Federal officials eye role in gas line

Intervention in Alaska pipeline project being studied, but unlikely

Posted: Monday, May 15, 2006

FAIRBANKS - Incentives approved by Congress to assist in construction of a North Slope natural gas pipeline included an obscure provision calling for a study of federal intervention if no company had applied to build the line within 18 months.

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Those 18 months have passed without an application to the Federal Energy Regulatory Commission and federal officials confirm that they are proceeding with a study.

Federal intervention is not likely and is a dubious idea from an economic standpoint, industry analysts said last week.

Pitching his proposed gas line to the Legislature on Wednesday, Gov. Frank Murkowski spent several minutes discussing whether the federal government would take over efforts to build a pipeline from the North Slope if the state and gas leaseholders could not agree.

The federal incentives call for the Department of Energy to study whether the federal government should build or finance the line. The 18-month period expired April 11.

"Indeed we have begun this study, as required," said John Grasser, spokesman for the Department of Energy in Washington, D.C. The study in a preliminary stage, he said.

"The actual study itself has not commenced. We're trying to figure out what it's going to take to do the study, what are the options that the study needs to include," he said.

Congress provided no money for the investigation.

Roland George, a senior principal with the consulting group Purvin & Gertz Inc. in Calgary, Alberta, who has analyzed Alaska natural gas issues for years, questioned federal intervention.

"When I put my economist's hat on, there's nothing I like" about the idea of the federal government getting more deeply involved in the financing or the building of a pipeline, George said.

Congress already has offered to guarantee payment on up to $18 billion worth of construction loans for the line, he said.

Nevertheless, he said, "politicians are elected to come up with compromises in society," and more federal intervention cannot be ruled out.

Murkowski highlighted that possibility in his speech.

"I think it's important to reflect that there's a greater view here on this project than just Alaska," Murkowski said. "It's Washington's view."

Murkowski said he did not believe anyone wanted to see federal ownership of a pipeline.

"However, this is obviously a possibility that we may all want to contend with if a contract is not consummated in a relatively reasonable timeframe."

Brian Samuels, an analyst with CK Cooper and Co. of Irvine, Calif., said that possibility has grown with the volatility in energy prices.

"Now more than ever, given the political disarray in our world, the government has a higher likelihood of stepping in," he said.

The federal government needs to play a role in stabilizing energy prices, he said. He was less sure of a role in building a $20-billion-plus pipeline.

"If I were to put a likelihood on it happening, without knowing too much about (Murkowski's) speech, I would put it under 50 percent. But it's not a crazy idea," Samuels said.

Jim Williams, an Arkansas-based energy economist, offered a similar assessment.

"Is it a possibility? Sure. Is it a probability? I don't think so in the current environment," he said.

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