Alaska Senate Bill Blocks Pipe from North Slope to Mackenzie

The Alaska senate is trying to force North Slope gas producers to build a pipeline through the state and down the Alaska highway rather than across the Beaufort Sea and down the Mackenzie River to Alberta. The Mackenzie River route would be about 400 miles shorter and possibly much cheaper. Producers worry the measure could significantly 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 Beaufort Sea. It specifically would prohibit leases under the Right-of-Way Leasing Act on the State of Alaska's submerged lands in the sea. The bill has broad support from the senate, and the governor has indicated he will sign it.

"We're extremely disappointed," said Curtis Thayer, spokesman for the North American Natural Gas Pipeline Group, which includes BP Amoco, ExxonMobil and Shell. "We're disappointed that the legislature at this juncture is starting to preclude routing options." Thayer said in just a few days the producers, which hold the majority of property rights on the North Slope, plan to distribute $75 million in research contracts to companies responsible for studying all the routing alternatives.

"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 with the National Energy Board in Canada. We have to look at all routing options, and that is definitely a routing option. For the legislature to arbitrarily close it is, I think, premature on the state's behalf."

The bill focuses on the benefits of building a pipeline through Alaska, including: ensuring that state residents and businesses will have access to enough natural gas to meet reasonably foreseeable instate demands; providing job opportunities during the construction and operation and maintenance phases of an in-state pipeline, and through support services for the pipeline; and adding significant long-term tax benefits.

"While supporters of the over-the-top route claim it could bring more money to the state's treasury, it won't directly benefit the state's residents and that is our concern" said Torgerson in a statement about the measure. "Building a pipeline that runs through Alaska would allow in-state gas distribution for residential and commercial use. It would also open the door to manufacturing value-added natural gas products, such as fertilizer. This would create thousands more jobs and additional revenues for our state over the next 50 years."

"Every person that came and testified before the Senate Resources Committee said the same thing --- the over-the-top route would be the hardest pipeline to permit and build of the three options being considered," said Torgerson, co-chair of the Senate Resources Committee. "Construction along this route would also require an amendment of the Alaska Gas Transportation Act that was passed..... in 1977.

But it could be the cheaper and more efficient way to bring gas to market, said Thayer. The southern route, which would bring gas to Alaskan cities and areas currently without supply, particularly Fairbanks, would be run about 1,982 miles down to the Alberta border. In comparison, the northern route would run across the Beaufort Sea to pick up additional production in the Mackenzie Delta and would then parallel the Mackenzie River southeast to Alberta. It would be about 300-400 miles shorter that the alternative advocated by Alaska senators and the governor. Italso would have the economic benefit of picking up additional gas from the Mackenzie Delta region.

There is 35 Tcf of proven reserves on the North Slope but there has been no gas exploration there. Experts estimate the Slope could contain 100 Tcf of gas. Any pipeline that is built likely would transport up to 4 Bcf/d to the Lower 48. The Mackenzie Delta region in comparison contains about 9 Tcf of proven reserves and 55 Tcf of potential reserves.

"Ironically," said Thayer, "if the pipeline goes over the top there's a higher net-back to the state the way the tax structure is. It's a shorter route so it's not going to cost as much," he said. In addition, Alaska will lose jobs if the bill passes and takes these research contracts away from companies who were prepared to study a northern route.

"We recognize that we have to balance the needs of Alaskans in their desire to have access to the natural gas from the North Slope with the needs of making an economically viable project for the lower 48," Thayer said, noting that the producers had planned to examine a pipeline spur to Fairbanks in any northern route case.

"This pipeline involves the state of Alaska, at least one Canadian territory, two Canadian provinces and at least four states. This is a very big project. We want to take it the best route possible."

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