Natural Gas Pipeline Named a Priority for Incoming Alaska Governor Palin

Gov. Sarah Palin told lawmakers Wednesday to soon expect legislation outlining the process for a natural gas pipeline.

In her first State of the State address, Palin minced no words about her priorities for this year’s legislative session, which began on Tuesday.

“This gas line, it’s going to fuel our homes, our economy, and careers for Alaskans — for generations,” she said. “This gas line is critical not just for our future, though, but for the nation’s future.”

A statewide gas line is considered to be a potential boon to the state’s economy, somewhat akin to that of Prudhoe Bay’s oil production at its peak.

But the pipeline would also take on national importance as the country works to lessen its dependency on foreign energy supplies.

In calling for lawmakers to consider her legislation, Palin is asking them to revisit one of the most contentious issues left over from Frank Murkowski’s administration.

Murkowski reached an agreement with BP PLC, Exxon Mobil Corp. and ConocoPhillips to build a pipeline from the North Slope through Canada and into the Midwest.

The line would ultimately have delivered 4.5 billion cubic feet of natural gas a day, which is about 7 percent of the current U.S. demand.

But lawmakers felt the deal gave too many considerations to the big firms, including locking in tax rates for several decades.

That will change, Palin told lawmakers.

“The deal was a ‘no deal,’” she said. “And our Legislature was handed a plan that even exceeded the administration’s authority. Remember, in exchange for those unnecessary concessions, the producers didn’t have to commit to preparing applications, much less build a gas line.”

Palin’s solution: a bill that will re-establish project criteria which energy companies must meet in exchange for inducement incentives from the state.

Palin calls it the Alaska Gasline Inducement Act, or AGIA.

Successful passage essentially means replacing the Stranded Gas Act, the foundation for Murkowski’s deal, though it would not represent a repeal.

“The centerpiece of this is to induce construction of the gas pipeline. A gas line constructed on our terms, without selling Alaska’s sovereignty,” Palin said.

“This law allows transparent and competitive processes,” she said. “It jump starts progress with incentives, and it strikes the right balance on a project for the state, the nation, the project proponents and the producers. It will be good for all.”

Specifically, AGIA offers inducements to those who will build the pipeline itself, any one of the 12 groups or companies that has shown interest.

For starters, these applicants must agree to bedrock requirement of the state, such as gas for Alaskans, jobs for Alaskans, and project benchmarks.

Additionally, the pipeline must be able to expand in step with the development of new reserves so North Slope.

She said the state is currently developing such incentives as a substantial state capital contribution so bidders know Alaska has a viable interest.

The state also is developing permit streamlining and a state-funded training program to ensure a qualified Alaskan workforce.

Above all, she said, the act will contain clear, competitive criteria by which the state can judge which project best meets Alaska’s long-term needs.

The bill will be introduced this session, and right now is being scrutinized for its legality, strategy and efficiency, she said while imploring lawmakers to be diligent.

“We must be realistic about the complexity of this,” she said. “It won’t happen with a snap of a governor’s fingers. It can’t happen overnight.”

Rep. Mike Hawker, R-Anchorage, said he liked that Palin devoted much of her speech to the pipeline but still wants more answers.

“It seems to me she’s replacing incentives from the previous proposal with inducements in this one,” Hawker said. “Specifics will have to come out, and they will have to come out pretty quickly because time is of the essence.”

Still, Rep. Beth Kerttula, D-Juneau, said she appreciated Palin’s sense of urgency.

“She’s right; it has to come soon, so we are part of the world’s market,” Kerttula said. “We can’t just sit on the gas and watch other pipelines come online.”

Energy analysts have estimated there to be about 35 trillion cubic feet of proved natural gas reserves in the North Slope, but they believe that figure will rise in the future.

The proposed gas line has implications on the nation’s growing dependency on imported natural gas supplies, which stand at about 15 percent, according to the Energy Department.

That figure could grow to about 25 percent by the time any Alaskan gas line gets built within the next 10 to 12 years, analysts said.

For now, most imported natural gas comes from Canada with a small percentage arriving in tanker carrying liquefied natural gas, also known as LNG.

“It would be a critical component to our supplies,” said Ed Kelly, natural gas analyst for consultant Wood Mackenzie in Houston.

“It would allow natural gas to remain an economic source of power generation and heat in the economy-at-large,” he said.

Kelly weighed in on the pipeline prospects without knowing of Palin’s plans, but it’s been a topic he and other energy analysts have carefully watched for several years.

Several years ago, natural gas prices were too low to justify the massive investment required to move fuel from the North Slope to the Lower 48.

Today, prices are in the $6-plus range per thousand cubic feet, well below the December 2005 peak of $15.38 but still nearly three times that of five years ago.

Thus, a successful pipeline development in Alaska represents a “secured energy source,” Kelly said.

“I think prices will keep on creating a signal for this development,” Kelly said. “It would reduce our need for LNG.”

Through it all, lawmakers seemed to think Palin is off to the right start by stressing the gas line, but not overlooking other items such as the budget, education and keeping a watchful eye on the success of the new petroleum profits tax approved last August.

“She has identified the popular rhetoric, and it demonstrates why she was elected with such a solid majority,” Hawker said. “She is very definitely a governor of the people.”