Alaska's Gas line deal with China explained

Published: Nov. 9, 2017 at 5:28 PM AKST
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You have to forgive Alaskans if the deal announced yesterday between the state and three Chinese firms to advance efforts to get North Slope gas out of the ground feels like just another pipe dream.

Countless projects past, touted as a sure thing at one press conference or another, have all fallen apart.

So, is the new deal championed by Gov. Bill Walker and the state-owned Alaska Gasline Development Corp. actually going to end with the long-awaited economic boom? The short answer: maybe.

Here is a longer answer, a breakdown of the five-party joint development agreement, and a look forward at what happens next:

Which groups are involved in the deal?

In a ceremony attended by Presidents Donald Trump and Xi Jinping at the Great Hall of the People -- a famed government building at the western edge of Tiananmen Square in Beijing -- five organizations agreed to a deal: the State of Alaska, Alaska Gasline Development Corp., Sinopec, Bank of China, and China Investment Corp. With all of those organizations on board, it means the potential customer, lender, equity investor, and developer are all largely on the same page.

Where can we see a copy of the agreement?

Right now, you can't. Keith Meyer, AGDC's President, told reporters in a Wednesday evening teleconference that the document will not be available until next week.

Does a 'joint development agreement' mean there's a deal by the Chinese entities to send cash to Alaska? Is there a plan to break ground on the mega-project?

No, and no. The deal is more substantial than past memorandums of understanding, but financial terms are still up in the air. So is all of this: the debt plan, who pays for what in an infrastructure project expected to cost $43 billion -- at the very least, how much Chinese gas consumers would pay for LNG, and so on. All five parties will work together in the next year to hammer out the details. A progress report is due in the middle of next year -- at about the same time AGDC is set to run out of state government cash -- and a binding contract is expected next December.

Who would own the pipeline?

That is among the many details still to be negotiated, but Keith Meyer said the state-owned corporation is committed to having the State of Alaska maintain a stake of 51 percent or more in the pipeline and related liquefaction facilities.

Still, even if the Chinese government doesn't outright own facilities, is it really a good idea to enter into a partnership with and send a generation's worth of natural gas to a communist country?

There is no objective answer to this question, but certainly, this issue will be debated ad nauseam in Washington over the next year. One key benefit for the U.S. is a massive dent in the current trade deficit with China, and that is a top priority for President Trump's administration; the downside is the question of eroding sovereignty, the question of whether or not the U.S. and China will remain political and economic allies for the life of a partnership that spans 30 years or more. And, who would be on the hook financially if China abruptly backed out of collaboration on AKLNG?

BP, ConocoPhillips, and Exxon hold the leases at Point Thomson and Prudhoe Bay, where the gas reserves to be commercialized under this new plan are located. How do those private firms fit into these negotiations?

The companies that hold the leases and would act as the producers would have to pay a royalty or give the state royalty gas. They will have to pay a production tax on anything pulled out of the ground, not the LNG customers in China. That means the state and producers still need to negotiate fiscal terms dealing with royalty and production tax terms for a final agreement to materialize.

The governor's race is next November. How does that affect these negotiations?

Gov. Bill Walker has spent much of his term advocating this deal, but there is a chance he will not be re-elected next November. He will still be in office next December when a final contract is due, win or lose, so he could theoretically set the deal in motion even if a successor is preparing to take over state government. The uncertainty in state leadership is one of many realities that go with a government-owned resource project. Another is the uncertainty of the state's tax structure. A project this size, whatever form it takes, certainly requires stability for the investors who put up billions. That means the state's royalty and production tax scheme may be a sticking point.

How does the state Legislature factor into decision making?

The Legislature is the appropriating body in Alaska, so any further state spending on the Alaska Gasline Development Corp. -- whether for engineering and design, construction, marketing, or anything else -- will require legislative approval. It is unclear if lawmakers will play another role, and when.