Thirty Years and Still No Gas

Last month, the FERC, usually an obstacle to energy projects, warned Congress that further delays on the Alaskan natural gas pipeline may make the project “less feasible.”

What to do with Prudhoe Bay natural gas has been an ongoing debate for 30 years, both nationally and in Alaska. In the meantime, Alaska’s North Slope and the Trans-Alaska pipeline, an engineering feat at the time, are very near their 30-year anniversary. After peaking almost 20 years ago at just over two million barrels per day, the North Slope’s output has been declining and now flows at around 800,000 barrels per day. So while oil has had its normal lifespan, from startup to peak to maturity to aging, there is still only talk about the huge Alaskan gas reserves.

In the early 1980s, Alaska was producing about 25 percent of all domestic natural gas. But it was all re-injected to maintain pressure in the oilfields. The problem in bringing Alaskan gas to the Lower 48 has always been cost. At least three different pipeline schemes and associated transportation methods, with price tags of up to $30 billion, have prevented any forward movement. And for the last two decades, with gas prices generally stuck below $3 per Mcf, nobody could justify the cost of an Alaskan gas pipeline.

But in 2002, the U.S. Senate passed a bill for the construction of a “southern route” pipeline. That move prevented the building of the “northern route,” a cheaper alternative that would have taken Arctic gas (perhaps even Alaskan gas) “over the top” through the Beaufort Sea to the Mackenzie River Delta. That gas would be mixed with Canadian gas and then pumped into the Canadian pipeline network, completely bypassing Alaska. But the Alaskan delegation, led by the blatantly pork-barreled Sen. Ted Stevens and his cohort in the House, Rep. Don Young (together they pushed through the $223 million Bridge to Nowhere, a project that connected one small Alaskan town to a tiny island) prevented the over-the-top route. Why? Because it wasn’t going to provide jobs or revenue to Alaska. The southern route required the U.S. government to guarantee gas prices that could have cost federal taxpayers $50 billion or so at the natural gas prices of four years ago.

While Alaska’s Congressional delegation sought to keep the pork flowing, and while natural gas prices have gone up since then considerably, the global gas business has turned to LNG. Today, numerous projects are under construction that will allow gas from several foreign countries to come into US ports. Given the uncertainty of the Alaskan pipeline, it’s no surprise that North Slope producers (ExxonMobil, BP, and ConocoPhillips) are dragging their collective feet. As the FERC itself has noted, a dead giveaway that the project isn’t taken seriously is that no right-of-way applications have been submitted to state or federal governments, and the producers have not even met with state and federal officials. The FERC report also noted, in a classic understatement, that the Mackenzie Delta project, which is supported by ExxonMobil, Shell, and ConocoPhillips, “presents certain risks for the Alaska pipeline project.” The FERC concluded that the producers will not move forward with the project until the fiscal terms are resolved. This is a no-brainer. Four years ago, the cost of the southern route was estimated at $20 billion. The price of steel has more than doubled since then.

The tragedy is that an Alaskan gas pipeline – which would create jobs and revenue for Americans – is no closer to reality today than it was 30 years ago.

Potential Alaska-Canada Natural Gas Pipeline Routes

© 2013 Energy Tribune

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