Alaska Conservation Voters

Conservation Watch

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Alaska Conservation Voters
works to protect Alaska's environment through public education and advocacy, and supports pro-conservation candidates for public office.

“Oil taxes have sucked all the wind out of this building. That's all the legislature is focusing on now.”
--- Lobbyist Ashley Reed, Anchorage Daily News, 3/11/06

• Natural Gas Pipeline

In Every Issue

• On the Move
• Hot Bills
• Hearings this Week

Lurking in the shadows of the great oil tax debate is yet another important issue for Alaska - the Gas Pipeline. An equally confusing and massive topic, the gas pipeline discussions involve numerous options and competing proposals from a variety of players. Since it is probably only a matter of time before we all need to get our arms around the issue, we thought a “big picture” overview of the current mix was in order.

Alaska holds 35 trillion cubic feet of proven natural gas reserves and more than 100 trillion feet of potential reserves. However, with the declining supply of natural gas in the Anchorage, Mat-Su, and Peninsula area, it is estimated that there could be a severe shortage in natural gas for the region by as soon as 2010 unless steps are taken to develop and bring in North Slope gas. From an economic perspective, prospects for the development of the gasline are also promising. Natural gas is currently used to cook and heat in over 70% of U.S. homes and also supplies over 40% of industrial energy needs, but North American reserves of natural gas are decreasing faster than expected relative to this ever-increasing demand.

While there are countless reasons as to why Alaska should develop its North Slope gas reserves, there is a tremendous amount of debate on exactly how it should be done. The following outlines the proposed projects that are on the table and describes the key players that are involved in the issue.

The Projects on the Table:

• A Gas Pipeline from the North Slope through Canada to the Lower 48— Two variations of this proposal exist—the “Northern Route” and the “Southern Route.” The “Southern Route” starts in Prudhoe Bay but would parallel the Dalton Highway southwest to Fairbanks before running adjacent to the Richardson and Alaska Highways from Fairbanks through the Yukon and extreme northeastern British Columbia into Alberta. The “Northern Route” would originate from Prudhoe Bay and move offshore into the Beaufort Sea where it would parallel the coastline eastward into Canada to the Mackenzie River Delta. Depending on whether there is another pipeline in place in the Mackenzie River Valley for Canadian gas, the line could possibly move on to Alberta. The proposed Northern Route is currently not a legal possibility since state law will not allow the project to be built across state lands until after the “Southern Route” is in place. However, the Northern Route has not been entirely ruled out by the "Big 3" producers (BP, Conoco Phillips and Exxon Mobil) since it would be 343 miles (17.5%) shorter.

• “All-Alaska” Gas Pipeline from the North Slope to Valdez — The natural gas would be super refrigerated into LNG and taken to markets outside Alaska (e.g. West Coast) in LNG marine tankers. A couple of spur line variations are also under discussion.

• “Spur Line”— Spur line proposals intend to draw natural gas from one or more off-take points on the main Gas Pipeline to deliver that gas to customers and users in Alaska .

• “Y Line”— The Y-Line is a proposed spur line that would split off from the All Alaska line at Delta Junction. It would link up with a new Canadian pipeline at the border and would run along the Alaska Highway to Alberta and on to the Lower 48 (e.g. the Midwest ).

• “Bullet Line”— The Bullet Line would be built only if there is no main Gas Pipeline or if the main line isn’t started in the near future. The line would run parallel to the Dalton and Parks Highways from the North Slope to the current natural gas infrastructure located in Susitna Valley . This line’s capacity would be smaller than the main gas line and would carry enough gas to meet in-state demand.

The following map highlights a number of the routes for the proposed gas pipeline and spur lines. To access a larger version of the map, click the image below or visit the following site.

The Players:

• The Alaska Gasline Port Authority [supports the “ All Alaska Route ,” including the “Y Line”] — This group was created by the North Slope Borough, the Fairbanks North Star Borough and the City of Valdez . They will need to buy the gas from the producers. Another group, Sempra Energy, entered into an agreement to support the Port Authority's proposal but backed out in May of last year.

• The Alaska Natural Gas Development Authority [supports the “ All Alaska Route ,” with a current focus on options for a Glen Highway “Spur Line” and possibly the “Bullet Line”] — The ANGDA was established by voter initiative in 2002 to pursue an All Alaska project and the spur line. They, too, will need to buy the gas.

