Alaska editorial: Governor needs some compromise in gas pipeline bill

Posted: Friday, May 04, 2007

This editorial appeared in the Anchorage Daily News:

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Two wrongs don't make a right, nor can they build a gas pipeline.

Unfortunately, the state is headed in that direction. Such a move could cost Alaska another decade of lost time in its 40-year quest for a pipeline to turn North Slope natural gas into billions of dollars of tax and royalty revenues. Plus jobs. Plus new oil and gas exploration. Plus a tremendous new gas supply for Lower 48 consumers.

Alaska cannot afford to get it wrong. Without a gas line, the state's long-term financial future would turn from iffy to downright bleak. The state's elected officials and the public need to understand they can demand all they want, but it will take negotiations and compromise to work out a deal for commercial development of what would likely be the largest private construction project ever.

The possibilities looked good a few years ago, until then-Gov. Frank Murkowski so angered the public with his attempt to negotiate a gas line deal that it turned Alaskans against the North Slope producers and wiped out whatever shred of good will Mr. Murkowski had brought to the job from his 22-year career in the U.S. Senate.

He pushed so hard for his negotiated deal with the producers that he risked forever sinking Alaska's hopes for a gas line. He gave away too much in negotiations, created public expectations that could never be fulfilled, overstepped the state's gas line development law, and grossly mismanaged the politics of selling the deal to Alaskans.

That was the first wrong.

And now Gov. Sarah Palin has moved the state so far to the other side that she too, risks tipping over the ship of dreams.

The new governor and her advisers reject the notion that the best and quickest way to a pipeline goes through the producers. Rather, they believe the better gas line deal uses the producers' financial backing to pay for the project but with a nonproducer pipeline company owning the line. They figure the less control by the producers the better for Alaska.

But it's the producers that will pay for the line by shipping their gas and assuming the risks of multibillion-dollar construction cost overruns. It's the producers that will deal with fluctuating market prices for the gas. The pipeline owner just sits back and collects a federally guaranteed rate of return. The producers will pay all of the production taxes, income taxes and royalty on the gas. They will even pay the property tax on the pipe, through the tariff for using the line.

Gov. Palin's Alaska Gasline Inducement Act, under review by legislators, focuses too much on what a pipeline owner can promise the state and not nearly enough on what the state can do to lessen the project's financial risks for the companies that will write the checks.

This is the second wrong approach.

The governor's approach is politically popular but not commercially viable. Granting an exclusive license to a company to build the line - when it can't afford to actually do the job on its own - is gambling the state's future. The governor's bill could allow the exclusive license holder up to a decade to try putting together financing before giving up and letting someone else have a chance.

That's a risk the state cannot afford.

The better answer is to set up a process for bringing the producers, pipeline companies and state officials to the same table for as long as it takes to put together a commercial deal on a commercial project. A deal that would give the companies some degree of fiscal certainty and would give the state the highest tax and royalty revenues possible.

The better answer is not the former governor's plan or the new governor's legislation. It's something in the middle, which is where the best answers usually come from.

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