Alaska editorial: ; Are North Slope gas line concessions really needed?

Posted: Monday, September 12, 2005

This editorial first appeared in the Anchorage Daily News:

Is Alaska North Slope natural gas a marginal prospect that needs state concessions before a pipeline can carry it to U.S. markets?

Or is a gas pipeline a viable project that is stalled because one or more North Slope producers have more lucrative prospects elsewhere?

Some Alaskans have long suspected the latter. They'll find new ammunition in the analysis the Legislature received last week from its own independent consultant.

Econ One spent a full day Wednesday briefing the Legislative Budget and Audit Committee and other lawmakers on the prospects for a North Slope gas line. The consultants parsed the gas line question multiple ways and always came up with same answer: The project looks very attractive financially.

That was true whether the producers own the whole line, split it 50-50 with a pipeline company or just buy shipping rights in a gas line built by a third party. It was true whether it was financed with bonds or cash from stockholders.

Natural gas prices don't have to stay at today's astronomical levels. Econ One said moving North Slope gas to market works at a price of $4 to $5 per million BTUs (about 1,000 cubic feet). That's the consensus view of multiple experts on where long-term prices will settle.

"The timing for North Slope gas entering the market is outstanding," Rick Harper told the legislators. "It's not competing on a mutually exclusive basis with any other project I know of."

The only catch in the Econ One analysis is that it presumed the project would stop at the major gas distribution hub in Alberta, rather than continue on to Chicago. Apparently there will be capacity available in the distribution system heading south from Alberta within the next 10 years. It may not be enough to handle all Alaska's gas, though.

Still, Econ One looked at a scenario in which costs were 20 percent higher. An Alaska gas line was still an attractive investment, according to conventional corporate criteria.

If the numbers are so solid, why isn't a gas line already well under way?

There are only two possibilities. Either the consultants got the numbers badly wrong or North Slope producers have been pursuing more attractive ways to spend their corporate investment cash.

Unless convincingly rebutted, the Econ One analysis sends a clear message to Gov. Frank Murkowski and the Legislature. They should cast a skeptical eye on any North Slope producers' requests for concessions in negotiations under the so-called "Stranded" Gas Act.

The producers, or other potential gas line investors, do have legitimate concerns about potentially arbitrary future state tax increases. But the Alaska Constitution clearly prohibits the governor and Legislature from contracting away the state's taxing authority. If any state tax concessions or assurances are necessary to advance the gas line - a big if, apparently - they could only be temporary. An iron-clad guarantee not to ever change taxes won't fly.

Critics of the North Slope gas holders have long contended that the state should be willing to use its clout as a sovereign government to prod the gas line forward. A tax on gas reserves is one approach. Another is to investigate possible anti-trust violations involving competing pipeline proposals. A third is to enforce state lease terms that require gas production if commercial quantities are present.

The governor and Legislature haven't shown much interest in those tactics. Their actions to date suggest they think a North Slope gas line is a marginal project that needs to be goosed into existence with concessions. The new analysis from the Legislature's consultant suggests otherwise. If the consultant is right, Alaska should not be afraid to be more forceful as it tries to get the North Slope producers to actually produce North Slope gas.



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