Two years ago, construction began at last on the Alaska natural gas pipeline first envisioned by President Jimmy Carter in the 1970s -- or so then-Alaska governor and vice presidential hopeful Sarah Palin told the Republican National Convention in St. Paul. Her Minnesota-twanged voice full of hope, Palin stood before the party faithful to detail her efforts to "bring about the largest private-sector infrastructure project in North American history. And when that deal was struck, we began a nearly $40 billion natural gas pipeline to help lead America to energy independence."
Palin might have been excused for her overstatement. Not a spade of dirt had been turned, but the 30-year-old dream of a gas pipeline from the American Arctic to the American Plains did at one point under her leadership appear to be moving forward. But then, the pipeline promising clean, environmentally friendly natural gas for America has several times appeared to be moving forward only to stall and fade from sight as it has once again.
Despite what is now a crying need for American energy independence -- President Barack Obama, in the wake of the Deepwater Horizon oil disaster in the Gulf of Mexico, went on national television earlier this month to plead for a sensible national energy policy -- the Alaska gas pipeline remains as bogged down as ever.
In his national address, Obama didn't even bother to mention it as an energy alternative. The major oil and gas companies don't think they can make enough profit off the project to make it worth their time and effort. The state has done little to nothing to promote it at the national level. State political leaders don't do much but wring their hands, bemoan the low cost of natural gas in the Lower 48, and look forward to the end of the "open season" on pipeline bids everyone expects to finally end a failure later this year.
Open season is when the oil companies go hunting for a deal that works for them. They take a guess at the future demand for gas, which will dictate the price; estimate the royalties and taxes to be paid on production; factor the likely costs of getting the gas out of the ground; and roll in a profit for their efforts. Most of these things entail a risk, which leads any prudent businessman to tend to over-estimate the costs and roll in a little extra profit to cover in case even the over-estimated costs prove too low. This is especially the case when it is understood that gas left in the ground retains value. It might be better, in some cases, to keep it there rather than send it to market only to lose money on the deal.
But if the producers decide after all these calculations that they can make money, they offer up the price the think they can afford to pay to move gas and a volume of gas they plan to move at that price. This in turn factors into a final decision on whether the pipeline can be built. The pipeline company needs to move enough gas at a high enough tariff that it can cover the costs of building the pipeline and make a little profit, too.
People who know oil and gas markets tend to be of the opinion that neither TransCanada Corp., a Canadian pipeline company, or Denali, a partnership of oil giants BP and ConocoPhillips, will be able to get a deal that covers the cost of construction because the owners of the gas need to structure a price for shipping that is low enough for them to make money on what they pump out of the ground.
Rep. Don Young, R-Alaska, doesn't think the economics of gas line construction pencil out for anyone until the price of gas reaches about $8 per million BTUs. It is now just over $4 per mBTU. Both national and state tax markets could be altered to make the gas line more attractive to the major oil companies that hold title to the gas on Alaska's North Slope, but despite the Deepwater disaster Americans aren't exactly lining up to pay higher taxes on gasoline or heating oil to finance alternative energy schemes for wind or hydropower. Let alone expressing any interest in helping to bring to market natural gas, a big chunk of which is owned by BP, now the country's favorite corporate business ogre.
Canadian officials have been trying to leverage BP's Deepwater disaster, which some believe has now smeared the Gulf of Mexico with more than 100 million gallons of crude, to increase the chances of getting their Arctic gas to market, but Alaska Gov. Sean Parnell said the 49th state is not going to take advantage of a crisis just to promote its gas.
Some argue it wouldn't make any difference anyway. Businessman Andrew Halcro -- a former candidate for governor, a onetime talk show host, a former member of the Alaska Legislature, and one of the state's more knowledgeable politicians on the subject of oil -- contends there is nothing the state can do to influence the current dynamic.
"It's all economic," he said.
The owners of the gas -- primarily BP, ConocoPhillips and Exxon Mobil Corp. -- will get behind construction of a gas pipeline when it's in their financial interest to do so. Up until then, Halcro said, the line is probably stalled, and no sort of state campaign to push gas in America is going to change that.
It is generally well known the Arctic gas is there waiting, Halcro said. Likewise for the fact that natural gas is one of the environmentally cleanest forms of energy in the nation. It doesn't grind up birds the way the spinning blades of wind power do, or kill salmon the way the dams of hydro power do. American political leaders have been aware of this for a long time.
The promise of clean, efficient natural gas from Alaska's North Slope was birthed by Carter at a time when an Arab oil boycott had left the country starving for fossil fuel energy. Carter's envisioned pipeline faded with the end of that crisis only to be picked up, albeit in a modified form, by the late Wally Hickel, a former governor, a former Secretary of the Interior and an all-round Alaska visionary.
Hickel envisioned Alaska as a major supplier of liquefied natural gas to the Pacific Rim. He wanted to build a gas pipeline to Valdez and ship LNG from there to Japan, Taiwan and China. He couldn't move the gas line any closer to reality than Carter. Neither could a couple of Alaska governors who tried later -- Tony Knowles and Frank Murkowski -- or any of a number of Alaska business entities dedicated to trying to move the gas to market.
Murkowski proposed cutting tax deals with the oil companies to encourage them to build a version of Carter's pipeline of old. The idea did not sell well in the owner-state of Palin, Hickel and the late Gov. Jay Hammond, all of whom agreed that oil and gas belong to the people, and anyone who takes it out of Alaska's ground ought to compensate Alaska's people with a lot of money.
To the businessmen in the oil industry, of course, this owner-state stuff just smells of so much socialism, a la Hugo Chavez in Venezuela.
And it might be part of the reason the Alaska gas line is high centered at this moment. The major oil and gas companies are multinational, and they're not too happy with Alaska's current oil tax structure. If they can get a better break on gas taxes in Indonesia -- or in the Lower 48, where there is now much talk of exploiting so-called "shale gas" -- why mess with Alaska?
About the only way to change that would be for the state of Alaska to publicly offer a reasonable gas tax and then launch a public offensive against the oil companies, accusing them of trying to keep the Alaska gas from market so as to maximize their profits on messy oil. The Deepwater spill might provide the leverage for exactly that sort of political ploy, but as Parnell has noted, the state is not going to stoop to that kind of thing.
Which sort of leaves the gas line where it was in 1977 when Carter talked about "the need to transport Alaska oil and natural gas" at a press conference in New Orleans. More than 30 years later, another president -- Obama -- has become a regular visitor to New Orleans to talk about oil, this time because of the gusher painting the Gulf of Mexico black with an ever-growing smear of crude that is now about 10 times the size of the Exxon Valdez oil spill.
And the Alaska gas line, which could bring Americans clean energy?
Well, it's sort of fallen off the radar screen. Again.
Contact Craig Medred at craig(at)alaskadispatch.com.