AD Header Dropdowns

AD Main Menu

What's federal pipeline office to do after Alaska gas-line proposal perishes?

Alex DeMarban
istockphoto

An agency created to oversee a massive pipeline project delivering Alaska natural gas to the Lower 48 has no such proposal to work on now that oil companies are chasing a different plan. But legislation proposed by U.S. Sen. Mark Begich (D-Alaska) could breathe new life into the federal pipeline coordinator's office, expanding its role to help with any project selling Alaska's North Slope gas.

For now though, the four-person, $1.4 million office has picked up odd jobs to stay busy, including running a costly news site and creating an online database of historical documents covering four decades of shattered pipeline dreams.

No one envisioned the office doing such work when Congress created it eight years ago, said director Larry Persily, an Obama appointee. Instead, it was supposed to expedite permitting for the conduit that would carry natural gas between Alaska’s North Slope and Alberta, Canada, where it would link with pipelines headed to the Lower 48 states.

But oil companies holding leases to develop the gas fields -- Exxon Mobil Corp., ConocoPhillips and BP -- have stopped looking toward the states. They've now dusted off an old idea to ship liquefied natural gas (LNG) to Asia by tanker vessels -- an effort they say could cost more than $65 billion.

Their new direction raises questions about the need for Persily's office. But Persily argues that the news-aggregation site and the historical archive bring value to taxpayers by creating a legacy of information.    

"My feeling is if the federal government wants to have this office, that’s great. And if we don't have any permits to work on, we'll find something that has some value for the public until someone tells me to stop. I told the White House, 'Hey, no permits, I'm going to do this.' They're like, 'Sure that's fine.'"

Get past the tax fight

Tapping the North Slope's vast natural gas reserves, the largest conventional reserves in North America, is considered critical to Alaska's economic future. But longtime Alaskans are skeptical the gas will ever reach market, despite pronouncements from Alaska Gov. Sean Parnell that the Asian-LNG effort is on track.  

Having watched decades of pipeline attempts go nowhere, Persily, 61, admits he's also jaded. But he holds out hope that a new project will advance toward the permitting phase, allowing his office to survive and ultimately help bring a gas pipeline project to Alaska. The state needs that gas, at the very least to heat Alaskans’ homes, he said. For that to happen, Alaska leaders need to do a better job explaining the benefits of a gas-line and lowering oil-production taxes -- though perhaps not by as much as Parnell has proposed.

Cheaper natural gas could save Fairbanks alone hundreds of millions of dollars a year by replacing expensive diesel. On top of that, a line worth tens of billions of dollars could generate hundreds of jobs and more than $1 billion a year in state and local property taxes. And the pipeline project would lead to other oil-company investments, including new exploration efforts and possibly value-added industries that make products with natural gas, Persily said.

Not every Alaskan trusts the oil companies, but working out a long-term tax deal might encourage the firms to invest in a gas pipeline, he said. Still, Persily believes state political leaders don't have the guts to make that happen.

"It takes a political risk-taker to stand up to the public and say, 'I want to negotiate with those thieving, bastard oil companies because I don't trust them, but I think maybe we can work something out,'" he said.

Filling the news hole

Read the news, and the prospects for selling Alaska's gas anywhere look grim. You'll find much of that news on what's essentially a news site run by Persily and his staff. Lacking a project before the Federal Energy Regulatory Commission to help permit, the federal employees spend much of their time working on the website.

With a payroll budget of $600,000 -- a figure that includes Persily's own $165,000, Congressionally set base salary -- the news site doesn't come cheap. Persily, a former Anchorage Daily News editorial editor, said he hopes the site raises awareness about Alaska's gas-line options.

Those options appear increasingly limited. Just read the stories. Companies are racing to build liquefied natural gas projects around the world. The Lower 48 seems awash in its own gas supplies, thanks to the shale gas boom. Russia's planning to supply Asia by tapping gas fields that dwarf the North Slope's reserves.

Most of the articles are aggregated from other news sites. Some are written by Persily and office writer Bill White, the former longtime business editor for the Daily News. They spend part of their day like they used to in the newsroom, selecting stories and deciding what to research and write.

"We want to make sure it's accurate and fair," Persily said of the website. "I'm certainly not writing opinion columns questioning the president's energy policies; I know there's some limits. But pointing out what our competition is doing, I guess that's to help educate people about what else is going on in the world. You can't make a decision in Alaska in a void. You need to know (for example) there are $170 billion worth of projects under construction in Australia."

The office's value can be measured in Web hits, Persily said. The site had 1,200 visitors a month in January 2010, shortly before he started working there. Readership has grown to 16,000 monthly visitors, and viewers come from all over the world, including from Norway, Canada and Texas. Of course, many readers are Alaskans.

"Certainly (it's) nothing by your standards or the Daily News or New York Times, but it tells me people are reading what we produce, and if you make Alaskans smarter, maybe they'll make a better decision someday," he said.

His office is engaged in other efforts, too. It's spending $85,000 to contract with the University of Alaska Anchorage to digitize and archive historical documents from all those dead pipeline projects for Alaska, some dating back to the mid-1970s.

