Lawmakers ponder options for building N. Slope gas line

Posted: Wednesday, January 24, 2001

When it comes to the construction costs of the proposed natural gas pipeline, there just aren't any good numbers yet, the Knowles administration told Democratic lawmakers Tuesday.

But when it comes to the oil and gas industry's impact on Alaska's economy, the numbers are clear, industry officials told legislators a few hours earlier.

North Slope producers are undertaking a study of options for commercializing 35 trillion cubic feet of known gas reserves, which lack an economical path to market. Producers are expected to announce a decision by the end of the year.

The most frequently mentioned options are a pipeline to Lower 48 markets, either along the Alaska Highway or through the Northwest Territories, or a pipeline to Valdez or Nikiski, where gas would be liquefied for shipment to Asia.

Democratic Gov. Tony Knowles wants a pipeline through as much of Alaska as possible, creating jobs and providing natural gas for residents.

Commissioner of Natural Resources Pat Pourchot and Commissioner of Revenue Wilson Condon told Democratic minority lawmakers that while there is reasonable debate about the respective costs of the competing pipeline routes, it's clear the American market is the way to go. And even if the northern pipeline route can be shown to be cheaper to construct, it's in Alaska's best interests that the pipeline go south, they said.

When pressed for an economic analysis of pipeline options, Condon said it's difficult to speculate about the market and the construction costs. "The long and short of it is, it's early in the game, and we really don't know," he told lawmakers.

An analysis by the administration won't be completed before the Legislature adjourns in May, he said in an interview.

A consultant's study paid for by the industry last year apparently showed lower costs with the Northwest Territories route. But the details are confidential and it's not clear the three North Slope gas producers have done any research, Condon said. There's also a question about whether the northern route could ever receive necessary environmental permits, he said.

Sen. Kim Elton, a Juneau Democrat, said it's "precipitous" of Knowles to decide in advance the Asian markets aren't an option. But Pourchot said the Alaska Highway project doesn't rule out a spur line to Valdez. And Condon said he's confident "excellent analysis" favors the Lower 48.

Pourchot and Condon took no position on a bill that could rule out the northern pipeline route. But Condon noted the administration is asking for a change in law to allow negotiations with pipeline developers on "incentives" to ensure the project's viability.

The current tax and royalty structure is "front-end loaded," with the state taking a big bite upfront, and "regressive," in that low gas prices wouldn't result in any breaks for industry, Condon said. The state might make more in the long run by spreading its revenue over the life of the project, and it also might make more by taking a lower percentage during times of low prices in order to take more when prices spike, he said.

Meanwhile, the industry tried to demonstrate to the Legislature that it's already making a generous contribution to Alaska's government, economy and charitable organizations.

A study released by the Alaska Oil & Gas Association and the Alaska Support Industry Alliance said the industry's payroll and purchasing in Alaska in 1999 was $2.1 billion, the same as the state government general fund. The study was researched by Information Insights of Fairbanks and The McDowell Group of Juneau.

Brian Rogers of Information Insights said the study didn't include retail, retirement programs, taxes, royalties and other factors. Also, 1999, the year studied, had low oil prices and uncertainty caused by the then-pending merger of BP Amoco and Atlantic Richfield, he said.

The oil and gas industry the largest segment of the private sector, according to the study accounted that year for one out of eight private sector jobs in the state, directly or indirectly, as well as 20 percent of the payroll, due to a higher average wage. Government received $1.5 billion in royalties and production-related taxes, and $223 million more in property taxes. The industry gave $10 million to state charities, not including contributions that might have been made by vendors and employees, Rogers said.

Bill McAllister can be reached at

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