What is gas line worth to state?

Posted: Thursday, February 17, 2011

A natural gas pipeline from the North Slope to serve Alaskans and Lower 48 markets is possible, but to turn that into probable will take the right market conditions, investors willing to risk tens of billions of dollars and state involvement.

National market conditions will be driven by more conversions from coal to cleaner-burning natural gas to generate electricity. More demand drives the need for more supply, and that gives Alaska gas a chance.

If investors see demand building, if they see higher prices for gas in the decades ahead, Alaska has a chance. Any project decisions will be based not on today's gas prices but on expectations of prices in 2020 and beyond.

At some point, Alaskans will need to decide how much they want the pipeline and what is fair for the state. In making that decision, Alaskans should think not only of how much wealth they expect from the state's share of natural gas resources but also what our state would be like without any wealth to share.

The oil pipeline will be three-quarters empty by the end of the decade, and that's if the state's projections of new drilling come true. The North Slope has thrived on oil, only oil and nothing but oil for 34 years, but it's not going to continue thriving without a way to get gas to market, too.

A gas pipeline would make Alaska a much more attractive option for the tens of billions of dollars needed to maintain the aging oil pipeline, pump more oil from older fields and explore for new reservoirs.

Add up the investment dollars, the goods and services bought in Alaska, the jobs and, yes, the tax and royalty revenues, and a gas line can help provide a strong economy for decades to come. It's not just about counting the last tax dollar; it's about a state with a future or a state running out of oil money. Take your pick.

I know Alaskans are frustrated with the pace of gas line development. I'm sorry, but big projects always take longer than expected.

The federal coordinator's office for an Alaska gas line is ready to help with permitting for North America's largest private-sector energy project in history. Hundreds of people -- including the development teams and state, federal and Canadian regulators -- are working on the pipeline. The Federal Energy Regulatory Commission alone has a 14-member team assigned to the project.

President Obama in his State of the Union speech last month called on the nation to draw 80 percent of its electricity from clean-energy sources, including natural gas, by 2035. He supports using domestic gas supplies, and the federal government is there with loan guarantees and tax incentives for the Alaska project. Strong support for the project in Alaska is essential to maintaining support in Washington.

The nation's utilities already are turning toward gas-fired power generation in growing numbers. Almost half of the nation's coal-fired power plants are more than 40 years old, creating a growth opportunity for gas.

Shale gas is abundant but is running into community opposition in many areas. And even as shale production grows, it may not be enough to replace the billions of cubic feet of gas per day in declining production from older, conventional gas fields in the United States and Canada.

Alberta, the most prolific of Canada's gas-producing provinces, estimates its conventional gas production in 2018 will be half as much as its peak in 2001.

The North Slope line has a chance, but the economics are tight -- and risky. If Alaskans believe in a better future with a pipeline, bringing gas to Alaskans while creating jobs and billions of dollars in new public revenues, it's time (while waiting for the open-season results) to start looking at what the state can do to help move the project's economics in favor of construction.

Not a subsidy or an open-ended financial incentive with nothing in return. Rather, sitting down with all parties to look at the problems and find answers. The federal coordinator's office is willing to help.

Larry Persily is federal coordinator for Alaska Natural Gas Transportation Projects.

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