It's time-consuming work for Persily's employees. Tasks include rounding up the documents from libraries and elsewhere. The searchable archive should be publicly available by the end of the year, and will grow from there, Persily said.  

Your government at work

To his credit, Persily has worked to scale back costs. Congress did part of the cutting for him, slashing his appropriation by $3 million in January, after the oil companies announced their change of plans. Persily says he didn't challenge the reduction.

The cut left the office with $1 million. Persily whittled the staff to four, a far cry from the high of 11 employees. Most recently Persily cut the staff attorney. Legal work now happens by contract.  

He's also lowered the rent for the agency's two offices, one in Anchorage and the other in Washington, D.C., though costs are still high at $250,000 a year. But that's lower than the $750,000 a year the office was paying for space in D.C. when Persily took over in 2010. His predecessor, Bush-appointee Drue Pearce, had rented 13,000-square-feet to hold as many as 50 people. She was planning for growth that never came, Persily said.

Persily got out of that lease, but only after paying the General Services Administration $150,000, a reimbursement for an earlier remodel. Persily and the office's other D.C. employee, the administrative director, now occupy a 750-square-foot office. They share a copier with private companies in the building.

The General Services Administration, an agency created to streamline the federal government's administrative work, also handles payroll for the office of four. That's $72,000 a year, Persily said.

Homeland Security checks required in federal buildings also cost a few thousand dollars. The inspectors arrived in Kevlar vests. After the review, Persily was told he shouldn’t stand near windows, in case someone wants to take him out.

"I'm learning that running a federal agency can be frustrating because of the constraints we deal with," he said.

The latest pipeline failures

For a few years, as Exxon and Calgary-based pipeline builder TransCanada were studying one pipeline project to the Lower 48, and Conoco and BP were studying their own line, the federal coordinator's office was busy helping those projects along. That ended early this past spring.

By then, BP and Conoco had dropped the so-called Denali Pipeline Project, saying a line to the Lower 48 wasn't economical. TransCanada and partner Exxon -- buoyed by a $500 million state subsidy under the Alaska Gasline Inducement Act created under former Gov. Sarah Palin -- held out longer.

But things began stopping after the companies in January announced they were shifting their focus to Asia. Still, TransCanada that month turned in 11 draft resource reports to the Federal Energy Regulatory Commission (FERC). Then the project was officially put on hold. That's when the work for Persily's federal office stopped, except for a few wrap-up items, Persily said.  

Gas production explodes

Conditions for a pipeline to the Lower 48 seemed ripe when Congress created the federal coordinator's office in 2004, passing a bill championed by Sens. Lisa Murkowski and Ted Stevens.

At the time, domestic gas prices had spiked. And the U.S. faced a natural gas shortage, forcing the country to look overseas for imports. But then new shale-gas technology was introduced, and everything changed. Shale gas production has exploded in the Lower 48 in recent years, shattering prospects for a 1,400-mile long pipe snaking across Alaska and Canada.

The new plan for Alaska gas now calls for studying a line from the North Slope to an Alaska port, perhaps to Valdez or Cook Inlet. There, a plant would liquefy the gas so it can be pumped onto tankers and shipped to Asian countries where gas prices are high.

Persily thinks the companies are serious. Alaska's gas has some key advantages over the competition, including facilities in place, such as roads, airfields, workcamps and sewage treatment plans. Such infrastructure would have to be built at new fields, sucking up time and money. Also, oil companies see long-term prospects of natural gas in the Asian market.

"I think there's a lot of reasons why they're serious. If they can build a project and make money, that's what they'll do," he said.

Kill the office in two years?

But the lack of sufficient profit has killed the gas-line project time and again. Skeptics have to wonder what's different this time. Some might call the letters of "alignment" by the oil executives a carefully orchestrated attempt to make the governor and industry look good before they go to the Alaska Legislature in January to seek an oil-production tax cut that's eluded them the last two years.

Begich's proposal, which includes keeping Persily's office around, prepares for any possibility. It would extend federal support and expand the role of the federal coordinator's office for any project that gets Alaska's natural gas to market, even if that market is limited to Alaskans only.

If the bill passes, the federal office could speed up permitting for the Alaska-to-Asia effort, instead of waiting for a Lower 48 proposal that may never come. Or it could shift gears entirely and help oversee much smaller projects that require no trans-state pipeline, even trucking North Slope LNG to Fairbanks and then shipping some of it to remote villages.

If there's no project-related work for his office within two years, Persily isn't afraid to suggest a shut-down may be in order.

Since operations were launched about six years ago, the office has spent roughly $15 million of the $17.5 million it's received. Some of that extra money has been returned to the Treasury. Some of it has been saved. 

If the office has run out of leftover funds and there's no pipeline project to work on by Sept. 30, 2014, the administration and Congress should "consider the future of the office," Persily said.   

Until that time comes, Persily and his staff will continue educating the world about natural gas and how Alaska fits into the big picture. 

Contact Alex DeMarban at alex(at)alaskadispatch.com