Proposed Gas Pipeline by Way of Canada
A conditional agreement between Alaska and three big energy companies may be, as Gov. Frank Murkowski put it, a milestone toward building a natural gas pipeline.
But significant political, environmental and regulatory hurdles must be overcome before a single section of pipe meets a welding torch.
After prolonged negotiations, Murkowski announced Tuesday that Alaska had reached an agreement in principle with BP, Conoco Phillips and Exxon Mobil on state tax terms if they build a $20 billion pipeline from the North Slope to the Lower 48 by way of Canada.
As envisioned, the pipeline would move 4.5 billion to 6 billion cubic feet of gas daily and begin operating sometime from 2012 to 2014. Alaska has an estimated 35 trillion cubic feet of gas reserves.
The announcement came with news of a proposed significant change to the oil-tax system that provides much of Alaska's state budget revenue. Under the plan, the system will be shifted to one based on net profit rather than the volume of production.
Almost no one denies that changes to the oil-revenue system, which now provides about 83 percent of the state's revenue, will have a potentially significant effect. But some gas analysts cautioned that the pipeline's future would be shaped by forces well beyond the governor's control.
"This agreement is only one step on the part of one potential applicant to build a project," said Arlon Tussing, a research economist at the University of Alaska Anchorage, who specializes in gas projects. "The final decision about this is going to be made by the respective regulatory authorities in the United States and Canada, as well as their governments. And there's going to be tremendous opposition."
The plan will meet its most immediate tests in Alaska's Legislature, where Democrats have criticized the governor's decision to reduce proposed pipeline taxes to 20 percent of profit from an earlier plan of 25 percent. The broader overhaul of the oil-tax system is also expected to face criticism.
And there is substantial popular support for another proposal in Alaska that would build a smaller pipeline to the port of Valdez, and then ship the gas south by tanker.
Nonetheless, the political maneuvering at the state level may prove easier to resolve than other issues.
The idea of increasing U.S. gas supplies using U.S. sources has obvious political and national security appeal, particularly given that the fuel is increasingly used as a substitute for coal in electricity-generating stations.
Andre Plourde, an energy economist at the University of Alberta in Edmonton, said that the world's largest known gas reserves were concentrated in countries not known for political stability, notably Iran and Russia.
"Given the Bush administration's focus on what it considers to be energy security," Plourde said, "Alaska is going to get a favorable hearing."
But if natural gas prices drop from their current levels, as many expect, economic concerns may outweigh the emphasis on security. If the forecasts of Tussing and others bear out, gas piped from Alaska will have a difficult time competing with gas shipped by tanker from low-cost producers overseas.
Tussing estimates that North American gas reserves are now about 9.5 times annual production. Reserves elsewhere, by contrast, are 88 times production.
"That means it is a lot easier to increase production almost anywhere other than North America," he said. "We have pretty much wrung out the continent."
A preview of some regulatory issues facing an Alaska pipeline might be found in more advanced efforts to build a gas pipeline from the Canadian Arctic. That project, with investors that also include Exxon, has been repeatedly delayed, in part because of issues surrounding land claims by Native groups along the route. The Alaska project will encounter similar issues over permission to dip into the Yukon Territory and parts of Alberta.
Climate change may also complicate environmental reviews. Antoni Lewkowicz, a geography professor at the University of Ottawa, worked on permafrost issues surrounding an Alaska pipeline plan more than 20 years ago. A pattern of warming weather in the Arctic today, he warned, will make engineering the current proposal difficult and costly.
"One of the things that killed the pipeline back in 1982 was the expense of the permafrost accommodations," Lewkowicz said. "Today, it's going to be very difficult to come up with a design that can deal with current conditions and the climate changes that will occur over the next 30 to 50 years. It's a significant and very costly engineering challenge."
ADN
But significant political, environmental and regulatory hurdles must be overcome before a single section of pipe meets a welding torch.
After prolonged negotiations, Murkowski announced Tuesday that Alaska had reached an agreement in principle with BP, Conoco Phillips and Exxon Mobil on state tax terms if they build a $20 billion pipeline from the North Slope to the Lower 48 by way of Canada.
As envisioned, the pipeline would move 4.5 billion to 6 billion cubic feet of gas daily and begin operating sometime from 2012 to 2014. Alaska has an estimated 35 trillion cubic feet of gas reserves.
The announcement came with news of a proposed significant change to the oil-tax system that provides much of Alaska's state budget revenue. Under the plan, the system will be shifted to one based on net profit rather than the volume of production.
Almost no one denies that changes to the oil-revenue system, which now provides about 83 percent of the state's revenue, will have a potentially significant effect. But some gas analysts cautioned that the pipeline's future would be shaped by forces well beyond the governor's control.
"This agreement is only one step on the part of one potential applicant to build a project," said Arlon Tussing, a research economist at the University of Alaska Anchorage, who specializes in gas projects. "The final decision about this is going to be made by the respective regulatory authorities in the United States and Canada, as well as their governments. And there's going to be tremendous opposition."
The plan will meet its most immediate tests in Alaska's Legislature, where Democrats have criticized the governor's decision to reduce proposed pipeline taxes to 20 percent of profit from an earlier plan of 25 percent. The broader overhaul of the oil-tax system is also expected to face criticism.
And there is substantial popular support for another proposal in Alaska that would build a smaller pipeline to the port of Valdez, and then ship the gas south by tanker.
Nonetheless, the political maneuvering at the state level may prove easier to resolve than other issues.
The idea of increasing U.S. gas supplies using U.S. sources has obvious political and national security appeal, particularly given that the fuel is increasingly used as a substitute for coal in electricity-generating stations.
Andre Plourde, an energy economist at the University of Alberta in Edmonton, said that the world's largest known gas reserves were concentrated in countries not known for political stability, notably Iran and Russia.
"Given the Bush administration's focus on what it considers to be energy security," Plourde said, "Alaska is going to get a favorable hearing."
But if natural gas prices drop from their current levels, as many expect, economic concerns may outweigh the emphasis on security. If the forecasts of Tussing and others bear out, gas piped from Alaska will have a difficult time competing with gas shipped by tanker from low-cost producers overseas.
Tussing estimates that North American gas reserves are now about 9.5 times annual production. Reserves elsewhere, by contrast, are 88 times production.
"That means it is a lot easier to increase production almost anywhere other than North America," he said. "We have pretty much wrung out the continent."
A preview of some regulatory issues facing an Alaska pipeline might be found in more advanced efforts to build a gas pipeline from the Canadian Arctic. That project, with investors that also include Exxon, has been repeatedly delayed, in part because of issues surrounding land claims by Native groups along the route. The Alaska project will encounter similar issues over permission to dip into the Yukon Territory and parts of Alberta.
Climate change may also complicate environmental reviews. Antoni Lewkowicz, a geography professor at the University of Ottawa, worked on permafrost issues surrounding an Alaska pipeline plan more than 20 years ago. A pattern of warming weather in the Arctic today, he warned, will make engineering the current proposal difficult and costly.
"One of the things that killed the pipeline back in 1982 was the expense of the permafrost accommodations," Lewkowicz said. "Today, it's going to be very difficult to come up with a design that can deal with current conditions and the climate changes that will occur over the next 30 to 50 years. It's a significant and very costly engineering challenge."
ADN
posted by Ottawa Gas Prices | 2:40 PM
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