updated May, 30, 2001

The Alaska senate is trying to force North Slope gas producers tobuild a pipeline through the state and down the Alaska highway ratherthan across the Beaufort Sea and down the Mackenzie River toAlberta. The Mackenzie River route would be about 400 miles shorterand possibly much cheaper. Producers worry the measure couldsignificantly change the economics of gas development there.

The bill (SB 164), proposed by state Sen. John Torgerson(R-Kasilof), would prohibit construction of a pipeline in the BeaufortSea. It specifically would prohibit leases under the Right-of-WayLeasing Act on the State of Alaska’s submerged lands in the sea. Thebill has broad support from the senate, and the governor has indicatedhe will sign it.

“We’re extremely disappointed,” said Curtis Thayer, spokesman forthe North American Natural Gas Pipeline Group, which includes BPAmoco, ExxonMobil and Shell. “We’re disappointed that the legislatureat this juncture is starting to preclude routing options.” Thayer saidin just a few days the producers, which hold the majority of propertyrights on the North Slope, plan to distribute $75 million in researchcontracts to companies responsible for studying all the routingalternatives.

“The phase that our group is in is looking at alternative routes,”said Thayer. “We would like to file with FERC within a year and withthe National Energy Board in Canada. We have to look at all routingoptions, and that is definitely a routing option. For the legislatureto arbitrarily close it is, I think, premature on the state’s behalf.”

The bill focuses on the benefits of building a pipeline throughAlaska, including: ensuring that state residents and businesses willhave access to enough natural gas to meet reasonably foreseeableinstate demands; providing job opportunities during the constructionand operation and maintenance phases of an in-state pipeline, andthrough support services for the pipeline; and adding significantlong-term tax benefits.

“While supporters of the over-the-top route claim it could bringmore money to the state’s treasury, it won’t directly benefit thestate’s residents and that is our concern” said Torgerson in astatement about the measure. “Building a pipeline that runs throughAlaska would allow in-state gas distribution for residential andcommercial use. It would also open the door to manufacturingvalue-added natural gas products, such as fertilizer. This wouldcreate thousands more jobs and additional revenues for our state overthe next 50 years.”

“Every person that came and testified before the Senate ResourcesCommittee said the same thing — the over-the-top route would be thehardest pipeline to permit and build of the three options beingconsidered,” said Torgerson, co-chair of the Senate ResourcesCommittee. “Construction along this route would also require anamendment of the Alaska Gas Transportation Act that was passed….. in1977.

But it could be the cheaper and more efficient way to bring gas tomarket, said Thayer. The southern route, which would bring gas toAlaskan cities and areas currently without supply, particularlyFairbanks, would be run about 1,982 miles down to the Albertaborder. In comparison, the northern route would run across theBeaufort Sea to pick up additional production in the Mackenzie Deltaand would then parallel the Mackenzie River southeast to Alberta. Itwould be about 300-400 miles shorter that the alternative advocated byAlaska senators and the governor. It also would have the economicbenefit of picking up additional gas from the Mackenzie Delta region.

There is 35 Tcf of proven reserves on the North Slope but there hasbeen no gas exploration there. Experts estimate the Slope couldcontain 100 Tcf of gas. Any pipeline that is built likely wouldtransport up to 4 Bcf/d to the Lower 48. The Mackenzie Delta region incomparison contains about 9 Tcf of proven reserves and 55 Tcf ofpotential reserves.

“Ironically,” said Thayer, “if the pipeline goes over the topthere’s a higher net-back to the state the way the tax structureis. It’s a shorter route so it’s not going to cost as much,” hesaid. In addition, Alaska will lose jobs if the bill passes and takesthese research contracts away from companies who were prepared tostudy a northern route.

“We recognize that we have to balance the needs of Alaskans intheir desire to have access to the natural gas from the North Slopewith the needs of making an economically viable project for the lower48,” Thayer said, noting that the producers had planned to examine apipeline spur to Fairbanks in any northern route case.

“This pipeline involves the state of Alaska, at least one Canadianterritory, two Canadian provinces and at least four states. This is avery big project. We want to take it the best route possible.”

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