In early January, Governor Sean Parnell announced a new chapter in the long saga of the state’s efforts to monetize North Slope gas. A “Heads of Agreement” has been signed aligning the interests of the three major North Slope producers (ExxonMobil, BP and ConocoPhillips), TransCanada, the State administration and the state-owned Alaska Gasline Development Corporation (AGDC). This represents unprecedented alignment of interests in moving forward in developing this world-class gas resource for both in-state use and export.

If you’re an aging baby boomer like me you probably remember the classic Charles Shultz Peanuts cartoon where Lucy repeatedly baits Charlie Brown into kicking a football. Lucy never failed, in spite of her promises, to pull the ball away at the last second, leaving Charlie disappointed, embarrassed, angry, and flat on his back. I think many Alaskans feel like Charlie Brown when announcements are made about progress towards developing a gas line off the North Slope to monetize its vast gas reserves. We’ve had many false starts, having our hopes dashed when one approach or another fails to get to a sanctioned project that can actually get built.

But set backs, challenges, regrouping and new approaches are how great human undertakings get done. Circumstances change, such as the great technological paradigm shift in using hydro-fracking to develop natural gas from shale source rocks. That game changer put the North Slope to Alberta gas pipeline dreams in the scrap bin.

There are several reasons to be optimistic about the current set of developments. First, getting the producers, the state, and TransCanada on the same page is huge. With the recent announcement of the Heads of Agreement, we can see a path forward to a single project involving the producers, TransCanada, and the state through a newly formed subsidiary of AGDC.

Second, the ongoing four billion dollar investment at Point Thomson demonstrates significant industry commitment to North Slope gas. While the current development is to produce liquids from gas condensate, Point Thomson is a big gas play with eight trillion cubic feet of proven gas reserves. Having ExxonMobil, the world’s largest oil and gas producer investing $4 billion upstream at Point Thomson is as clear of a sign that they are bullish on Alaska gas.

Third, the long-term global market outlooks for LNG are encouraging. ExxonMobil’s Richard Guerrant, the company’s Vice President for Gas and Power Marketing, told RDC conference attendees in November that he sees room in the market by 2025 for an additional 26 billion cubic feet (bcf ) per day of gas, not counting existing plants or plants under construction. That makes room for 2 to 2.5 bcf of exportable gas in liquefied form from Alaska, if it can compete with all the other global LNG projects under evaluation.

Without question the most beneficial gas line project for Alaskans is a large capacity line sanctioned by the producers. Fundamental project economics, largely out of our control, will dictate whether this project ever gets constructed. The state can’t make it happen, but public policy can either pave the way for the project should all the other challenges be overcome, or ensure our gas will remain locked in the ground.

Perhaps our biggest challenge in moving this project forward is in maintaining realistic expectations about what we should expect from this gas resource. Unlike oil, gas is sold on long-term multi-decade contracts. It will never produce the same level of benefits as oil has, and we can’t expect it to.

Gas will require predictable rules of the game, and the Governor rolled out legislation this session that outlines a stepped process with several legislative decision points and state participation, including an equity interest (see related story on page 7). These are serious policy discussions with little room for election-year politics. We need to carefully weight the risks, the rewards with a realistic eye on the need to compete globally with dozens of other jurisdictions and projects hoping to secure project backing.

As Alaskans, we need to make sure we do a few things to keep the possibilities alive for a commercially-viable gas line for Alaska.

First we must maintain a robust oil industry on the slope. Oil pays the bills and supports the vast and complex infrastructure on the North Slope needed to produce gas. If we fail to defeat the ballot referendum repealing SB 21 in August, we signal to the producers and the world that we lack the long-term vision essential in developing our gas resources.

Second, we need to have a serious and deliberate conversation about Alaska’s role in such a project. The Governor’s legislative proposal will require lots of work and analysis and the legislature is already conducting in-depth due diligence. We need to be mindful that global markets will not wait, and the long-term contracts needed to secure a gas line project will go to those jurisdictions willing to set realistic expectations and make durable commitments spanning decades.

Lucy might still conspire to pull the ball, and we could again end up on our backs disappointed. But the opportunity is there and its up to us to set the stage or we might as well tell Lucy we’re tired of playing and go home.

Return to newsletter headlines