Rep. Les Gara Says It’s State Sovereignty vs. Exxon in Alaska’s Pipeline Politics.
18 03 2009
By Rep. Les Gara (D)
I might lose my honorary Mudflats Fan club membership over this one. But I really need to say this. The future of an Alaska gas pipeline, and whether this state cedes its sovereignty over our natural resources to the Exxon’s of the world, depend on it. How do I say this politely?
There’s a temptation in politics to criticize everything proposed by those politicians you don’t support. I understand it. I resisted that temptation for 8 years under President George W. I now see this going on with the Alaska gas pipeline, and the politics are getting dangerous.
As Governor Palin becomes more of a lightning rod, lots of Republicans and Democrats who oppose her have started to oppose EVERYTHING she does – and many of her most devout fans have likewise started vilifying anyone who doesn’t agree with her on EVERYTHING. We all have to, um, what are the words I’m looking for. Oh yeah. STOP IT!!!!!!!!!!
On the Gasline, opposing the Governor’s position means this. It means opposing the efforts of EVERY DEMOCRAT in the Legislature. Much of the Republican Party leadership fought us on this one. Don’t get the wrong impression. To get a Gasline, it could be that President Obama, and Congress will have to come to the rescue to help us. The President lists this project as one of his major energy priorities – we need it to replace fuels that produce far too much greenhouse gas, and need it as a bridge fuel to get America to a renewable energy future.
Time out. I probably need to build up my Progressive Street Cred before I lose you.
Street Cred interruption. Street Cred interruption.
When Governor Palin’s gone too far, I’ve been vocal in the state and national press. Ask Google. Search the Mudflats, Daily Kos and Huffington Post archives. And as a vocal Democrat, I haven’t received a lot of love from the Republican Party – a party whose biggest historical donor, VECO CEO Bill Allen, had some choice words to say about me in his federal corruption trial. I’ve put hundreds of hours into fundraising to elect good state, local and federal candidates who’ll improve our state and country (I’m looking for a good, eager person to take over my unbelievably fun House Democratic Campaign Committee fundraising duties, any takers?). Oh, and I’ve been a vocal supporter of President Obama long before he won the Democratic Primaries, back when he was just a long shot.
Hopefully I have enough Progressive Cred to get you through this column now.
Here’s the crux of my concern. Opposing Alaska’s plan for an independent gas pipeline – an issue we agree with the Governor and a cadre of Republicans on – translates into siding with Exxon, British Petroleum, and other oil interests whose executives are seeking billions in unjustified corporate concessions from the Alaska public. They’re starting to salivate in the Exxon and British Petroleum board rooms over the prospect that those who don’t love the Governor will reflexively oppose her – and our – plan for a gas pipeline.
Here’s why. For decades Alaskans have been right to join in a common goal to build a natural gas pipeline. We need it for local energy. And we need it because as oil production declines, we’ll need a job and tax base. Without oil or natural gas revenue every Alaskan worker would have to pony up roughly $15,000 in sales or income tax payments, maybe their PFD, and then property taxes on top of that. That’s a recipe for pain, bad roads, bad schools, and no progress on our greatest problems.
So, why is the TransCanada license we agreed to sign so important?
1. The major oil companies likely oppose a gasline.
Why isn’t clear, and until we get access to their Board minutes, we won’t know for sure. There is evidence that Exxon, Conoco and British Petroleum may want to delay a project because sending Alaska gas to the Lower 48 will reduce the price they get for the natural gas there. Or they may not want a gasline until later because that’s what fits their business plans. They may want to keep using their natural gas as long as possible to pressurize oil out of their North Slope oil fields, even if delay kills a gasline project forever.
2. The TransCanada project places pressure on the oil companies to move forward.
Remember what we had before TransCanada? The Frank Murkowski proposal with Conoco, Exxon and BP? The one that would have, by contract, prohibited us from fixing the flawed oil tax law he signed, and that’s put the FBI on overtime? The one that included billions of dollars in tax concessions, and great financial risk for the state?
