My turn: Alaskans must work together for pipeline

Posted: Friday, April 07, 2006

Last month, I spoke with our state Legislature about creating a "climate for investment" in Alaska.

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Alaska's economic opportunities are staggering, with two-thirds of the United States' Outer Continental Shelf, trillions of cubic feet of gas hydrates, half of our nation's coal, and enormous development potential in the National Petroleum Reserve-Alaska. And, the Alaska gas pipeline will become a reality if we work together now.

Approximately 35 trillion cubic feet of natural gas, produced with 15 billion barrels of oil at Prudhoe Bay, has been re-injected back into the ground. But we lack the infrastructure to transport it.

In 2004, Congress passed the Alaska Natural Gas Pipeline Act, which provides financial incentives for the construction of the pipeline that will bring our gas to the Lower 48. The market for this resource is tremendous, but competition from offshore liquefied natural gas producers could fulfill this demand.

The best market for our gas lies in our nation's farm belt. Our gas must reach the Midwest before offshore liquefied natural gas is delivered there. If our gas reaches the Midwest first, it will give us a serious competitive advantage. If our gas line is delayed, liquefied natural gas transported from East and West Coast ports will reach these markets first and reduce the demand for Alaska's gas.

There is also serious potential competition from foreign countries. Each of the producers operating in Alaska is deeply involved in exploration, development and production of new oil and gas prospects overseas. While many believe our state's ability to produce more oil and gas is virtually unlimited, the industry has been restrained by efforts to block production in the Arctic National Wildlife Refuge, restrictions on National Petroleum Reserve-Alaska, and moratoria on Outer Continental Shelf exploration.

Companies which seek to invest here must navigate the most regulated development process in the world. Resource development elsewhere can proceed with little to no delay. In our country, lawsuits often delay development for years.

Our natural gas resources present an incredible opportunity, but because of these hurdles, time is of the essence. Decisions about the pipeline must be made as soon as possible. The act authorizing the pipeline's construction provided an 18-month permitting period for this project. Nevertheless, the federal agencies involved believe 44 months will be required. I believe this time frame is excessive, but Congress cannot attempt to shorten it until our state approves the proposed line under the Stranded Gas Act.

One of the most difficult issues our state faces is determining the proper tax level for oil production. Oil production in Alaska is declining, but prices continue to rise. The major producers in our state realized that existing tax rates for production under the Economic Limit Factor were unpredictable, so they asked for an adjustment in current taxes to ensure fiscal certainty for future activities.

As our Legislature debates this issue, our goal must be to ensure the international oil and gas industry recognizes our potential now. This requires determining the investments necessary to develop our oil and gas potential. This involves not only examining the tax structures of other nations, but evaluating the inducements they offer for new exploration and development.

Part of building the "climate for investment" involves decisions about the tax rate on our existing reserves, but the "climate" will not be determined by taxes alone. Equally, and perhaps more, important will be the approach our state takes on incentives for exploration and development. If we fail to recognize this need, we will not fulfill our potential. If we are a partner in these efforts, if the world's oil and gas industry is attracted by our "climate for investment," the benefits will be extraordinary.

• Sen. Ted Stevens is Alaska's senior U.S. senator.



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