Gas line issues deserve debate

Posted: Wednesday, November 18, 2009

A few weeks ago, I had the pleasure of addressing the Juneau Chamber of Commerce on the status of the gas line. I made three essential points:

• Because of the rate of decline in the flow of oil, by around 2018 the Trans Alaska Pipeline System (TAPS) will no longer be technically able to continuously pump oil. This will have a disastrous impact on Alaska's economy, as our state's revenues are 86 percent dependent upon oil.

• Because the Palin administration stopped negotiating with the producers, which have the gas and the financing needed to construct the gas line, in favor of a third party owned pipeline concept (Alaska Gasline Inducement Act), and because of the technical ability of the oil and gas industry to economically extract gas from shale; Alaska's gasline has lost its place in line and will not proceed until less economically risky, less costly, Lower 48 shale gas has been moved to market.

• With the revenues from oil running out and with no revenues from the gas line coming in before the oil runs out, we need a plan to fill the economic gap until we get a gas line. The bullet line should be a part of that plan.

The Juneau Chamber appropriately gave the administration an opportunity to respond. The revenue commissioner is reported to have told the chamber that TransCanada Corp. is developing a pipeline with Exxon Mobil, that shale gas is not an impediment to financing and construction of the gas line, and that the producers no longer need fiscal certainty on their gas and oil to make the firm transportation commitments to move their gas to market through the TransCanada-owned pipeline. A Nov. 9 Anchorage Daily News editorial indicated that senior Department of Natural Resource officials do not support the bullet line.

I urge the public to ask questions and the Legislature to hold hearings on Alaska's precarious economic position. Most specifically, will AGIA get Alaska a gas line prior to the severe revenue losses anticipated in 2018, when TAPS may no longer be able to continuously pump oil?

In addition, where is the contract between TransCanada and the producers that sets out the terms by which the producers will make the firm transportation commitments? The current administration will probably say that the contract will follow the open season, currently scheduled for the month preceding the primary for the 2010 governor's race. Even assuming this is right, because contract negotiations will take a year and a half and must be followed by legislative action, there would be no final contract until mid-2012 to mid-2013. This leaves a major revenue gap.

Moreover, since contract negotiations have not even begun, how can the revenue commissioner say today that fiscal certainty on gas and oil is no longer an issue? Has anyone asked the producers whether they will drop fiscal certainty on gas and oil as a condition for making an firm transportation commitment at the TransCanada open season - especially after the Palin administration imposed the Alaska's Clear and Equitable Share tax increase on them?

More generally, has anyone asked ExxonMobil whether the Interim Project Agreement it entered with TransCanada has in any way changed the terms for committing its gas to the project set out in the contract it negotiated with my Administration? Why has the IPA not been made public?

Has anyone asked why it is in the state's interest to have TransCanada negotiate commercial terms with the producers? Isn't that a state responsibility?

If the state is working so closely with ExxonMobil, why is Department of Natural Resources still litigating with the company regarding the unit agreement at Point Thomson - an area that contains 9 trillion cubic feet of the gas needed to make the project go?

Does the state have firm dates by which TransCanada is contractually required to start and complete construction of the gas line so that the state would have a revenue stream to offset the loss of oil revenue in the run up to the 2018 shut off date of TAPS?

Has anyone asked the producers whether less economically risky, less costly, Lower 48 shale gas, that does not require a 1,700-mile pipeline to get gas to market, will delay the gas pipeline beyond 2018 when TAPS can no longer continuously pump oil? Tony Hayward, the CEO of BP, addressed this point in a Nov. 6 Washington Post column.

Major discoveries have been made not only in such traditional gas-producing states as Texas and Louisiana but also in Ohio, Michigan, Pennsylvania and Upstate New York, he noted. BP estimates that the United States now has 50 to 100 years' supply of recoverable natural gas.

Interestingly, Hayward says nothing about Alaska's gas. Have international oil and gas experts been asked about the effect of shale gas on the timing of the Alaska gas line project?

The gas line issues deserve a full and constructive debate, not platitudes. Alaskans need to ask how the current administration proposes to move forward after the Palin administration spent two and a half years pursuing the project under AGIA, clearly a losing strategy with no back up plan.

• Frank Murkowski is a former Alaska governor.

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