Moving Alaska's natural gas brings two competing plans

May 2, 2008, McClatchy-Tribune -- But getting it from there to here is tricky -- a puzzle grappled with for decades that state and federal leaders continue trying to solve today.

Now, two competing plans propose to build a pipeline to move natural gas from its Arctic fields to markets in the lower 48 states. The issue has the attention of oil and gas producing states nationwide.

Next week, the Oklahoma City-based Interstate Oil and Gas Compact Commission will discuss the issue during its midyear gathering in Calgary, Alberta, Canada. Numerous speakers are scheduled, including Drue Pearce, coordinator of Alaskan natural gas pipeline projects for the U.S. government.

Event registration is higher than normal -- an indicator the issue is important to representatives from each of the 30 states represented on the commission, its executive director said.

"It will be a huge project," Carl Michael "Mike" Smith said of planned work.

Alaska sees oil production falling

The effort to build a delivery pipeline for Alaska's natural gas can be traced back more than three decades, starting in the early 1970s during construction of the Trans-Alaska Pipeline System for oil from the North Slope to Valdez, Alaska. In the 1980s, interest waned. But by the late-1990s, the U.S. again started looking for reliable, domestic natural gas supplies.

Alaskan state officials and the federal government joined forces to try to make the project a reality. Energy Department officials said the line is expected to supply about 10 percent of the nation's natural gas demand, carrying at least 4 billion cubic feet of natural gas a day.

Patrick Galvin, commissioner of revenue for the state of Alaska, said state officials are wanting to get the gas to market because its oil production is declining, and with it, revenues for the state's government.

"Now, there is an opportunity in the market where the expected long-term price in gas justifies the economics," Galvin said.

"And we see the project benefiting the entire country, too," he added. "It provides a more environmentally friendly energy source, and one that is domestically produced and secure."

Moving closer to reaching an agreement

Three different proposals to build natural gas lines from Alaska to the lower 48 states were possibilities in 2002.

Those offers were made under Alaska's Stranded Gas Development Act of 1998. Alaska's former Gov. Frank Murkowski eventually negotiated an agreement with a consortium of companies called the Producer Group, composed of BP, ConocoPhillips and Exxon Mobile Corp., to build and operate the project.

The proposed agreement gave Alaska part ownership of the lines and part ownership of the gas in lieu of production tax and royalty payments. But critics said the deal was negotiated behind closed doors, and Alaska's Legislature didn't approve it.

In early 2007, Alaska Gov. Sarah Palin -- a Republican who beat Murkowski in a primary election -- introduced a bill to seek new proposals to build the line. That bill, which the state's Legislature approved, provided for an open competition and state matching contributions of up to $500 million to plan the project and get needed federal approvals and permits.

TransCanada Pipelines' proposal appears to meet Alaska's requirements, and its application is being reviewed by state regulators. TransCanada already owns and operates a network of more than 36,500 miles of pipeline, tapping into virtually every major natural gas supply basin in Canada and the lower 48 states.

Its proposal calls for the start of field work this year and the start of operations by the end of 2017, federal officials said. A decision on whether to issue a license to the company is expected later this year.

Meanwhile, ConocoPhillips has announced plans to build its own line, partnering with BP on the project.

Both projects propose running a line from the North Slope to Fairbanks, then following the Alaska-Canadian Highway south and east into Canada, through the Yukon and British Columbia into Alberta, following a path of about 2,000 miles.

Today's interest comes from the south

The proposed pipeline project also is getting interest from companies operating in Canada that are looking at their own plans to move natural gas south to the lower 48 states.

Devon Energy Corp., based in Oklahoma City, is waiting for Canadian approval on a pipeline needed to move gas from its operations in the MacKenzie Delta.

"The basic problem that exists is that gas from Alaska is at the very end of the pipeline," said Chris Seasons, president of Devon Canada. "There is a cost to get it from its source down to the lower 48. So, the fundamental challenge is to make the project viable."

The fear, he said, is that long-term prices may not stay as good as they are today. And construction costs with pipeline projects -- like the one Devon needs for its McKenzie Delta well -- rapidly have escalated, he said.

"So, I don't think this is a slam dunk," he said.

Meanwhile, some U.S. organizations have opposed the latest effort, worried about its effect on prices for natural gas discovered in the lower 48.

But the compact commission's Smith said he doesn't share those concerns. A resolution approved by the commission estimates that natural gas consumption in the U.S. could grow to about 29 trillion cubic feet by 2030, and that Alaska has the resources to help meet that need.

Alaska state officials say 35 trillion cubic feet of gas is available in oil-producing areas, and estimate another 200 trillion cubic feet of gas could be recovered economically.

"Certainly, natural gas competes in the markets. But looking at the long-term needs of our country, this gas will help meet that need long into the future," Smith said.

"What we are talking about here is a long-term project that will take a long time to build. Meanwhile, our country, economy and population are growing and we are going to need those resources by the time they become available."