That’s closer to what you’d get if you only negotiated with the oil companies to build a gasline.
Where do the oil companies get their leverage? Well, they hold the leases to the major known reserves of natural gas on the North Slope. If they know we are relying on them to build a gasline, they can withhold their cooperation until they get the tax breaks they want, and the terms they want. If they’re the only game in town, they won’t build a gasline until we say “Uncle.” The terms they demand won’t be in our favor.
Today, with TransCanada moving ahead, the oil companies have quickly created their own pipeline company, Denali. To date we don’t know whether the major oil companies have any real intent of building a Denali line, or whether they have done this for show, to get the public to fall out of love with the TransCanada project. My belief is that if we stopped moving ahead with the TransCanada project, the Denali project would disappear, or remain only if we promised the billions in tax and other concessions the oil companies will demand.
3. What other terms will the oil companies demand?
Our experts call what the major oil companies want “Basin Control.” What’s that? They don’t want other companies to make money off North Slope natural gas. If there’s a gas pipeline, the major oil producers want as many North Slope leases as possible for themselves. How can they make sure they get their way? Well, if a pipeline is built, the initial one will be sized to fit the gas reserves the major oil companies hold. In an ideal world, independent companies will then look for gas, hire workers, and produce gas that produces more state revenue. But it’s not that easy.
New production will likely require an expansion of the original gas pipeline. If the pipeline is owned by the major producers, they’d want the independent companies to pay for the full cost of the expansion, through what’s called “incremental rates” – transportation rates that charge the new producers for the cost of expanding the pipeline. That could make production by new producers cost-prohibitive.
Here’s the fair way to price natural gas transportation. Natural gas is a public Alaska resource. As Alaskans we want to encourage production, and under Alaska law – and the TransCanada license – we have required the pipeline owner to agree to what’s called “rolled in rates,” and to argue for rolled in rates before the Federal Energy Regulator Commission. What are rolled in rates? Those rates would charge all gas shippers, including the major producers, the cost of expanding the line. That would make gas production more economic for new producers, would likely spur new production, and is not to the advantage of the major producers. This is one of the rules the major oil companies have vocally opposed. The Denali line will not abide by the requirements on rolled in rates that TransCanada has agreed to.
4. Where Can We Stumble?
Next year TransCanada is required to hold an “open season”. This is where the battle for Alaska’s gasline future will be waged next. In an open season the major oil companies will state whether they’ll agree to sell their gas into the TransCanada line. It is expected they will say “no”, and try to cause TransCanada to fold. No one can build a gasline if they don’t have a promise that there will be gas they can charge to ship.
5. The $500 Million Question.
The critics of the current proposal have focused on the $500 million contribution the state has promised. Though, by the way, we’ll get much of that back if a gasline is built. By law, the rates TransCanada charges, and that come out of state taxes, can’t include this $500 million contribution – that is, the $500 million state contribution will lower the transportation charge allowed by FERC on this line.
So, why did we have to contribute $500 million? Well, it’s pretty disingenuous of the major producers to complain about this provision in the law. The state had to provide it to help TransCanada through the delay and uncertainty in this gasline that will likely be caused with the oil companies don’t show up at open season. That is, we all know the major oil companies may try to slow this project down, and possibly kill it. To get independent companies to bid on the gasline, we had to provide a financial contribution to help them through the uncertainty.
At that point we may have to threaten to sue to require the major producers to sell their gas (they likely have a legal obligation to sell gas into a pipeline if the pipeline charges a rate that makes gas production economic).
Alaska’s gasline future is in our hands.
We shouldn’t play politics with it. In this case, joining the chorus against the TransCanada project is joining Exxon. It’s joining British Petroleum. It’s joining those who want you to give up your state’s sovereignty.
In politics it’s rare that your political opponents are always wrong. And it’s rare that those you support are always right. I hope you’ll keep that in mind when you hear, next year, that the major oil companies haven’t shown up at open season. That should be call for us to stand together with resolve, not to celebrate the failure of the TransCanada proposal. It should be a call for us to stand together in our effort to move the TransCanada project forward.
