Some Alaska legislators recently attended Energy Council meetings in Washington, D.C., and came away with the mistaken impression that the emergence of shale gas would damage (if not end) Alaska's chances of building a gas pipeline to the Lower 48. On the contrary, we believe shale gas will instead provide the market a bridge to our future pipeline.
What is shale gas?
It is natural gas that is locked into certain geological formations that require more intensive and innovative methods to get it out. Shale gas is found in large quantities throughout the Rocky Mountains and other basins in Texas, Oklahoma, Louisiana, the Dakotas, Pennsylvania, and Arkansas. There are also significant amounts locked in the Appalachians.
Shale gas is expensive to produce. It requires intensive fracturing of the rock formations and causes very large water disposal problems. While shale gas production from an individual well can be quite high, it rapidly tapers off. This requires further fracturing of the gas-bearing rocks, or drilling new wells.
Why will it become a bridge fuel?
Shale gas will fill an increasing demand for clean-burning energy. This is the same market segment Alaska North Slope gas is expected to meet, but our gas won't get there for another nine or 10 years. Shale gas, in essence, fills the market need while the Alaska gas pipeline is being permitted and built. It is our hope that shale gas will fill that temporary market void, rather than liquefied natural gas from foreign sources.
While the price of natural gas is fairly low at this point, about $3.50 per million cubic feet (and it could go lower), we are convinced that the price will rise substantially over the long term. This will happen for several reasons.
First, the current economic recession and the difficulty the Obama administration is having in dealing with the recession will likely last only a matter of months. As supplies rise and the price drops, demand will grow. So the market forces at work indicate that over the long term, the price of natural gas will rise above the level at which it is economic to build the gas pipeline. The major North Slope producers share this perspective.
It is also probable that natural gas will be used extensively to replace electric utilities' coal generation plants, which will be taken out of service because of their age or cap-and-trade credits involving carbon dioxide gases produced by these units.
A second factor is a growing trend toward carbon management. Carbon management is the effort to reduce carbon dioxide and other so-called greenhouse gas emissions through such mechanisms as "cap-and-trade." These efforts will steer industry and residential users toward natural gas, the cleanest-burning of all fossil fuels.
It is clear to us that market demand for more natural gas - Alaska's gas from the North Slope - will be high and sustained over the coming decades. We are well-advised to continue our work on the governor's Alaska Gasline Inducement Act (AGIA) effort with TransCanada. We also look forward to the continued efforts by Conoco Phillips and BP on their Denali gas pipeline this coming field season. One or the other, or a combination of these projects, will be well-positioned to meet the demand for Alaska's trillions of cubic feet of natural gas in markets in the Midwest by 2020.
Sen. Tom Wagoner is a Republican from Kenai. Sen. Fred Dyson is a Republican from Eagle River.
By SEN. TOM WAGONER AND SEN. FRED DYSON