Shale gas a bridge to pipeline: Gas development in Lower 48 will help Alaska pipeline projects

Posted: Tuesday, April 07, 2009

A number of Alaska legislators recently attended Energy Council meetings in Washington, D.C. and came away with the mistaken impression that the emergence of shale gas in the energy mix would damage (if not end) Alaska's chances of building a gas pipeline to the Lower 48. On the contrary, we believe shale gas does not pose a threat to the commercialization of Alaska's vast North Slope natural gas reserves, but will instead provide the market a bridge to our future pipeline.

What is shale gas? This is natural gas that is locked into certain geological formations that require more intensive and innovative methods of extraction than are used for conventional gas formations. Shale gas is found in large quantities in basins throughout the Rocky Mountain range, and other basins in Texas, Oklahoma, Louisiana, the Dakotas, Pennsylvania, and Arkansas. There are also significant amounts locked in the Appalachians.

One of the reasons that shale gas does not pose long-term competition with Alaska North Slope gas is because it is expensive to produce, requiring intensive fracturing of the rock formations in which it is trapped (and very large water disposal problems from the fracking process required to keep the formations producing). In addition, while shale gas production from an individual well can be quite high, it rapidly falls and tapers off. This requires further fracturing of the well formation, or drilling new wells.

Why will it become a bridge? The growing share of shale gas in the energy market of the Continental U.S. will serve to fulfill an increasing demand for clean-burning energy. This is the same market piece Alaska North Slope gas is expected to meet, but that will happen in nine or 10 years. Shale gas, in essence, fills the market need while the Alaska gas pipeline is being permitted and built. It is our hope that shale gas will fill that temporary market void, rather than liquefied natural gas from foreign sources.

While the price of natural gas is fairly low at this point, about $3.50 per million cubic feet, and it could go lower, we are convinced that the price will rise substantially over the long term. This will happen for several reasons. First, the current economic recession and the difficulty the Obama administration is having in dealing with the recession will likely last only a matter of months. As supplies rise and the price drops, demand will grow. So, the market forces at work indicate that over the long term, the price of natural gas will rise above the level at which it is economic to build the gas pipeline. The major North Slope producers share this perspective.

It is also probable that natural gas will be used extensively to replace coal generation plants, which will be taken out of service because of their age or cap-and-trade credits involving carbon dioxide gases produced by these units.

A second factor is a growing trend toward carbon management. Carbon management is the collective efforts of the federal government and others to reduce the production and release of carbon dioxide and other so-called greenhouse gases into the air through such mechanisms as "cap-and-trade." These efforts will steer industry and residential users toward natural gas, the cleanest-burning of all fossil fuels.

It is clear to us that market demand for more natural gas -- Alaska's gas from the North Slope -- will be high and sustained over the coming decades. We are well-advised to continue our work on the governor's Alaska Gasline Inducement Act (AGIA) effort with TransCanada. We also look forward to the continued efforts by ConocoPhillips and BP on their Denali gas pipeline this coming field season. One or the other, or a combination of these projects will be well-positioned to meet the demand for Alaska's trillions of cubic feet of natural gas in markets in the Midwest by 2020.

Sen. Tom Wagoner, R-Kenai, represents Senate District Q and Sen. Fred Dyson, R-Eagle River, respresents Senate District I in the Alaska Legislature.

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