11-11-02 A proposed $ 40 bn natural gas pipeline connecting Alaska to the lower 48 states is strongly opposed by Gulf of Mexico producers because they say it gives companies operating in Alaska an unfair competitive advantage. Also, the $ 40 bn it will take to build the Alaska Highway Natural Gas Pipeline will not need to be repaid unless natural gas prices rise above $ 4.85 per 1,000 cf. Henry Hub natural gas prices closed up 7 cents at $ 4.30 mm cf, one of the highest levels all year.
Critics claim the money would wind up being a windfall for major natural gas producers and sets a dangerous precedent by establishing price supports for energy. The Gulf State Producers have written a letter to Congress urging that it "not pick winners and losers through selective regional subsidies." Proponents claim natural gas is about to make another big change in average price by rising to $ 5 mm cf, mostly because America is short of needed natural gas supplies. The average price for 2002 has been around $ 3.50 mm cf.

The pipeline is being pushed by Frank Murkowski, R-Alaska, as part of the National Energy Security Act he introduced last year with Sen. John Breaux, D-Crowley. The largest discovered but untapped reserve of natural gas in North America is the 35 tcf on Alaska's North Slope, where reserves probably exceed 100 tcf. Bryant says the Alaska Highway route would parallel an existing highway corridor throughout its length and would require use of no previously undisturbed lands.
Breaux, who has since backed away from the act's proposal to allow crude oil drilling in the Arctic National Wildlife Reserve, says the energy proposal would help Americans. Not all Southern energy industry groups are against the idea.
"We support building that pipeline," says Tod Bryant of the Oklahoma City, Oklahoma-based Interstate Oil & Gas Compact Commission, an association of oil-producing US states. "We need to get that natural gas up there that's trapped in that market."

Another factor driving prices higher is US natural gas production, which is projected to decline as much as 5 % this year compared with depletion rates in the 30 % range. That means natural gas wells arc being burned out roughly seven times as fast as production can be replaced.
The problem is exploration is producing fewer fields with major reserves, especially in the mature Gulf of Mexico area, and more well prospects are coming up dry, which increases exploration costs. The American Petroleum Institute reported oil well completions dropped 29 %, and natural gas completions dropped 43 % for the third quarter compared with the same period of 2001.
Just 6,616 oil wells, natural gas wells and dry holes were completed in the third quarter, compared with 10,278 in the same quarter last year. When producers are drilling fewer holes, they are also finding less oil and gas. If natural gas shortages develop, consumers can expect higher heating bills this winter.

Rising costs associated with increasing exploration risks are the reason the oil industry wants government reassurance it won't get burned on the Alaskan project if it is approved. Yet, prospects for mismanagement in a project this massive, coupled with environmental concerns, have stopped the Alaskan Pipeline from becoming reality ever since it was first proposed in the late 1970s by President Jimmy Carter. Murkowski, however, is convinced the time is ripe.
"There's got to be some kind of assistance from the federal government," Murkowski told. "(Otherwise), Alaskan natural gas could remain in the ground for a long time."
America is running out of options, says Paul Hilliard, president of Badger Oil in Lafayette. "I never liked deals like that because invariably there are some hooks in them," Hilliard says. "But I know this: We're sure as hell going to need that Alaskan and Canadian gas." American producers have been unable to increase production levels over the past three years, Hilliard says. "Production is as flat as the floor in your office no matter how many rigs you're running," Hilliard says. "You can't seem to drill enough wells to get ahead.".