Lower gas prices could postpone pipeline plans

Posted: Thursday, November 08, 2001

Millions of dollars and hundreds of jobs for the Kenai Peninsula may be at stake in the current debate about a potential gas pipeline across Alaska and Canada.

Wednesday and today the Alaska Legislature's Joint Committee on Natural Gas Pipelines is holding hearings on the matter in Kenai. Leading government and industry specialists are updating lawmakers and the public about the proposals and about Cook Inlet gas.

Despite the economic recession and lower energy prices, the state's pursuit of the project remains a top priority, said Sen. John Torgerson.

The Kasilof Republican chairs the joint committee, established this summer, and the Senate Resources Committee.

"It has nothing to do with the (current) economy," he said. "It is looking at the economy way out -- 10 years or so."

The committee is looking at ways the state can help bring the project to fruition for the maximum benefit of Alaskans.

Although even its staunchest advocates admit the proposed project would not change Alaska on the scale that the trans-Alaska oil pipeline did in the 1970s, building a gas pipeline through the state would boost the economy.

"It is billions of dollars," Torgerson said.

The meeting is the committee's fourth, but Torgerson and others have invested vast amounts of time traveling in Alaska and Canada working on the project. Every week industry officials have been in communication with the group.

"We've been very busy," he said.

The two-day hearing is an opportunity for government agencies and industry representatives to update the committee and discuss supply and demand for Cook Inlet gas.

Economist Ed Small, from Cambridge Energy Research Associates in Calgary, Alberta, has been hired by the Legislature to study gas market trends. Wednesday he testified via teleconference that the current weak gas prices may postpone what he called "the window of opportunity" for putting arctic natural gas on the world market.

"We are seeing demand down in all sectors," he said.

"There is a question about if the long-term demand has been impacted. We believe it has."

Small predicted that the North American economy would improve in the third quarter of 2002, but that gas prices will remain between $2 and $3.50 per thousand cubic feet.

At the beginning of 2001 gas prices were up to record highs of about $10 per thousand cubic feet, and the higher the prices are, the more feasible it is to ship product from remote fields. The arctic gas has to compete with production from other, already developed fields, and the costs of shipping it to markets in the Lower 48, which dwarf Alaska markets, place it at a disadvantage.

Small concluded that the recession has pushed back the best time to bring the Alaska North Slope or Canadian Mackenzie River delta gas to 2009-2010 and again in 2012-2014.

The committee also heard updates on congressional legislation that could influence the project and a report from Larry Persily, the deputy commissioner of the state Department of Revenue, about the feasibility of making the state a partner in the pipeline venture.

Alaskans are enthusiastic about the gas pipeline proposal in general, he told the lawmakers. But extensive interviews with gas producers and other stake holders reveals doubts about how involved the state should be with the project.

Persily was skeptical of having the state assume part of the financing and risk.

"State involvement, we believe, is not necessary," he said.

He cited the state's dwindling cash reserves, the companies' strong finances, rules that constrain government funding for private industry and threats to the financial resources of the people of Alaska if something went awry. He also brought up issues of differing agendas, political meddling and corporate confidentiality vs. the public's right to know as factors that could make a marriage between the state and producers a rocky one.

Torgerson said that having a seat at the corporate table still might have value for the state. He expressed frustration at trying to get information from private industry.

"The confidentiality shroud that is around tariffs is certainly not good for the people of Alaska and its lawmakers," he said. It is frustrating to come up against that brick wall."

Persily said his team would continue to work through the details of how the state could encourage and monitor the gas producers.


Sen. John Torgerson, the committee's chair, questions a speaker.

Photo by M. SCOTT MOON

His surveys and discussions have shown that many Alaskans believe that the oil industry somehow cheated the state out of money in the course of earlier development efforts and that any gas pipeline deals should avoid those loopholes. People express hope that more state involvement with the process would help.

"There is clearly an emotional perception among Alaskans," he said.

Whether the project will move ahead at all will be determined by the industry. A group, consisting of Phillips Petroleum Company, Exxon Mobil and BP Exploration Inc., is studying gas transit options and their economic feasibility. That $100 million study is scheduled for completion before the end of this year, Torgerson said.

Over the past several years, gas pipeline debates have centered on choosing a route.

Initial proposals focused on three possibilities: an "over the top" route along the Beaufort Sea coast to the Mackenzie Delta and south through Canada, an Alaska Highway route following the trans-Alaska pipeline corridor south to the highway at Delta Junction and then following the roadway south through Canada or an all-Alaska route. Cook Inlet and Valdez were suggested as potential terminus sites for the Alaska route.

Congress and the state of Alaska have pushed hard to promote the Alaska routes. Economic factors have downplayed the all-Alaska route, and Gov. Tony Knowles has endorsed the Alaska Highway route.

Before the national economy soured, Cook Inlet and Valdez interests were jockeying to promote their destination. The Kenai Peninsula Borough formed a Cook Inlet Pipeline Terminus Group to lobby for a gas line to Nikiski.

Today, the committee will hear reports from industry representatives about gas reserves, supply and demand in Cook Inlet. Agrium, Phillips Alaska, Unocal, Enstar and others will be present.

The meeting is open to the public. It begins at 9 a.m. at the Kenai Visitors and Cultural Center. Public testimony will be taken, beginning at 2:30 p.m. Speakers will be limited to three minutes apiece.

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