EDITORIAL: Time’s up for Alaska’s natural gas pipe dreams

When it comes to the future of Alaska natural gas production, now is the winter of our discontent. Despite widespread consternation over the prospect of having to import gas produced elsewhere to meet Southcentral Alaska’s heating and electricity generation needs, there has been no movement by producers to move forward with expanded exploration and production in existing fields, nor have firms taken concrete steps to commit to the long-desired natural gas pipeline from the North Slope to Southcentral. Alaskans — and particularly legislators — don’t want to acknowledge it, but there’s no getting around imported gas as at least a bridge solution for the state. We shouldn’t let the emotions surrounding our vision of Alaska as an oil and gas producer seduce us into overcommitment to a financially risky in-state gas solution.

Multiple governors’ administrations have pinned their hopes on the development of an in-state natural gas pipeline, saying we’ve “never been closer” to finally freeing the vast reserves of gas at Prudhoe Bay and elsewhere on the North Slope and sending it south so that Alaska can have a stable supply of gas for decades while exporting the surplus for profit. But as the decades have passed since those promises began, it has started to feel like we’ve never been further away. In fact, the North Slope is still exactly the same distance from Southcentral as it’s ever been — about 800 miles — and it is that distance that provides the biggest hurdle to the development of Alaska’s gas. By the time our gas reached a point where it could be shipped Outside, the costs associated with transportation would have eaten the price advantage — making an Alaska project uneconomic compared to existing supply in locations with far fewer climatic and infrastructure challenges.

And yet the state’s gas cheerleaders have consistently put on a brave face about the telling lack of private partners willing to take on the financial risk of developing a gas line. This stands in stark contrast to the situation after oil was discovered at Prudhoe Bay, with major producers falling all over themselves to bid on leases and sparing no expense to build the trans-Alaska oil pipeline. The reticence among producers to develop Alaska gas when it’s their own money on the line should tell us much about how much profit a gas line would bring (not much) and how optimistic we should be that circumstances will change and make the line pencil out economically (not very).

The Alaska Gasline Development Corp., tasked with shepherding the state’s interest with regard to a gas line, has continued to tout incremental developments as evidence the dream of a line isn’t yet dead. But even still, AGDC personnel have acknowledged reality at some level, telling legislators this year that it would make sense to wind the corporation down if progress toward a deal can’t be made before 2025. We’re a month away from that milestone, and — publicly, at least — there has been no real movement yet.

In September, AGDC released a preliminary Woods MacKenzie report promising potential savings on gas over imports if a 42-inch-diameter gas line were built. But even with the hopeful assumptions in the report, the savings over imported gas would likely be marginal and the project wouldn’t be online until 2031 at the earliest. That leaves us with many questions, among them:

• How would we pay for the line, estimated in the study to cost more than $10 billion? Alaska doesn’t have that kind of scratch hidden under the mattress, and private entities aren’t stepping out of the shadows to help fund the line themselves.

• How can we be sure that the cost estimate will remain steady instead of swelling, as often happens with such megaprojects? The $10 billion estimate already feels like a relative lowball of a price point, even before potential delays and cost overruns are factored in. Unless a government (state or federal) entity is willing to backstop any potential cost overruns, no private company will take on such a risk.

Let’s face it: We’re no closer now to a natural gas pipeline than we were 10 years ago, despite sustained effort and a fair amount of money spent on studying the issue. What’s more, the state’s consideration of a gas line — potentially funded substantially with public money — acts as an elephant in the room, discouraging other potential resource developers from pursuing different projects that could be rendered quaint by a massive state-financed line.

We should take AGDC staff at their word and plan to shutter the office after it completes whatever front-end engineering and design work is warranted, if any, to give the state flexibility to respond if the economics of the project change in the next few years. The small but meaningful sum saved could be put toward the many other state services that find themselves short on funding. It’s not a pretty situation, but there’s also little point in throwing good money after bad.