Revenue commissioner: Gas line would not be 'another Prudhoe'

Posted: Monday, November 20, 2000

ANCHORAGE (AP) -- A natural gas development project would give the state only a modest amount of money compared with the billions Alaska gets from oil, and would not solve state government's chronic budget shortfall, state officials said.

''This is not another Prudhoe Bay,'' Revenue Commissioner Wilson Condon said. Condon was referring to the 13-billion-barrel behemoth oil field that bankrolls state government and has made Alaska rich.

What a gas project could mean, if it happens and gas prices remain high, is a steady paycheck to the state of $200 million to $400 million a year.

That's far less than the billions annually in the early years of the oil pipeline. The money turned Alaska from a flinty frontier into a wealthy oil state.

Today the existing oil fields pump about $2 billion a year to the state in money available to state spending. That's about one-third of the annual oil revenue of the 1980s, leaving the state with an average budget shortfall of $336 million over the past five years.

If a gas pipeline is no elixir in a state scrambling for money and opportunity, the $6 billion to $10 billion construction project would be a shot of prosperity, even though some of that total would be spent in Canada.

Developing the North Slope's huge gas reserves has been a dream since oil was discovered in 1969 on state land. Prudhoe and nearby fields have about 35 trillion cubic feet of natural gas, about 20 percent of known U.S. gas reserves. With prices low and consumers at least 3,000 miles away, most of the gas sits in the ground unused.

But in the past year, Lower 48 natural gas prices have soared, firing hopes of an Alaska project. On Friday, Gov. Tony Knowles threw his support behind a gas pipeline down the Alaska Highway to the Lower 48.

In terms of state revenue, gas production would be the equivalent of finding a major oil field.

''An Endicott oil field, a couple Alpine fields or 30 Badamis,'' said Larry Persily, assistant revenue commissioner, referring to some of the secondary North Slope oil fields.

Building a gas pipeline from the North Slope to the Lower 48 could generate a miniboom in Fairbanks and Interior villages like Tok and Delta Junction, said Matt Berman, an economist with the Institute of Social and Economic Research at the University of Alaska Anchorage. But, he said, it would be nothing like the gold rush of oil pipeline construction.

While the gas reserves are huge, gas is about five times more expensive to move than oil per unit of energy, according to a state report. Therefore, the market value of Prudhoe gas is only a fraction of Prudhoe oil's.

Prudhoe oil was a bonanza.

As BP, Atlantic Richfield and Exxon developed the field and built the pipeline in the mid-1970s, an energy crisis gripped the United States and oil prices spiraled. Fired by visions of fantastic profit and the altruism of national security, the companies dumped $23.5 billion, in 1999 dollars, into construction.

The investment was roughly four times the annual gross state product, said Neal Fried, state labor economist. The money spurred a real estate boom in Anchorage. Pipeline workers earned an easy six figures.

If the investment was high, the payoff has been extravagant. The state has collected tens of billions in taxes and royalties. An economy in health care, construction, tourism and other services has emerged.

Though more diverse today, the state still depends on North Slope crude. Oil production peaked in 1988, but oil revenue still provides about 75 percent of general revenue for spending.

All this talk of natural gas has people thinking big.

Two oil companies last week plunked down almost $1 million for North Slope leases focused not on oil but gas -- a big bet for something that does not yet have a pipeline to get it to market. Big natural gas firms like Williams and the construction giant Bechtel are in the wings. In Anchorage, agents and developers are speculating real estate will surge if the project goes.

But key factors would soften a gas project's impact.

Alaska's economy today is bigger and thus less shocked by big investments, Berman said.

In contrast to the oil pipeline extravagance, major gas owners Phillips, BP and Exxon will likely view gas construction costs with a thrifty eye.

With the lower value of gas, ''there is no room for cost overruns,'' Joe Marushack, Phillips' head of gas commercialization, said last week.

(Distributed by The Associated Press)

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