Representative Les Gara
Alaska State Legislature
716 W. 4th Avenue, Suite 310
Anchorage, Alaska 99501
Phone: 907-269-0106
Fax: 907-269-0109
www.akdemocrats.org
March 19th, 2009 at 10:27 AM
Les, thanks for contributing to this wonderful blog, AKM has for us! And thank you, for sending me your newsletters even though I’m in cali!
I think its important for our Reps. and Leg. to be accessible to their constituents and by joining this blog and conversation you are doing just that!
March 19th, 2009 at 10:30 AM
Hey Les!
Thanks for “palling around” with Mudflatters”!
March 19th, 2009 at 10:38 AM
CO almost native (09:38:30) :
You are % 100 correct about Canadian First Nations. The federal government has no say over their lands whatsoever. Some of them are no different than any small sovereign nation.
It will be like attempting to lay a pipeline through approximately 13 or so countries. The largest country welcomes the idea and the remainder do not. In fact the remainder are vehemently against it.
The First Nations have prevailed in the courts, so it would be more than a difficult challenge for Alaska.
Of course Palins lawyers on this project, have almost dismissed this fact, out of disregard for the intelligence and power of our native population .
If I were an Alaskan, I would insist that the First Nations issues were resolved before proceeding with any plans.
March 19th, 2009 at 10:50 AM
The First Nations have prevailed in the courts, so it would be more than a difficult challenge for Alaska.
Of course Palins lawyers on this project, have almost dismissed this fact, out of disregard for the intelligence and power of our native population .
If I were an Alaskan, I would insist that the First Nations issues were resolved before proceeding with any plans.
~~~~~~~~~~~~~~~~~
Yes I totally agree! I know I’m not Alaskan so my thoughts mean squat but that would be the prudent thing to do before throwing more money into it, especially if the First Nations are already against it.
March 19th, 2009 at 11:03 AM
Martha is right. Canadian First nations people will be a major hurdle for this pipeline. They are extremely organized and have a very high profile amongst our government leaders. Most Canadians try to listen to and respect our First Nations leaders and their people. Its not perfect by a long stretch…but we have come a long way.
March 19th, 2009 at 11:11 AM
Perhaps Mr. Gara…you should run for Governor. I am being sincere when I say this….not snarky.
I do appreciate many of the things that you have said. I surely am no expert on pipelines, gas, nor oil. However..I have not billed myself that way in the way SP has done.
I truly believe that most people…especially mudflatters….dont necessarily disagree with a pipeline. The problem is, that Ms. Palin has lost a huge amount of credibility. Its unfortunate, but its true.
I thank you for sharing your point of view without sounding as though you are lecturing.
March 19th, 2009 at 11:12 AM
Pipe Dreams
Sarah Palin likes to talk about how she’s building a $40 billion natural-gas pipeline from Alaska to the Lower 48. But the project hasn’t gotten off the ground, and it’s her fault, Portfolio reports.
http://www.portfolio.com/executives/features/2009/03/17/Governor-Palins-Big-Energy-Battles
March 19th, 2009 at 11:26 AM
What thoughtful, intelligent responses here from so many! I have enjoyed reading them and also hearing all side of a very complex issue.
Coming from a state (CA) that is teetering on the edge of economic collapse, yet we have one of the highest state income tax, receive the least per capita earmarks per resident and not to mention our state sales tax going up a another penny on April 1st (9.7% in LA County, 8.75% in OC) , I guess sitting on huge reserves of oil and wondering who gets what when where is a problem I can’t relate to.
But what I do find troubling and I think more to the point here is that your governor has demonstrated again and again and again that whatever agenda she puts out, her transparent and ONLY goal is to further her own personal agenda and she will glom on to any issue that she thinks promotes her. She is not only a ‘magical’ thinker, she is a shallow, superficial, short-term thinker who is incapable of acting in anyone’s long-term interests except possibly her own.
