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My Turn: Pipeline has a healthy future

Posted: June 20, 2011 - 8:51pm

How long will the pipeline last? Since 1977 the Trans-Alaska Pipeline has carried the economic lifeblood of Alaska from the North Slope to Valdez where it is loaded on tankers and taken to market. The future of the pipeline is in a real sense the future of the state. How bright is that future?

Some say it is quite dark. During this year’s oil tax debate, we regularly heard dire predictions of an imminent pipeline shutdown. Indeed, the Make Alaska Competitive organization, which was formed to advocate for lower oil taxes (and who includes Jim Mulva, CEO of ConocoPhillips among members) has a website that says “the pipeline may shut down within a decade.”

The issue of pipeline longevity was recently the subject of a very extensive public proceeding in an Alaskan court. The case arose out of a dispute over property taxes. Just like homeowners, the Alyeska Pipeline Company pays property taxes on the pipeline. And just like homeowners, Alyeska isn’t interested in paying any more than they have to. The owners of Alyeska — ConocoPhillips, Exxon and BP own more than 95 percent of the pipeline — went to court to lower their property tax bill. Their argument was that the pipeline wasn’t worth very much.

Unsurprisingly, the state and the boroughs across whose land the pipeline runs took a different position. Judge Sharon Gleason, who heard the case (and who was recently elevated to the federal bench to wide bipartisan acclaim), listened to five weeks of testimony and reviewed thousands of exhibits before rendering her decision.

Setting the value of the pipeline and the Valdez tanker facility required Gleason to delve deeply into the question of how long the pipeline would carry oil. The judge’s findings are worthy of close examination.

First, there is some $550 billion worth of oil still in the ground on the North Slope. These are “proven reserves.” Given the existence of all that extremely valuable oil, the judge found that even if there were no pipeline in place today, it would be to the economic advantage of the pipeline owners to build a new one. That’s right, there is still enough oil in the ground today to justify the construction of a brand new pipeline from the North Slope to Valdez.

Second, Gleason found that, in Alyeska’s own words, “TAPS’ physical life is considered virtually unlimited given the execution of appropriate surveillance, maintenance, repair and replacement programs.”

Third, the pipeline can effectively operate down to 200,000 barrels per day, if heaters are installed at certain points to warm up the oil as it travels south. There was evidence at the trial that the pipeline could operate at lower production levels, but the judge was persuaded that the correct number was 200,000 barrels per day.

Finally there is Gleason’s calculation as to the expected life of the pipeline. Her answer may come as something of a shock to Alaskans who have been listening to the scare tactics of those who are trying to rush us to lower taxes on these same oil producers — Exxon, BP, and ConocoPhillips — who also own Alyeska. After carefully weighing all the evidence from all of the litigants, the judge found that the life of the pipeline is “at least” 2047.

2047. Now you have to admit you were a bit surprised by that. And don’t think that the judge just went off and picked a number out of thin air. Her decision is 171 fact-filled pages long. It is a remarkable document, one that any Alaskan who wishes to be well-informed on this topic should read.

In the end, the judge made a decision about the value of the pipeline. It was not the low ball number of $850 million urged by the oil industry. She found the pipeline was worth more than 10 times as much.

We are studying our oil tax system, and will support any changes that actually put more oil in the pipeline. And the good news is that the pipeline is in no danger of shutting down anytime soon.

• French represents District M in the Alaska Senate, and serves on the Senate Resources Committee.

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