$50 million gas line question goes unanswered

The Alaska Legislature has yet to be given a good reason to hand over the $50 million that Gov. Mike Dunleavy wants for the Alaska Industrial Development & Export Authority for a gas pipeline study.

The Alaska Gasline Development Corporation can’t find a private company willing to pay $50 million for the final design and engineering work on a proposed gas pipeline unless there is a pledge to get that money back from the state.

After a cursory public review, the AIDEA board made that $50 million pledge in December. Dunleavy now wants the Legislature to pick up the tab, instead of having AIDEA withdraw from the hundreds of millions it holds in cash and investments that can be quickly turned into cash.

Testifying before the Senate Resources Committee Monday, AGDC President Frank Richards was asked a simple question by North Pole Sen. Robb Myers: “So if the economics are that good, why are you requesting a $50 million backstop from either AIDEA or the state directly for FEED?”

Richards did not answer the question, except to say that the unnamed North American pipeline company AGDC wants to update the costs on the project desires a $50 million money-back guarantee. This is in case it drops the project after finishing the $50 million in front end engineering and design studies, known as FEED.

He also said it is “common industry practice” to have someone—usually the owners of the gas or the buyers of the gas—to give a guarantee like this to a pipeline company.

The question remains, if this is a good investment for that pipeline company, why does the state need to give a guarantee to pay back $50 million?

Here is what Richards said in response to a simple question that deserved a clear answer:

“The $50 million backstop, it came about because the North American pipeline company who’s been working with us to advance the entire project—the full pipeline, which includes the compressor stations and the lateral leading from Point Thomson to Prudhoe Bay, as well as the Cook Inlet crossing—they want the full prize, which is ultimately the flow of 3.3 billion cubic feet.”

“To be able to move forward for the Alaskan needs, which are relatively small as you saw from Mr. Swift (analyst from consultant Wood Mackenzie who gave this presentation) approximately 200 million standard cubic feet a day, that they wanted to make sure that if they go forward through this engineering and cost update, that if the project does not take final investment decision that they would be paid back for that engineering effort.”

“Their proposal is that they will execute the FEED (front end engineering and design) level of work, they will contract with the engineering and procurement construction contractors to update the FEED, go out and get the cost estimates from talking to the pipe mills, at their expense.”

“And then we will go through the process of deciding whether or not to take a final investment decision. If a final investment decision is made, the project goes forward. The $50 million is not provided by the State of Alaska, it goes back to either AIDEA or the State of Alaska, and the project proceeds.”

“If, on the other hand, the project does not take final investment decision, then they’ve asked that they have a backstop. And this is common industry practice as pipelines, major pipelines get developed, that they will work with the owner companies to be able to, until they are sure that they have the contracts in place, that they want to make sure that they’re going to have their costs recovered.”

The pipeline company that would do the $50 million work on the gas pipeline is not Glenfarne, the company that AGDC is still negotiating with to handle the entire project. The $50 million would be just on the pipeline portion of the project, not the gas treatment plant on the North Slope or the export facility on the Kenai. AGDC has left a lot unexplained.

At the AIDEA meeting December 4, Revenue Commissioner Adam Crum said AIDEA would “take a very transparent, knowledgeable, fiduciary” role and “this backstop allows a private partner to start spending money.”

No one from AIDEA mentioned the need for $50 million from the Legislature.

No one from AGDC mentioned the need for $50 million from the Legislature.

AGDC and AIDEA would never have entered into this venture without knowing that a $50 million request to the Legislature was in the offing by Dunleavy, which he revealed later in the month and has now placed before the Legislature.

By keeping that a secret and engaging in this con job, Dunleavy, AIDEA and AGDC doomed the proposal as a legislative budget request.

The issue also raises a related issue, one that Sen. Cathy Giessel is looking into: Why wasn’t the $50 million pledged by AIDEA forwarded to the state treasury as part of the so-called “dividend” the agency is required to pay every year to help fund state services?

AIDEA could and should be paying higher dividends.

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