Although two separate preliminary applications were filed last month for the Alaska natural gas pipeline, it’s much too early for hopes to be raised, cautioned an official with ConocoPhillips, a sponsor of one of the proposals. Much will depend on whether the omnibus energy bill (HR 6) is revived in the Senate this session.

If it’s not, “you can write the epitaph for the Alaska natural gas pipeline,” said Don Duncan, vice president for federal and international government affairs with ConocoPhillips. “I don’t know whether it [the bill] is going to make it or not,” he told NGI last Tuesday. But at this point, “I don’t sense a strong degree of commitment on this bill.”

The comprehensive measure includes provisions that are critical for the construction of an Alaska pipeline: a $10 billion loan guarantee, seven-year depreciation for the line, a Section 29 tax credit, and expedited permitting, he noted. Without these, Duncan said, an Alaskan gas line will remain a dream.

In late January, Alaska producers ConocoPhillips, BP and ExxonMobil submitted an application to enter into negotiations with Alaska on the “physical terms” to construct a 3,600-mile pipeline from the North Slope to the Lower 48 states. In addition to pursuing incentives in Washington, DC, for the $20 billion line, the producers want to know how the state will treat the pipeline — specifically, what royalty scheme and excise taxes it would face, according to Duncan. The negotiations with the state are expected to last about six months.

This was a “very preliminary” step, he said. It “was no big deal. A lot of what you saw…was about politics.”

Also in late January, MidAmerican Energy Holdings Co. and Alaska Native Corporations filed an application with Alaska also seeking favorable tax treatment to build a smaller, 745-mile pipeline from the North Slope to the Alaska border with Canada’s Yukon Territory. The price tag for the Alaska-only project was estimated at $6 billion. TransCanada PipeLines said it was prepared to complete the 1,000-mile Canadian portion of the revived Alaska Natural Gas Transmission System for $5-6 billion (see NGI, Jan. 26).

Despite all this activity, “nothing has changed on the economics of this project,” Duncan said. Project sponsors “must address how they will handle the risks” associated with building such a high-cost pipeline.

“The risk at the wellhead is what’s stopping this pipeline,” Duncan said. ConocoPhillips fought unsuccessfully last year to include in the energy bill a provision that would grant Alaska producers a tax credit in the event of a steep drop in natural gas prices, effectively guaranteeing them a floor of $3.25/MMBtu (see NGI, Oct. 13). The proposal was struck because of opposition from Chairman Bill Thomas (R-CA) of the House Ways and Means Committee.

“Everyone is out there making bold statements” about building an Alaska pipeline, but they fail to talk publicly about the federal assistance that will be needed to carry out this massive project, Duncan said.

Neither MidAmerican Energy, a holding of Warren Buffett’s Berkshire Hathaway, nor TransCanada have indicated that their related projects would require government subsidization. So far MidAmerican’s only action has been to open negotiations with Alaska on tax treatment. And TransCanada simply reiterated that it has pushed for an Alaska pipeline for the last 20 years.

“We don’t think anyone will step forward [to actually build the line] without any help from Washington,” Duncan noted. ConocoPhillips needs either provisions in the energy bill to minimize the risk, such as a production tax credit, or another company coming forward to assume full risk for the project, which Duncan thinks is unlikely.

He believes an Alaska gas pipeline will be built “someday,” but it won’t be completed by 2010, as some have projected. The “massive project” will entail the ordering of five million tons of steel for the pipe, time-intensive design work, nearly two years of permitting and three years or more of construction activity, according to Duncan.

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