A subsidized natural gas pipeline from Alaska would be practically a cost/benefit wash for U.S. consumer/taxpayers, but would cost lower 48 producers $60 billion, according to analysis of pending energy legislation by the Energy Department. Meanwhile, industrial consumers last week charged that the bill completely misses the point of how to serve the nation’s need for natural gas.

Consumers could save as much as $16 billion (in 2001 dollars) on gas purchases over a 15-year period if a long-line pipeline from the Alaska North Slope to the Lower 48 states is constructed and placed into service by 2010, the analysis by DOE’s Energy Information Administration (EIA) concluded. At the same time a proposed production tax credit and possible loan guarantees intended to spur construction of the Alaska line on an early timeline would cost the U.S. Treasury approximately $14 billion over the 15-year period. It’s not certain whether these financial incentives will be part of the final energy bill.

Lower-48 producers would suffer a revenue loss of about $60 billion between 2010 and 2025 due to the displacement of demand for their gas caused by deliveries from Alaska, EIA said last week in its 68-page review of selected provisions of the energy bill, which currently is being negotiated on Capitol Hill.

All of these impacts will be a number of years out, however, and “the energy bill as drafted will not solve the natural gas crisis,” the Industrial Energy Consumers of America (IECA) said in a letter to the chairmen of the House-Senate conference committee on the energy bill.

“America is in the grips of a natural gas crisis that will get worse before it gets better and the proposed legislation does not put us on the path to correcting this serious problem,” the industrials said.

The IECA lists insufficient gas production, too much demand growth for power generation, not enough gas storage and barriers to the increased use of coal by utilities as the cause of the crisis. Its recommendations include extending and increasing the Section 29 tax credits, placing a temporary moratorium on the use of inefficient gas-fired power plants which are not cogenerators, accelerating the drilling permit approval process, and opening up additional federal lands to drilling.

In addition the group recommends encouraging increased gas storage capacity and requiring a study on any federal mandate to determine the impact of that mandate on consumers’ natural gas prices.

Meanwhile, the EIA study shows the proposed production tax credit would be large enough to “induce” construction of the Alaska gas line, and that the pipeline could be finished in seven years and ready for service by 2010. But the three major North Slope producers — ExxonMobil, BP and ConocoPhillips –aren’t as optimistic and estimate it would take nine to 10 years to complete the line, the EIA noted.

Recent Republican-crafted discussion drafts of the energy bill proposed the construction of an Alaska gas pipeline along the Alaska Highway route. But they did not take up the issue of a production tax credit or construction loan guarantees. These financial incentives or other types are expected to be addressed in the tax title of the legislation, which still is being negotiated by the House Ways and Means Committee and the Senate Finance Committee.

Without a tax credit, the Alaska gas pipeline would probably not begin operation until 2020, and would have an initial delivery capacity of 4.5 Bcf/d, according to the EIA analysis. The agency estimates that cumulative gas production in Alaska would be 24.4 Tcf greater if the pipeline goes into service by 2010, with production totaling 43.6 Tcf over the 15-year period. Alaska gas production, however, would be significantly less (total of 19.25 Tcf) during the same time frame if the pipeline goes into service later.

Of the projected 24.4 Tcf growth in Alaska production attributed to the pipeline, “27% represents increased consumption, 31% displaces Lower 48 production [and] 41% displaces imports,” the EIA analysis noted.

The anticipated increase in Alaska production would likely cumulatively displace 7.7 Tcf of Lower 48 production between 2010 and 2025, and approximately 10.14 Tcf of net gas imports (Canadian and liquefied natural gas), according to the agency review. About 6.64 Tcf of the production growth would be used to meet higher consumption during the period, it said.

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