Alaska tries to turn toward foreign investment to revive its oil and gas industry

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Alaska is looking at bringing in foreign investors to its oil and gas industry in order to reverse its decades-long output decline.

John Hendrix, chief energy advisor to the Governor, said in an interview that a handful of sovereign wealth funds, banks, and state-owned energy companies have been recently begun meeting with Alaskan officials. Specifically, he named China Investment Corp and the state-owned Chinese energy company Sinopec as having held talks with Alaskan officials in September.

Alaskan crude production has seen a decline by three-quarters since the late eighties, one that’s contributed to years of budget deficits. Additionally it’s threatened the performance of the Trans-Alaska Oil Pipeline, which runs from southern port of Valdez up to the North Slope. A state budget shortfall earlier this year led to the government withholding millions of dollars owed to small oil explorers.

Caelus, which last year announced a 6 billion barrel North Slope oil discovery, delayed its drilling plans set for this summer partially due to the lack of incentive payments.

“It’s hard to plan when you don’t know the rules,” said Caelus spokesman Casey Sullivan.

Many oil companies in the state are pushing the government to fully fund its explorer-incentive payments program instead. With crude prices hovering around $50 and those lack of incentive payments, projects on the North Slope and in the National Petroleum Reserve have been put at risk.

In this incentive program, the state would partially compensate small companies for the costs of exploring and developing oil and gas projects. This year however, Alaska pulled back on this program paying only a small portion of what they previously awarded, leaving millions of dollars unpaid.

Kara Moriarty, CEO of the trade group Alaska Oil and Gas Association, cited this as the primary reason small companies are struggling to attract outside capital.

The recent interest in foreign investors seems to be primarily targeting Asian firms, which, according to Hendrix, would take a role in a proposed natural gas pipeline in addition to individual energy projects.

“It’s a challenging sell,” said Hendrix. Commenting on the state’s proximity to Asian markets as a way entice energy importers he added, “When you talk about (exporting) to the Far East, we’re closer than California.”

Both China Investment Corp and Sinopec have expressed interest in a proposed 800-mile natural gas pipeline which would span from Prudhoe Bay, to a southern port. Both companies declined to comment.

Further risk comes from the federal government- foreign investments such as this can be reviewed by the Committee on Foreign Investment (CFIUS) to ensure it doesn’t pose any national security risk to the country.

The CFIUS has halted similar energy deals involving foreign investment in the past, and the Trump administration has remained wary on Chinese investment. One expert there warned, “I think it’s going to be very difficult for the Chinese to make significant investments in energy in the United States.”

Article written by HEI contributor Kevin Abbott.

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