At an estimated $20 billion, it is being called the largest private construction project in North American history. Now the decades-long issue of pipelining Alaska’s natural gas is coming to a head.

The decades-delayed Alaskan project to carry natural gas through Canada to markets in the Lower 48 states leaves at least 35 trillion cubic feet of identified natural gas reserves trapped beneath the North Slope; that is about 50 percent more than the United States uses in a year. And with the U.S. bracing for a natural gas crunch and panic-inducing price hikes this winter, Alaska officials now are focused on commercializing their other energy treasury — natural gas.

Since the 1970s, Alaskans have relied on the 800-mile trans-Alaska oil pipeline to move crude from the frozen North Slope to tankers in the Valdez port. Since that time, Alaskans have awaited their second-pipeline follow-up, which would tap into the state’s vast reserve of natural gas.

According to a GovPro article this month, former Gov. Wally Hickel has said, “We’ve had gas sitting up there for 30 years. And so what we have to do is say, ‘Wait a minute, now you just can’t do that forever.’” Although Alaskan officials have attempted for three decades to persuade someone to buy that natural gas, for the most part the project has sat nearly idle.

Until recently, that is.

As of this month, and after Alaskan Gov. Frank Murkowski’s much closed-door negotiations with oil company representatives, Alaska has offered a contract to the three major North Slope producers — ConocoPhillips, BP Plc and Exxon Mobile Corp. — to build and operate a 3,400-mile pipeline that would transport the region’s natural gas supplies to the Lower 48 states. The state’s proposed terms for building a $20 billion natural gas pipeline could both boost U.S. supplies of the fuel as prices surge and take 10 years to build, according to Bloomberg.

The proposed pipeline would run through western Canada to the Midwest, delivering about four billion cubic feet per day; it would operate for decades. According to the Anchorage Daily News on Oct. 7, Murkowski said the contract designates four points where gas could be siphoned for local use, or even for shipment through the North Pacific “in liquefied natural gas tankers”: the Yukon River, Fairbanks, Delta Junction and Glennallen. The state is offering to be a 20 percent owner of the pipeline with an investment of at least $4 billion.

Approval of the contract by the three companies and the state legislature could begin a new economic era for Alaska, CNN/Money quoted Murkowski as having said. However, the contract does not guarantee a pipeline — only the tax and royalty structure if one is built.

The oil companies, noted the GovPro article, portray the pipeline as “a massive and inherently risky undertaking,” although last year Congress guaranteed a loan of up to $18 billion. Legislators are hesitant to approve a deal that lacks oil companies’ commitment to the construction’s actual start date. And “industry outsiders worry that the North Slope’s natural gas, which is presently re-injected into the ground to enhance oil flow, is too valuable to the companies in its current use for them to support a pipeline project,” according to GovPro. Further, there have been skirmishes between advocates of an all-Alaska gas pipeline and the Murkowski administration for the latter’s negotiation of the gas-line-though-Canada plan, according to coverage on Alaska’s Channel 2 News.

Yet recent analysis by a research firm (under contract to the Legislature) concluded that the project “would be profitable under any likely scenario for gas prices.”

From the proposed world-class construction project, Murkwoski — for whom this may be his swan song — said Alaskans would greatly benefit, as the second pipeline would provide new construction jobs and billions of dollars in state revenue; it would also be an “economic development plum” for Alaska, noted Anchorage Daily News.

Additionally, for nearly three decades Alaskans have relied on the current trans-Alaska oil pipeline to pay for 80 percent of state general fund spending and to provide every member of the population a yearly dividend check — simply for living there. However, because oil production has gradually slowed, this new pipeline could regenerate the Alaska Permanent Fund, which issues the yearly dividend checks to every state resident.

In an Oct. 10 interview with energy industry expert and chief consultant for the State of Alaska Pedro van Meurs, Alaska’s Channel 2 News quoted van Meurs as having said, “The contract that was presented by the governor to the sponsors, if you compare that with other supply areas for the Lower 48, would have the highest government take, the best deal, in a sense of how much percent of the money the government gets versus what the producers get.”

If endorsed by the three major producers, the contract would be subject to a public comment period of more than 30 days, after which it would then be submitted to the legislature for approval.

References

Closed-Door Negotiations Fuel Alaska’s Natural Gas Pipeline
Bill McAllister
GovPro, Oct. 11, 2005
http://govpro.com/ASP/viewArticle.asp?strArticleId=106487&strSite=GOVPROSITE&st=2

Alaska Proposes Terms for $20 Billion Natural Gas Pipeline
Mathew Carr
Bloomberg, Oct. 7, 2005
http://www.bloomberg.com/apps/news?pid=10000082&sid=aPIwWLckMnEc&refer=canada

Governor places natural gas on the line
Wesley Loy
Anchorage Daily News, Oct. 7, 2005
http://www.adn.com/news/alaska/story/7055820p-6959958c.html

Alaska considers major new pipeline
CNN/Money (Reuters), Oct. 7, 2005
http://money.cnn.com/2005/10/07/news/economy/alaska.reut/

Attorney general under scrutiny over gas pipeline
Bill McAllister
Channel 2 News (KTUU-TV), Oct. 19, 2005
http://www.ktuu.com/cms/templates/master.asp?articleid=830&zoneid=1

Van Meurs discusses possible outcomes of an Alaska pipeline
John Tracey
Channel 2 News (KTUU-TV), Oct. 10, 2005
http://www.ktuu.com/cms/templates/master.asp?articleid=278&zoneid=1