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Exxon CEO: Alaska Is Its Own Worst Enemy

Exxon CEO: Alaska Is Its Own Worst Enemy

Alaska is trying to pivot towards liquefied natural gas as oil production continues to slowly decline.

Alaska’s Governor Bill Walker announced a special session of the legislature, set to begin on October 24, to try to tackle a massive natural gas pipeline and LNG project that is stuck on the drawing board. The announcement follows Gov. Walker’s trip to Japan the prior week, in which he sought to convince potential buyers on the idea of LNG exports from Alaska.

Walker’s aggressive plan includes the state taking an equity position in a colossal project that includes a natural gas pipeline that will stretch across the state, connecting gas fields in the north to a proposed LNG export terminal in the south. The project is backed by ExxonMobil, BP, ConocoPhillips and TransCanada. Walker wants to buy out TransCanada so that the state can benefit directly from the project, an option that was detailed under a prior agreement, but does not sit well with the companies.

Related: “Walking” Oil Rigs Can Make Drilling Faster, Cheaper, Safer

The project faces an eye-watering price tag of $45 to $65 billion, a sum that could be prohibitively high. It is “a massive, massive project,” one that could be “the largest investment of its kind in U.S. history,” according to Cory Quarles, ExxonMobil’s Alaska production manager.

But that isn’t stopping Gov. Walker. “With a $3.5 billion budget deficit, this gas line project has gone from a wish-list item to a must-have,” Walker said, according to the AP. “It is time to make the necessary legislative changes so a single party cannot delay the production of Alaska’s natural gas resources and sway our destiny.”

Walker went to Tokyo to speak at an LNG conference on September 15 and try to drum up interest in Alaskan LNG. “Before the conference the governor and his team met with senior officials at Itochu Corp., a trading company; Japan Oil, Gas and Metals National Corp., a government agency that finances Japanese companies; Tokyo Electric Power Co., Japan’s largest electric utility, and Tokyo Gas, which serves seven cities in Japan and 11 million customers,” The Alaska Journal of Commerce wrote on September 16.

Related: How Russia’s Oil Companies Are Defying Sanctions and Low Oil Prices

Walker said it was premature to talk about actual deals with Japanese companies. Instead the trip was meant to raise Alaska’s profile as a natural gas producer, and explain the proven reserves located on the North Slope. Walker’s office reported that in their meetings with Japanese company officials, the takeaway was that Japan was more concerned with the stability of long-term supply and the ability to deliver, more so than even the price at which the LNG could be delivered.

But the Governor’s plan for the state to take a position in the project is creating a lot of uncertainty, and the partners involved are worried Walker could set the project’s viability back.

ExxonMobil’s CEO Rex Tillerson didn’t mince words in a recent interview with the Energy Intelligence Group. “I have a long history with this, and I always tell every governor of Alaska, ‘You are not waiting on us. You are waiting on you,’” he told the Energy Intelligence Group, as reported by The Alaska Journal of Commerce. “And every governor that comes in decides they’ve got a different way of doing this, which is why it never happens. You can’t take a project that is going to take five-six-seven years to execute and require $50 billion-$60 billion of capital and decide every two years you’ve got a different way to do it.”

Tillerson thinks Walker’s moves may have doomed the project, at least for now. “We’ve had two good chances in the last 10 years to get it done, and as soon as you had an election that ended it. Alaska is their own worst enemy.”

Related: Oil Prices - What Does “Lower For Longer” Actually Mean?

Gov. Walker, soon after he was elected last year, first proposed a competing project to the one currently under consideration. Now, having abandoned that idea, he wants the state to pick up TransCanada’s stake and finance it with state resources. He argues that his approach is helping to move the project along. And in an apparent retort to Tillerson’s criticism, when asked about his impression of the performance of the project partners, Walker said he was pleased with the progress from BP and ConocoPhillips – implicitly critiquing ExxonMobil.

With all the bickering and uncertainty, it is unclear what the next steps for the project will be. But Walker, and the state of Alaska, are scrambling to make up for falling revenues. Alaska is one of the hardest hit U.S. states by the fall in oil prices. Revenues from oil account for more than 70 percent of the budget. To make matters worse, the state’s oil production has been in decline for years.

The dire fiscal straights will put a lot of pressure on lawmakers when they meet in October to discuss the enormous LNG project.

By Nick Cunningham of Oilprice.com

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  • Amerigo on September 28 2015 said:
    Interesting to note that the day after this article came out, Shell pulled out of the Chuchki sea, citing "unpridictable regulatory environment". Off course Chichki is federal, but the TAPS isn't. Without the pipeline, all oil in the North Slope is abandoned.

    AK is debating the drilling tax credit program, going as far as delaying promised payments. The program had been successful in increasing Cook Inlet production, and this has begun to morph into North Slope investment. Major/minors and independents are the future of Alaskan oil, including new production from the North Slope. By placing the tax credit program in limbo, AK is risking invesment dollars will be spent elsewhere.
  • jacob on September 28 2015 said:
    Exxon and the other major oil producers in our state pump our oil and leave peanuts for our local economy. They pay off legislatures to pass favorable tax breaks, poison the land and have the courage to always ask for more. Now they are considering raiding our permanent fund earnings and employing a state wide sales tax so that the shareholders get wealthy off our local plight. If extra taxes are needed to be collected to pay for local services, perhaps it could come from the coffers of the spin industry instead of the locals property taxes sky rocketing. I would like to personally thank Exxon for working the system and getting the supreme court to slash their financial responsibility paying for the cleanup after Capt. Hazelwood drunkenly smashed a cargo full of crude into our beautiful land. But I am sure Shell will do much better...Tax the industry and pay for schools that can teach our future Alaskans when they are getting fleeced.
  • george phillips on September 28 2015 said:
    after all the mess exxon made dont know if i would pay attention to anything they said or trust them either,$$$$$$$ is the only thing they understand
  • DirtyDan on September 28 2015 said:
    It would be nice if they included a branch out East towards the Mackenzie Delta. Start tapping that massive play and make some shipping costs due to the Canadian's inability to move their own mid-stream forward.

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