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Knowles Says Economic, Political Stars Aligned for AK Gas Pipeline

Knowles Says Economic, Political Stars Aligned for AK Gas Pipeline

Alaska Gov. Tony Knowles' State of the State address last week centered on what could become the legacy of his administration: an 1,800-mile natural gas pipeline to transport the state's 36 Tcf to the marketplace. With energy prices and energy consumption bursting at the seams, Knowles is dedicating the remainder of his term, which expires in 2003, to the gas project.

Knowles also unveiled a new five-year lease sale schedule to include 16 areawide oil and gas lease sales through 2005, removing a temporary suspension.

Outlining the state's progress since he took office six years ago, Knowles told the state's residents in his address that the "prospect of marketing our abundant North Slope natural gas puts Alaska on the verge of a new era of hope and opportunity for good Alaska jobs." This year, "there's probably more optimism about the financial future of the state" than ever before.

"I believe Alaskans can be on the working end of a shovel building a natural gas pipeline within two years," he said. "After decades of broken dreams, the economic and political stars are finally aligned in our favor. Natural gas is the fuel of the 21st century. Most Alaskans and industry experts believe the most viable project is a natural gas pipeline from Prudhoe Bay to Fairbanks, and then along the Alaska Highway to the energy-thirsty American market."

To "jump start" the permitting process, Knowles is requesting $4 million from Alaska's 22nd Legislature to fund a comprehensive pipeline coordinator's office that would streamline the work. Another part of his pipeline package calls for legislators to establish an Alaskan Highway route for the pipeline. He also wants the state's laws changed to allow a special tax structure that would make the project more attractive to developers.

"My way IS the highway," Knowles said. "Alaska's natural gas can be the foundation of a 21st century economy of high tech resource development, high tech manufacturing and new business growth and quality of life based on affordable clean energy. With known and proven reserves of up to 100 Tcf, natural gas can fuel our economy for the next 50 to 70 years, but to start this mammoth undertaking, we need a single point of contact."

On Monday, he signed an administrative order creating his natural gas "policy cabinet" with a State Pipeline Coordinator at the helm who would not only coordinate the permit process, but also oversee construction of the pipeline, which would transport gas from the North Slope to the marketplace. "Our objective is to implement the 'one-stop shopping' approach to maximize efficiency in processing required approvals and permits and optimize state pipeline expertise and performance."

Commissioners from each state agency would be represented in the policy cabinet, and each agency involved in pipeline permitting and authorization would have a liaison officer to represent it during the coordination process. The state's Departments of Natural Resources, Environmental Conservation, Fish and Game, Revenue, Transportation and Public Facilities, Labor and Workforce Development and Community and Economic Development all would be represented.

To complement the plan, Knowles has introduced legislation to amend the state's stranded gas rules passed in 1998. The rules facilitate natural gas commercialization to include an Alaska Highway natural gas pipeline or a gas-to-liquids (GTL) project. The 1998 bill allowed the state to negotiate the fiscal terms of a gas line, including a contract for payments instead of taxes, but specifically applied to a liquefied natural gas project.

Knowles' revised legislation would expand the provisions in the stranded gas bill to any viable project because, he said, the most promising market for Alaska today is through a pipeline to the Midwest. And other companies are exploring new GTL technology.

Although the Alaskan governor, who first took office in 1994, is making the gas line the centerpiece of this year's agenda, he has long been a pipeline advocate. In November, he said he wanted a pipeline built to follow the Alaska Highway, saying use of the established transportation corridor would be the easiest and least expensive way to bring gas to market. Another plan, which Knowles thinks has too many problems, would carry gas from Prudhoe Bay across the Beaufort Sea, through the Mackenzie River Delta to Alberta.

In any case, an Alaskan pipeline has industry support. Major Alaska producers BP Amoco, Phillips Petroleum and Exxon Mobil told a Senate committee last September that they collectively are pursuing plans to build a pipeline to deliver North Slope natural gas to the Lower 48 states, and hope to file an application with the Federal Energy Regulatory Commission this year (see NGI, Sept. 18, 2000).

The three own most of the reserves in the North Slope and Prudhoe Bay regions. Exxon Mobil has a 40% stake; BP Amoco controls 30% of the gas; and Phillips Alaska estimates it controls about 8 Tcf of Prudhoe Bay gas.

The new five-year oil and gas lease sale schedule announced last week includes 16 areawide lease sales through 2005.

"After some juggling with the lease sale schedule over the past couple of years due to uncertainties surrounding the BP-Arco merger, we have settled down to a schedule that provides the predictability desired by industry," Knowles said. "It also allows for public input during the fall and winter months, when residents of these areas have more time to focus on the issues."

The 16 sales include five in Cook Inlet, with one scheduled for each May through 2005 and another five in the Beaufort Sea and five on the North Slope, with one sale every October. A single in the North Slope Foothills area will be scheduled this May. Under areawide leasing, which began in 1998, the state offers all available state land within a geographic region. Since it began, the state has held six sales, leasing nearly 1.6 million acres worth $68 million in bonus bids.

To learn more about the leasing schedule, visit the Division of Oil and Gas website at www.dog.dnr.state.ak.us/oil.

Carolyn Davis, Houston

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