Supporting a gas pipeline route to Valdez now may be both good business and good politics.
Alaskans' jaws dropped recently over Gov. Parnell's apparent shift to supporting an all-Alaska route to bring Alaska's North Slope gas to Valdez for liquefaction and export to Pacific Rim markets. It is certainly a change in position for the governor, but things have also changed in the world's oil and gas markets.
There are five pipelines in the works around Western Canada and Alaska; three are gas-related and two will transport bitumen and synthetic crude from Alberta's oil sands. While Alaskans have been focused on the Alaska Highway gas line under development by TransCanada in partnership with the state and Exxon Mobil, a second gas line has also been under development from the Beaufort Sea down the Mackenzie Valley in the Northwest Territories to Alberta. Mackenzie Delta gas is just as stranded as is Alaska North Slope gas; they both need long pipelines to reach their markets. Even though the Mackenzie Valley project was permitted this year by the Canadian government, this project is dead until gas prices improve significantly.
In Alaska, TransCanada is dutifully pursuing the schedule established by the Federal Energy Regulatory Commission to get a permit for the project and access to Alaska's committed $500 million in matching funds promised in the Alaska Gasline Inducement Act (AGIA). This makes sense for the company. TransCanada long ago acquired the rights to the original Foothills pipeline route and the permit makes the route more valuable in the future but not now. Gas prices are too low.
Two pipelines from Alberta's oil sands are also under active development, the Keystone XL heading south through Nebraska and the Northern Gateway Project heading west to Kitimat, B.C. TransCanada's Keystone XL pipeline is an expansion of the existing Keystone Pipeline between Canada and its primary market, refineries in the U.S. Southwest. This pipeline has met with stiff resistance in Nebraska around concerns a leak could get into the huge Nebraska aquifer, causing widespread water contamination. The U.S. has been slow in permitting this one.
Like Gov. Parnell, Canada also wants to develop Pacific Rim markets. Now, Canada's only real market is the U.S. China, Korea and Japan have all invested in the Alberta oil sands. Enbridge's Northern Gateway Project will, in part, bring bitumen and synthetic crude from Alberta to the west coast for export to the Pacific Rim. Right now the project is experiencing resistance from the more than 30 First Nations along its route but these issues will eventually be resolved.
Wood Mackenzie, the resource research and consulting firm, says a group of oil companies is working on a western port in British Columbia to take B.C. gas to tidewater for export to the Pacific Rim. This is still a "coded" project so specifics are sketchy but they are looking to Pacific Rim markets, not the U.S.
So here's the thinking that may be behind the governor's remarks. There is a lot of gas today and prices are low. The U.S., especially via Alberta, seems to be a less and less attractive market for Alaska gas. If Alaska's gas is not subject to the same export restrictions as North Slope oil was, then the Jones Act would not come into play and gas could be exported on existing foreign-built LNG tankers. So just like Canada is realizing, the governor is recognizing that Alaska needs a broader market than the U.S.
Politically, Bill Walker still has a large following due to his commitment to the all-Alaska pipeline route. By the governor embracing the Valdez route, it no longer becomes a defining issue in a gubernatorial election. And as Alaska's attention turns westward, there will be lots of announcements, legislative hearings, press stories and the like, all giving evidence that the governor is working to move this critical project off high center.
So the governor's recent change in position may indeed be good business and good politics.
Bob Poe has been living between Anchorage and Calgary for the last year. He is a 30-year resident of Alaska, having served four Alaska governors during that time. He was a candidate for Alaska governor in 2010.
By BOB POE