Gov. Sean Parnell argues that the Alaska Stand Alone Pipeline is a priceless insurance policy against the possibility that the oil companies will decide by 2019 that they do not want to build a larger pipeline.
Challenger Bill Walker counters that it is a pricey plan that would ensure energy costs in Anchorage would go up. He wants to stop spending money on ASAP as soon as possible.
Parnell said the two gas lines should be pursued for the same reason that the proposed Susitna-Watana dam should remain in the mix for Alaska's energy future -- it's not clear yet which one is the best bet.
The list of mega-projects should not be trimmed "until we have something in hand for Alaskans," Parnell said.
"Yes, everything has to be on the table, yes you have to prioritize spending," he said in a recent Anchorage Chamber of Commerce debate.
"But until that point where we have to make a significant, a really significant financial decision, we should not be choosing whether cheaper energy comes to Alaskans from Susitna-Watana or from a gas line," he said. "We need to push forward both projects until we get certainty on one," he said.
Make that three projects, as the governor refers to the ASAP pipeline as Alaska's "ace in the hole" in the gas pipeline discussions. The state is studying both the 36-inch line and is a party to the early work on the larger-volume pipeline that could cost five to eight times more.
Walker counters that this ace in the hole is not part of a winning hand and that a budget crisis is already here.
Studying two pipelines -- with the smaller one expected to cost $5 billion to $10 billion or so -- makes no sense when the smaller one is clearly not economic, he said. The major oil companies are likely to decide in 2019 if the larger project, estimated to cost $45 billion to $65 billion, will proceed.
Everyone agrees that two pipelines won't be built.
"We're doing a small volume project next to a large volume project," Walker said. "We're doing studies upon studies upon studies."
"Someone has to step up and say, 'Some projects we just can't do' and be able to suffer the political consequences," he said.
Walker said the proposed ASAP pipeline from the North Slope to Southcentral, which would supply the Railbelt and rely on some sales beyond the state, would provide little state revenue and translate into rate increases in Anchorage.
A larger-volume line is the only hope to take advantage of economies of scale, he says.
"The small-volume bullet line didn't make sense before. It doesn't make sense now," Walker said.
He said it was proposed to relieve a shortage of gas in Anchorage because of fears that Cook Inlet was running out of gas. But increased exploration has led to new supplies of Cook Inlet gas, he said, reducing that worry.
A 2011 study by Anchorage economist Roger Marks said that the project would require a $4.2 billion state subsidy to keep Southcentral prices stable. He said that number was based on the optimistic assertion that the full volume of the pipeline -- 500 million cubic feet per day -- would be sold.
"If it were not, either because there were cheaper Cook Inlet supplies available, or because a potential LNG exporter would not pay the high costs to get North Slope gas to Cook Inlet as LNG feedstock, the pipeline would be smaller, and because of the resultant diminished economies of scale, the subsidy would be higher, about $1 billion higher for 250 million cubic feet," Marks said in an email Monday.
Marks said it appears now that natural gas supplies in Cook Inlet might last longer than had been expected three years ago, but the medium-term outlook remains unclear. Gas production peaked in 1996 at 610 million cubic feet per day and dropped to 380 million cubic feet per day by 2009.
A pipeline that would ship most of its contents overseas, such as the large Alaska LNG project, would mean that prices on the portion used in Alaska would be lower, as those costs would be spread over a larger market.
In most gubernatorial debates, Parnell has pointed to the resurgence of Cook Inlet gas supplies as a sign of great progress for the Southcentral economy. He said gas is abundant and the talk of brownouts has stopped.
"Now we have more gas than we ever had before, creating lower-cost energy to drive new businesses and new jobs," Parnell told the Anchorage business group.
Walker points to those comments and others as evidence of why the Cook Inlet shortages are not an issue and why a smaller pipeline is not a good backup.
But one key point that Walker is missing, according to Dan Fauske, president of the Alaska Gasline Development Corp., is that there are no new gas sales contracts from Cook Inlet beyond 2018.
"I'm not saying there's not more gas out there. But no one has come forward with anything long term -- that's three-and-a-half years from now," said Fauske, who is the chief official representing the state on both proposed pipelines.
"It that's true, which I know it is, why is Bill then saying that the problem in Cook Inlet has been solved?"
Fauske said the ASAP project economic analysis so far is promising, the numbers are under review and it would be a waste to abandon the effort. Fauske disputed Walker's portrayal that the gas would be too expensive.
A year ago, the AGDC estimated that Anchorage consumers could see rates go up from a range of $8 to $9 per thousand cubic feet of gas to $9 to $11.25. That could mean an increase of anywhere from zero on the low end to about 40 percent on the high end.
But in Fairbanks the current gas price of $23 per thousand cubic feet would be cut to a range between $8.25 and $10. Fauske said that stopping the ASAP project would leave Fairbanks out in the cold.
It would be "kicking Fairbanks between the legs," he said.
In 2013, legislators approved $355 million to advance the ASAP project to "open season," the point at which it would seek to line up utilities and industrial users to buy gas. The total estimated upfront costs to the state would be $400 million, the agency said in late 2013.
Fauske said one of the benefits to the state is that the project puts Alaska in a stronger position to control its own destiny. If the project goes forward, there would be a long-term gas supply for a majority of Alaska residents.
"We're designing facilities, information that we're more than willing to transfer over to the other project if they truly line up together, which we're hoping for. But let's just say it falls apart, we're in a position to keep going," he said.
In 12 to 18 months, the state should understand how things have progressed or not and whether the oil companies will want to spend billions to enter the next stage on the LNG project, the detailed engineering and design.
In the debate in Anchorage, Parnell said the gas line and the Susitna hydro project remain at a stage where options are open.
"We don't have to spend billions of dollars or commit billions of dollars right now," he said of the major LNG project.
The current study stage calls for the state to spend from $70 million to $90 million on the larger project in this phase, while the oil companies would spend close to $400 million.
"We can afford $70 million to see if we can get even more historic progress on a gas line," Parnell said.
He said that the state is spending about $35 million on the Susitna dam this year, "to take it to that next step."
A year ago, the state estimated that $142 million would be needed this year on the Susitna project, but the administration and the Legislature cut that back to $20 million, reducing the pace of the project. State officials estimated then that a total of more than $300 million would be needed in the next two fiscal years.