She is however very adept however at parlaying minimal accomplishments into political rhetoric that she uses shamelessly to promote herself as something she clearly is not – someone who gives a shit about anything but herself.
I don’t know if the pipeline is a good idea or not. I think I tend to fall on the side of those who say $500 million could be invested in alternative energy sources that have longterm benefits, not short-term get-rich quick schemes for the oil companies.
But what I do believe is that anything Sarah Palin proposes needs to be looked at with a fine tooth comb because one can be 100% sure that she never did. She just saw a political opportunity to advance herself and grabbed it with no worry or thought towards what is best for the future of Alaska or Alaskans.
And that, Rep. Gara, is why I think so many people are naturally suspect of anything the Sarah Palin proposes. It is HER that people don’t trust because they question her motives and doubt that anything she does is to benefit anyone but herself.
March 19th, 2009 at 12:29 PM
Mr. Gara: “So, I don’t buy into the argument that since they h old the gas, we should cave, and give them everythign they want. That’s the crux of the whole debate here. That was the Flaw in the Portfolio Article – that since the oil companies held the leases, we should do what they tell us; and it’s the flaw in Andrew Halcro’s position.”
Respectfully, Sir…..but you’re presenting an “All or Nothing” argument here: Cave or do it Palin’s way. That’s truly the flawed argument.
I go back to Mr. Knowles’ position that the real, business-world option is ” negotiating with interested parties to try to make something happen that would be good for all concerned.” Instead, Palin and “the state has gone in the direction of dividing the players instead of trying to bring them together.”
I see nothing about Mr. Knowles’ or Mr. Halcro’s position that is “caving.”
March 19th, 2009 at 1:19 PM
Interesting discussion. Thanks, Mr. Gara! And I agree 100% with my fellow Canadians that the Canadian First Nations will be a major hurdle. Not least because they DO NOT generally stand to benefit from increased oil sands development. Canada as a whole does not, but especially not the neighbouring First Nations. It will be very costly, if not impossible to prevail on them to accept a project that will lead to the further degradation via oil sand development of the environment they depend upon and live in.
Second, just a though inspired by the fact that the oil companies are using natural gas deposits to pressurize oil deposits. They must be extracting it from the earth in order to put it somewhere else. Are they paying taxes and royalties to the state for this extraction and use or is there a nice, accommodating loophole for this extraction and use? If they are paying taxes/ royalties, couldn’t they argue down the road that they have already paid once and just pump it out again? Thinking like a crook here.
March 19th, 2009 at 2:11 PM
I have gone on at length re: my views on the TC pipeline issue, so won’t reiterate here, will only say the following:
1) This seems like partisan anti-oil stuff to me.
2) Sorry to burst the bubbles of readers, but this was not written specifically for mudflatters, as it is the content of Mr. Gara’s latest newsletter sent out via email. Or else it WAS written for mudflatters and was lifted verbatim for the email newsletter.
3) If Alaska really wants to get serious about sending a message to oil companies then it had better get an alternate revenue stream that lets them know that they are not the only option. This would be an INCOME TAX. If one is truly interested in the well-being of Alaska, then they should have the nerve to bring up that subject, falling on their political sword if need be. Bring it back bring it back bring it back. Palin could do LOADS for her GOP cred, if she has the nerve to, by spouting personal fiscal responsibility for Alaskans (as opposed to the socialist PFD thing) via personal state income tax, knowing full well it will mean that she won’t get re-elected, but then at least she would have a great GOP platform issue to blame for it.
Look, I like a lot of what Gara has to say, but not a bit of what he has to say about oil & Alaska. Until AK government comes up with something to replace oil revenue they need to find ways to WORK TOGETHER.
And I still don’t like anything that Palin has to say. Still the worst gov this state has ever had.
