My Turn: State can help with natural gas

Posted: Monday, July 07, 2003

The United States is facing critical shortages in natural gas in the months and years to come - just ask Alan Greenspan and other government experts.

This is due, in part, to government policies that increase demand for gas while restricting access to it by locking up some of the most gas-rich lands in America. Thankfully, Alaska can help avert this long-term crisis because decades' worth of natural gas is waiting to get to market with a nudge from Congress.

The proposed Alaska gas pipeline following the Alaska-Canada Highway would carry 35 trillion cubic feet of gas to Lower 48 consumers over the next several decades. This is the safest and most environmentally responsible route because ground has been broken along the existing highway. A proposed alternative to pipe gas under the ocean floor of the Beaufort Sea no longer interests producers, in part because of environmental concerns. Another proposal to liquefy the gas at tidewater for export to the West Coast would compliment the highway route nicely and help diversify our infrastructure.

This project's design and financing costs are staggering. In the last three years gas producers spent over $125 million just to evaluate the project. Actual design and permitting could cost another $750 million. The 3,500-mile span of pipe will consume over 5 million tons of steel, require the largest gas handling facility of its kind in the world, and rival the Great Wall of China in length. In short it will be the largest private sector project ever undertaken.

Wages to construct the project are expected to exceed a whopping $5 billion, while over 400,000 new direct and indirect jobs nationwide will be created, meaning this project is its own economic growth package. More importantly, the project will deliver 4.5 billion cubic feet of gas per day to consumers in the Lower 48 at a time when supplies will be short by 10 to 20 bcf per day nationally.

Gas heats over 50 percent of existing homes and 70 percent of new homes, is one of the main feedstocks for plastics and petrochemicals, and is one of the main components for the fertilizer used for agriculture, including the corn needed for ethanol. In addition, natural gas is one of the best sources of hydrogen - the fuel of the future touted by President Bush. Then there are the gas-fired power plants keeping the lights on and our computers running. With the cost of gas on the rise, all of these items become more expensive: food, plastics, electricity, heat and more.

But help is on the way from Alaska if Congress enacts legislation to help get the pipeline started. The project's total cost of nearly $20 billion is likely to strain the financial resources of already struggling investors and firms on Wall Street. Mechanisms are needed to ensure the pension and retirement funds that may be invested in this project are protected in the unlikely event gas prices crash. To help mitigate these risks Congress is considering some straightforward fiscal "enablers" to encourage the markets to get involved.

The first piece is a loan guarantee similar to those provided for other important industries. The second includes accelerated depreciation and quicker capital recovery of related-gas infrastructure, similar to what is proposed for other pipes in the Lower 48 in the pending energy bill. Last is a production mechanism that will help spread the risk in the unlikely event gas markets collapse.

This mechanism will not set a special price or floor price for Alaska gas. Rather, it will allow producing companies to take tax credits up to 52 cents per unit against future taxes in the event gas prices plunge unexpectedly. The delayed nature of the credit and its application to future taxes means natural gas coming from Alaska will be priced based on market forces - just like the gas produced in the Lower 48 - not through artificial pricing mechanisms.

We must acknowledge the need to produce more gas domestically. The longer we wait to get Alaska's gas to market, the more reliant we may become on foreign gas. That is bad from a national security and an economic point of view. Today we are nearly 60 percent reliant on foreign oil; is that where we want to be for natural gas 20 years from now? No right thinking policy maker would knowingly pursue such a course, which is why building the Alaska gas pipeline now is the right solution.

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