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The current global oil price slide has caused companies and governments around the world to rethink their commitments to aggressive energy projects.
While these projects seemed realistic in healthier economic times, significant projects cost billions of dollars, it may make sense for projects like the Pacific Northwest LNG project in British Columbia or the gas liquefaction project off the coast of Texas by Excelerate Energy, to be delayed until energy prices recover.
Even in Alaska, a State where energy development is as synonymous with the state’s culture of polar bear or salmon runs, several major infrastructure projects are being shelved in light of a projected $3.5 billion budget deficit has been adversely affected by two factors: declining production and declining crude oil prices.
So long as the federal government continues its’ inane policy of forbidding new drilling, Alaskans can expect to see revenues drop over time. Cheap oil prices have only exacerbated the situation. Caught between a rock and a hard place, Alaska has been wise to look for new sources of revenue, and many believe natural gas is that answer.
Thus far, Alaska seems determined to forge ahead with its’ liquefied natural gas energy project, an infrastructure plan that will develop and deliver massive natural gas reserves from the North Slope. This $65 billion project is still going forward, despite the current status of the world’s energy markets.
Having already invested a significant amount of time and resources, Alaska understands the long-term upside of such a project. For example, just this week the House Majority announced its intent for a special legislative session in the fall, focused solely on the project. A smart move for several reasons.
While the project will not be operational for at least a decade, Alaska must set its eye on the finish line, ensuring the ability to collect the future revenue such a project will bring.
Despite these short-term challenges, Alaska’s future is bright, and natural gas is a proven winner. World demand for natural gas is high, and will continue to rise significantly during the next fifty years, if not longer.
While a few other countries could potentially supply the needs of energy-starved consumers in South Korea and Japan, Alaska’s geographical position is truly a trump card, which provides unparalleled logistical access and transportation efficiency. That said, other countries are watching closely and will be poised to capitalize should Alaska falter.
With so much upside, and so much at stake, it is hard to understand why politicians have not moved forward with the sense of urgency the state requires. As I wrote recently in Forbes, several actions by newly-elected Gov. Bill Walker have caused some to question his once stalwart support.
The dismissal of three Alaska Gasline Development Corporation (AGDC) board members, the state body charged with moving negotiations with major producers forward to build the Alaska LNG project, has certainly not helped.
In addition, a recent op-ed written by Gov. Walker for the Juneau Empire suggested the state’s recently reformed oil tax structure unfair, despite perpetual assurances during his campaign to respect the will of his constituents who voted in August to approve the reformed tax.
The Governor’s status has not been helped by the failure to quickly resolve the ongoing lawsuit against the Point Thompson settlement. In the past week, the Alaska House Majority sent a letter asking Governor Walker to drop or resolve the matter.
While none of the governor’s actions precludes future progress on the Alaska LNG project, the actions as a whole certainly appear to create some uncertainty around his future commitment to these types of projects.
Companies and even entire industries require governmental and regulatory certainty in order to invest the billions needed to advance important infrastructure projects. Alaska’s new leadership must actively promote confidence in energy projects like Alaska LNG.
Failure to do so today would send the wrong signal to audiences here at home as well as to the international audience of customers and competitors at a critical moment in time.