• The “Big 3” oil companies (BP, Conoco Phillips, Exxon Mobil) [support the Lower 48 proposal “Southern Route” to Alberta]— They would also build a new pipeline from Alberta that would link with the Lower 48 pipeline grid near Chicago. They control most of the Alaskan gas.

• TransCanada [supports the“Southern Route” to Alberta ] — They are the largest natural gas pipeline company in Canada . Unlike the Big 3 proposal, they would use existing gas lines from Alberta to the Lower 48 as much as possible. They claim to have the legal rights to build the Canadian portion but would also need to buy Alaskan gas from the producers.

Though the groups listed above are the current active players in the gas pipeline discussion, additional ideas could surface.

The Governor’s Pick:

While the other proposals have supporters and may get their day, the Governor is currently negotiating with the Big Three for the Lower 48 Southern Route, which he sees as our best bet—particularly since they own most of the gas. While the details of the deal have yet to become public, the Governor has laid out six guiding principles:

• Alaskans deserve a fair share of revenues from a gas pipeline project (For example, 25% of gas royalties will go to the permanent fund.)
• Alaskans need the opportunity to access the gas
• Future explorers must have access to the pipeline
• The gas pipeline must be expandable to allow for new gas discoveries
• The state should share in the wealth by owning a share of the gas pipeline
• Alaskans deserve Alaska Gas Pipeline jobs

The Governor has also stated generally that the contract now under negotiation includes two key - and potentially controversial - features. First, the state will take its severance tax and royalty payments as gas “in-kind” rather than cash payments. In other words, the state will have a share of approximately 20% of the gas; it will then be the responsibility of the state to market, transport and sell this gas. Second, the state will own 20% of the pipeline. Governor Murkowski says this will match the state’s gas-in-kind percentage, enabling the state to move its gas to market.

Revenues from gas are projected to be approximately $ 2-3 billion per year. Estimates also state that the “Big 3” project will create between 9,000 and 10,000 direct and indirect jobs during its construction.

After the deal is finalized there will be a public comment period before the bill is sent to the Legislature for more public process and an up or down vote. None of this is likely to occur before the Legislature has passed new oil tax legislation.

How all this will play out remains to be seen but chances are these historic and hugely important discussions will carry into the summer and beyond. We will continue to provide updates and commentary as the drama unfolds.

For more information check out:

The Anchorage Chamber of Commerce - "Volume 1: The Facts" on Natural Gas and Alaska's Future

Governor Murkowski's Webpage on the Gas Pipeline

NaturalGas.Org

Gasline.Org

On the Move

HB488 Oil and Gas Production Tax
After weeks of long meetings and very hard work, the House Resources Committee on Friday passed a significantly revised version of Governor Murkowski's proposed oil and gas tax bill (PPT) that is unpopular with the oil companies. Although it maintained the 20 percent base rate, the House panel decided to progressively increase the rate when oil sells at high prices. It also set up a separate progressive formula for gas; dropped the “clawback” provision that would have allowed deductions for prior investments; modified the exploration tax credit provisions; revised the allocation of contingency surcharges between prevention and mitigation accounts and made them non-deductible; reduced the $73 million allowance which resulted in a $14.6 million credit to a $12.0 million credit; adopted a tax credit repurchase program; prevented deductions of discharge cleanup costs and made a variety of other tweaks.

SB305 Oil and Gas Production Tax
The Senate Resources Committee's redraft of SB305 was released Friday afternoon, but has yet to leave the committee. Among other changes, this version increases the base tax rate to 25 percent. It also ties rate increases to rising prices, though at a slower pace than in HB488. Sen. Tom Wagoner, the committee chairman, said the panel decided to go with the higher rate based on advice of independent oil and gas experts, including the governor's top adviser, Pedro van Meurs. The oil industry continues to contend that all versions now on the table, including the Governor’s proposal, will provide short term gains to the state while discouraging critical investment. Hearings are scheduled in Senate Resources early in the week and are set to continue in Senate Finance later in the week (pending referral).

Hot Bills

Bills move at a rapid pace this time of year. You can obtain up-to-date legislative information on the BASIS website. The following chart notes the status of a few bills of importance to the conservation community.

Hearings this Week

Click on the date in the table below to get the most current schedule information for that day, or check the BASIS hearing schedule. Once a bill has been heard in a particular committee it may be brought up again without public notice or listing on the weekly committee schedule. You can click on a committee name to see a list of its members.