Palin bets her image on gas line

With a $500 million incentive on the line, some lawmakers say stakes are too high

Posted: Sunday, March 11, 2007

Gov. Sarah Palin is staking half a billion dollars and much of her popularity on an effort to give Alaska a $20 billion to $30 billion natural gas pipeline and send the state's vast reserves of the clean-burning fuel to market.

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Palin and others say the $500 million state offer to help a developer get permits for the pipeline is far less than former Gov. Frank Murkowski was willing to pay in his failed gas line effort.

Still, the $500 million incentive in Palin's Alaska Gasline Inducement Act has raised eyebrows among Democrats and her own Republican Party.

"Half a billion dollars is no small chump change," said Rep. John Coghill, R-North Pole, a key member of the House's Republican leadership.

"Why are we giving away $500 million?" asked Rep. Mike Doogan, D-Anchorage, a freshman Democrat.

"It sounds like a jaw-dropping figure," Palin acknowledged.

Previous efforts, including Murkowski's, cost less up front, but would have cost the state dearly over the long term, Palin said. Because it didn't guarantee a pipeline would be built quickly, the Murkowski plan also added the risk and cost of additional delay, she said.

Web link

To listen to Gov. Sarah Palin's Friday gas line briefing, go to www.gov.state.ak.us/audio/WBG_5_Mar9th2007.mp3

Under Murkowski's plan "the state was at risk for $13-14 billion, plus unquantifiable value of our resource development future," she said.

Palin's plans to invest the money early, hoping that a smaller amount spent in the critical early stages will have more impact than a larger amount later.

If it works, it could bring more of the benefits of Alaska's gas reserves to Alaskans.

Trillions and trillions

Those reserves are huge, said Commissioner of Natural Resources Tom Irwin.

Companies looking for oil have located 35 trillion cubic feet of natural gas in proven reserves. Geologists who have studied the terrain think there are another 250 trillion cubic feet to be found once they start looking for it, he said.

And gas hydrates locked in ocean floor sediments probably amount to much more, he said.

Some scientists, Irwin said, are thinking there are "hundreds, maybe a thousand, maybe thousands of trillion cubic feet" of gas available.

Once the pipeline is in place, that entire resource can be exploited.

Palin's plan would match money spent by whoever is licensed to build the line while they go through the initial process of getting Federal Energy Regulatory Commission approval.

The match would be "dollar for dollar," said Patrick Galvin, commissioner of the Department of Revenue, and a member of Palin's gas line team. That upfront incentive would have to be approved by the Legislature.

A tough sell

Senate President Lyda Green, R-Wasilla, said the hearings on the bill are likely to begin this week, and likely will be "very vigorous."

Sen. Hollis French, D-Anchorage, said he appreciated that Palin's proposal lets candidates for the pipeline make their offers more attractive by taking less than the $500 million.

Some think that's too much to be offering anyway.

"If the company can't afford the $500 million to do the design and engineering, to do the initial licensing, how the heck are they going to afford the $25 billion" total cost, asked Rep. Kevin Meyer, R-Anchorage.

Rep. Beth Kerttula, D-Juneau, was skeptical of the incentive amount but said it might be needed to get smaller companies into the deal.

"I'm not sure how necessary it is for the big oil companies, but for the smaller companies that are going to be so critical to Alaska and critical to our future it may be very important," Kerttula said.

"I think the governor's using it as a carrot, and it might work," Sen. Tom Wagoner, R-Kenai, said from Washington, D.C., where he was attending meetings of the Energy Council and advocating for the pipeline.

The tariff charged to companies shipping gas through the line will be lower if it costs less to build. Having the state contribute up front could mean Alaska will get more for its gas later, he said.

That's how an early investment can be magnified to benefit the state, Palin said.

"It will be returned to Alaska again and again over the years in the form of those lower tariffs," she said.

Wagoner said Palin's incentive was far less than what Murkowski's gas contract would have eventually cost, which he estimated at $15 billion.

"It pales in comparison to what the Murkowski proposal did," he said.

Kerttula agreed. "Five hundred million dollars is a lot of money, but in the grand scheme of things ... it is a whole lot less than what we were going to see going out in the bill before," she said.

A popular governor and an unpopular one

Palin brings something to the negotiations that Murkowski didn't: her own jaw-dropping popularity numbers.

A February survey by Hellenthal & Associates of Anchorage found Palin with a 73 percent approval rating, with negatives of only seven percent, for an unheard of 10-1 ratio.

"This was the highest I've ever had," pollster Marc Hellenthal said.

Murkowski, politically damaged last year by actions such as appointing his daughter to his old U.S. Senate seat and buying a jet lawmakers opposed, did not have the political clout to get his deal done.

Murkowski concluded that only three big Alaska oil producers were capable of building the pipeline. He spent a hectic last year of his administration negotiating a contract with them and trying to shepherd it through the Legislature.

Lawmakers never did approve that effort, and Palin rejected it when she took office in December.

She has since told producers, BP, ConocoPhillips and Exxon Mobil, who had a favored position with Murkowski, that they'd have to compete with independent explorers and pipeline companies to win building rights.

Palin has managed to get a host of companies, including the producers, to endorse her strategy.

"We're ready to roll up our sleeves and get to work," said Doug Suttles, president of BP-Alaska, at the press conference rolling out the inducement act.

Palin said the state investment will show everyone - producers, federal regulators and investors - that the state is serious about building the line.

"It's up front, it's on the table for all to see," she said. "It's our real skin in the game here."

To get her bill through the Legislature, Palin will have to persuade skeptics such as Coghill that it's a good deal.

"I just hope we don't get skinned alive on it," Coghill said.

Palin plan vs. Murkowski plan

Authority:

Alaska Gasline Inducement Act.

Stranded Gas Development Act.

Length:

10-year tax rate lock-in.

Terms fixed for 45 years.

Value:

$500 million maximum.

$5 billion to $17 billion.

Payment:

Upfront.

Over life of pipeline.

Risk:

If project fails, incentive likely lost.

Wouldnt be spent unless

gas line was built.

Timeline:

To be fixed by state.

Up to developer.

Eligibility:

Anyone can submit application.

Only current North Slope oil producers.

Approval:

73 percent positive rating.

Polled 19 percent in primary.

• Pat Forgey can be reached at patrick.forgey@juneauempire.com.



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