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Alaska Editorial: A big gas line remains possible, fiscal stability necessary

Posted: December 4, 2013 - 12:02am

The following editorial first appeared in the Fairbanks Daily News-Miner:

With so much focus on the natural gas trucking project, we haven’t heard much about a big natural gas line lately. The project’s success is far from certain, but several recent developments seem to bode well for it.

Nevertheless, the state still must address the need to provide a firm tax rate on the gas. Until that’s done, the gas will remain less marketable.

Alaska’s challenge has always been that potential customers will go elsewhere if they can find cheaper, more reliable natural gas. The “cheaper” part is the greatest obstacle. Pipeline construction could cost up to $65 billion. You have to be awfully reliable to offset that price tag, but the state should make an effort.

Doing so appears worthwhile. Consider some of the latest news, news that indicates the private sector still views this as a potentially viable project.

The three major North Slope oil companies and the pipeline company TransCanada have agreed upon the best location of any liquefied natural gas export terminal: Nikiski, on the Kenai Peninsula south of Anchorage.

This announcement, made Oct. 7, was a surprise to many Alaskans and a disappointment to community leaders and business owners in Valdez, site of the trans-Alaska pipeline terminal. The best clue to the reason for Nikiski’s selection seemed to come from a statement attributed to Steve Butt, senior project manager for Exxon Mobil: “The Nikiski site also results in a pipeline route that provides an access opportunity to North Slope gas by the major population centers in Fairbanks, the Mat-Su valley, Anchorage and the Kenai Peninsula.” Of course, a line to Valdez could do the same thing, but only with expensive spur lines.

Still, one must wonder how the companies will get the big pipe through, under or around Cook Inlet. Wouldn’t that be far more expensive than building a line to Valdez? It appears that the combination of the proximity to Alaska’s cities and the potential savings in tanker costs, resulting from a location closer to Asian markets, might be enough to tip the balance.

The other news that bodes well for the big line comes from far to the north, at the Point Thomson gas field east of Prudhoe Bay. Exxon Mobil is working away on the field and last week flew in a group of legislators to view the progress.

Point Thomson initially will produce liquids that will be pumped through a pipeline to Prudhoe Bay. Exxon Mobil plans to start production in May 2016.

Initial production will only be 10,000 barrels per day, though. The big prize at Point Thomson is the natural gas. It seems unlikely that Exxon Mobil would have stuck out a long fight with the state and then invested billions in the field development if it didn’t have its eye on selling that gas.

It won’t sell it, though, if it can’t find a buyer. Buyers want cheap, reliable gas. Alaska’s government can’t change the cost of an 800-plus-mile pipeline by much, but it can make itself more reliable by committing to the most stable tax regime possible.

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