Politicians, North Slope producers differ on gas bill

State legislator says Alaska voters are likely to show support for all-Alaska pipeline that will serve Asia

Posted: Thursday, November 01, 2001

Despite the firm support of Alaska's top political leaders for a natural gas pipeline along the Alaska Highway corridor, North Slope producers continue to insist that the so-called "over-the-top" route is less of an economic risk.

And a key state senator said he expects voters to approve a pending ballot initiative for an all-Alaska pipeline that would serve markets primarily in Asia, rather than the Lower 48.

The proposed pipeline was one of the main topics of conversation this week at the annual convention of the Alaska State Chamber of Commerce, which concluded this morning at Centennial Hall.

Gov. Tony Knowles referred to it as the largest privately financed construction project in North American history.

But there is considerable uncertainty about when, and even whether, it will come to pass.

Bill McMahon, commercial manager for the Alaska Gas Producers Pipeline Group, told state business leaders Wednesday that BP Exploration, Phillips Alaska and ExxonMobil "can't support a pipeline that's not economic."

So far, that appears to be the case with either of the routes tying into the North American grid, McMahon said.

The 2,139-mile over-the-top route -- from the North Slope through the Beaufort Sea to the Mackenzie Delta in Canada's Northwest Territories and down to an Alberta hub -- would cost $15.1 billion and give a 13 percent return on investment, according to the producers' analysis.

The 1,803-mile southern route, following the existing oil pipeline to Fairbanks and then paralleling the Alaska Highway through the Yukon Territory, would cost $17.2 billion and give an 11 percent return, they say.

A 15 percent rate of return is an industry standard for project viability.

McMahon said the producers still are looking for ways to cut costs. A final analysis is expected by year-end. But he said the historic volatility of natural gas prices leaves little margin for error.

Alaska's political leaders are working to ease regulatory burdens and taxes, although they adamantly oppose the northern route.

"We do know there have to be incentives built into this project to make it happen," said Knowles, who has called for federal tax credits and accelerated depreciation.

An expedited permit-approval process is included in the pending energy bill in the U.S. Senate. Frank Murkowski, an Alaska Republican, said Wednesday that he will introduce a stand-alone bill with some similar provisions, in case the energy bill doesn't come to a vote before the mid-November adjournment of Congress.

But Murkowski, appearing with Sen. Ted Stevens and Rep. Don Young, Alaska Republicans, in a question-and-answer session via satellite from Washington, said the three of them consider the southern pipeline route "the only possible route."

State Sen. John Torgerson of Kasilof, chairman of the Legislature's Joint Committee on Natural Gas Pipelines, said repeatedly that the over-the-top route, already banned in Alaska law and in the U.S. House version of the energy bill, "will never happen."

If the producers conclude neither route can work, legislators will take a look at the numbers and see if they agree, Torgerson said. If not, the situation could turn "ugly," he warned. The Legislature might tax the gas in place, or "you might see us try to condemn it," he said.

Torgerson also predicted voter approval of an initiative for a statewide port authority to oversee construction of a pipeline to Valdez, where natural gas would be chilled to a liquid and shipped to Asian markets and possibly to the West Coast. Probably 70 percent of voters will support that, if initiative sponsors collect enough signatures to get it on the ballot, he said.

Torgerson said he couldn't predict what the Legislature would do if that happens but said there's enough gas for both the all-Alaska and southern routes.


Bill McAllister can be reached at billm@juneauempire.com.

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