March 19th, 2009 at 2:27 PM
The following is an excerpt from Andrew Halcro’s blog 3/18/09 which I found interesting regarding AGIA:
“Last week Rep. Jay Ramras (R-Fairbanks) and Rep. Craig Johnson (R-Anchorage) introduced a resolution that asked the governor to review AGIA and make sure the project and the $500 million outlay of taxpayer money to TransCanada still makes sense given the dramatically changed global economic outlook.
And while there has been no desire shown by either the House or the Senate to revisit AGIA, that hasn’t stopped some from coming out and attacking the resolution.
What’s odd about the sudden burst of policy makers rushing to AGIA’s defense is their arguments are as hollow as AGIA itself.
Yesterday at a press conference called by House Democrats to defend AGIA, Democrats started sounding like Republicans in their support for stability and predictability within the oil & gas industry.
Democrats Les Gara, Berta Gardner and David Guttenberg to name a few, all said the same thing; if Alaska’s revisits the AGIA contract less than a year after it was signed, it would show the global marketplace that Alaska was an unpredictable place to do business.”
Ramras’ and Johnson’s resolution is at least taking into account what is happening in the global economic situation. Sounds intelligent, realistic, and aware that changing forcasts might necessitate flexibility or scrapping the original plan.
As far as the Democrats’ concern for losing face “in the global marketplace”……I submit that the business failure of poorly-constructed plan is the biggest loser of all.
Alaska “an unpredictable place to do business??”……As long as Palin is at the helm, doing business with Alaska will be wildly unpredictable. She is an unpredictable, shallow politician whose every move from here on out will be to do what she thinks favors her political chances in 2012. Bank on it……….. since that’s the only predictable thing about her.
March 19th, 2009 at 6:20 PM
@Les (and @SMR):
Thank you, Les, for clearly outlining your position. You successfully make the case that the gasline issue is far more complicated than being pro- or anti -GINO.
However, as an outsider, I am not totally persuaded by your fundamental assumption that the key issue in this matter is to achieve the maximum net financial benefit for the AK state treasury and the AK economy. While it is true that the gas reserves lie in Alaska, they also lie in the United States (no matter what the AIP may think). The preponderant majority of consumption of the reserves (whenever that may be) will occur in the Lower 48. Therefore, virtually all of the money that pays for the gas (and amortization of the pipeline) will originate with residential and industrial consumers Outside.
Your negotiations with “Big Oil” are, essentially, arguing over how to split up the take of money from outsiders. I hope you can appreciate that for an outsider such as myself, the key question is, rather: what policy will lead to the lowest delivered cost per unit of natural gas? This question will become especially sharp if it turns out that the Federal government (that is, the taxpayers in the Lower 48) ends up subsidizing the gasline.
I am practically a charter reader of the Mudflats, and I have a certain empathy for things Alaskan based on spending the winter of 70-71 at Clear, but I have to say that since the North Slope development, you all have been living in a state-fiscal dreamworld. I am just as incensed as any other knee-jerk liberal at the multi-billion-dollar profits of the oil companies, but I am also aware that a billion dollars into the Permanent Fund has the same effect on the price of gasoline or heating oil as a billion into Exxon’s bank account.
I stipulate that we (that is, the US) need a gasline. The gas reserves are a significant resource that could help us bridge the energy gap between now and a “greener” future. It seems to me that sooner would be better than later, and that sooner might also mean cheaper in the long run. I am afraid that the AGIA will turn out to be a paper tiger; that its failure will leave the oil companies in an even more dominant position; and that this will delay the availability, and increase the cost, of supply from the AK gasfields.
AK government is, admittedly, in a difficult position. Any of the major oil companies is, financially, bigger than Alaska. As SMR (14:11:43) points out, AK will not be able to negotiate properly until it frees itself from the current situation where its entire state budget depends on energy royalties/taxes.
Mr. Gara, your post may well resonate with some of your Alaskan constituents. I would even agree that your position is appropriate for a state representative — trying to maximize the financial benefit to the state. However, I have to object to your use of the term “Progressive” to describe yourself. Maximizing local benefits to the detriment of the greater community is not a progressive stance.