our country,” Palin said during the Commonwealth North debate. “We have the hydro, tides, geothermal, the wind and the biomass. These are clean, local, inexhaustible supplies for power generation. That’s the energy for Alaska … These resources can fuel the United States of America.”

And, when commenting on these potential sources of energy, Palin mentioned the recommendations of a 2003 Alaska Legislature energy policy task force.

“We don’t need to reinvent a whole lot of wheels here,” Palin said. “We need take those good recommendations, plug them in and seriously consider them and start working on this issue.”

Palin also thinks that the University of Alaska could play a major role in developing alternative energy resources.

“I remind Alaska students as often as I can to get ready for a new world. Part of that new world for that next generation is going to have to include alternative energy,” Palin said. “Our university system can be huge here as a leader.”