As Palin makes pipeline a priority, Alaska waits

Governor not shy about taking new direction in plans

Posted: Monday, January 22, 2007

JUNEAU - Gov. Sarah Palin is a few weeks away from handing lawmakers a plan for a 3,600-mile natural gas pipeline from the North Slope to the Midwestern markets.

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Until then, the Republican is laying ground work for a process she pledges to be transparent and available for public vetting. The stakes, Palin says, are too high for the state's economy and nation's energy supply to do otherwise.

In doing so, she's applying salve to lawmakers' wounds from last year's bickering over a deal negotiated with Exxon Mobil Corp., BP and ConocoPhillips by former Gov. Frank Murkowski.

Until then, many questions linger, including: Is the transparency really just window dressing for a reprisal of a Murkowski-like plan or does the openness come with a new plan.

It's a development lawmakers, the industry and Wall Street will be watching closely throughout the year.

Critics have long said Murkowski's idea was based on the state's Stranded Gas Act, and gave far too many concessions, something Palin reiterated in a recent State of the State address.

"The deal was a 'no deal,'" she told lawmakers. "And our Legislature was handed a plan that even exceeded the administration's authority.

"Remember, in exchange for those unnecessary concessions, the producers didn't have to commit to preparing applications, much less build a gas line."

Rep. Hollis French, an Anchorage Democrat, called the transparency credible. Last year, French sued Murkowski for withholding deal from lawmakers.

"She's not hiding the fact that she's taking a new direction," he said. "And she's not hiding the fact that she's leaving the Stranded Gas Act behind."

Palin calls her solution the Alaska Gasline Inducement Act, or AGIA. Successful passage essentially means replacing the Stranded Gas Act, though not through any repeal.

Her bill will re-establish project criteria which energy companies must meet in exchange for inducement incentives from the state.

Palin says she's close to sharing her ideas with lawmakers, but is still having the plan reviewed by consultants, the Department of Natural Resources and the Department of Revenue.

"It's imperative that this is vetted by more experts," she said one day after delivering her State of the State. "It's very complex, the strategy and the economics. I've asked that this not be put in the Legislature's hands until we have absolute confidence that this is something that is going to result in a project."

Last year's proposal called for 4.5 billion cubic feet of natural gas, about 7 percent of the nation's current supplies, to move through the pipeline daily.

Ed Kelly, natural gas analyst for consultant Wood Mackenzie in Houston, said the pipeline won't completely offset increased imports. Still, analysts are keeping tabs on the prospects of getting an agreement being reached this year, he said.

"Other supply investments would take a back seat if this thing happens because you're going to know this is coming," Kelly said. "It would definitely be a nice addition to our domestic supplies."

Striking any kind of deal was hardly feasible several years ago when wholesale natural gas prices weren't high enough to justify the massive investment required to move fuel from the North Slope to the Lower 48, in this case close to $30 billion.

Today, prices are in the $6-plus range per thousand cubic feet, well below the December 2005 peak of $15.38 but still nearly three times that of five years ago.

The proposed gas line has implications on the nation's growing dependency on imported natural gas supplies, which stand at about 15 percent, according to the Energy Department.

That figure could grow to about 25 percent by the time any Alaskan gas line gets built within the next 10 to 12 years, analysts said.



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