Discussion of Alaska natural gas line should rely on facts

Oct 04, 2005 02:00 AM

by Ryan Colgan

The spirit of true Alaskans give the words of our constitution meaning and effect. However, some people in Alaska reduce it to merely paper and words. Those Alaskans who give our constitution effect look to the tremendous resource wealth on the North Slope and see the opportunity that will define the future of Alaska. Opportunity often comes with challenges, and Alaskans traditionally confront challenges with solutions.
Opportunities to develop Alaska's North Slope natural gas no longer face overwhelming commercial challenges. The idea has an $ 18 bn federal loan guarantee that significantly mitigates risk and multiple entities seeking to construct the pipeline, and the future long-term sustained market price far exceeds the economic threshold of any project proposed today.

There are, however, political challenges. One political challenge Alaskans face is discussion of gas line issues with empty rhetoric devoid of facts. After decisions are made, Alaska will be left with the effect of the facts -- good or bad.
It is for that reason Alaskans must demand truthful facts and that those who claim to be authority figures on the topic of gas development in Alaska be subject to review when they share their opinions.

Recently, Doug Reynolds wrote an opinion piece (News-Miner, Sept. 18) relating to the all-Alaska gas line in which he made claims that range from pessimistic problem-seeking to the patently false.
Reynolds' first point is that "it is not true that an all-Alaska project will mean an unambiguously greater benefit to our work force than a North American project."

This is fundamentally illogical. The all-Alaska gas line and Canada line are roughly equivalent in the amount and type of pipe in Alaska, and the upstream facilities too will be roughly equivalent. However, the difference between the two routes is the location of downstream facilities in Alaska versus the downstream location of facilities in Canada.
Whether or not Alaskans have the ability to fill downstream jobs will necessarily depend on whether the facilities are in Alaska or Canada. Locating those downstream facilities in Alaska as opposed to Canada quite simply and factually means more job opportunities in Alaska.

Reynolds' second point is that the all-Alaska gas line "requires that Anchorage pay for empty pipeline space for the pipeline after the spur" and suggests that "a better option is an independent in-state pipeline for Alaska needs, which can be timed to meet Anchorage's growing demand."
Both projects can be timed to meet "Anchorage's growing demand," and whether or not the economics of a large diameter line to a spur point are less favourable than an independent smaller line is relatively insignificant given that the single largest factor of pricing natural gas to South-central communities and other Alaska communities is whether the owners of the line will implement an Alaska benefit-driven tariff.

It is the same issue we face at the gasoline pump; price driven by West Coast valuation of crude plus a 15 % premium instead of price that covers cost plus a reasonable rate of return.
Two circumstances will be the main determinants of benefit to Alaska consumers: first, that a gas line from the North Slope actually be constructed, otherwise, there is really nothing to talk about; second, that Alaska benefit-driven pricing be the basis for what Alaska consumers pay for natural gas.

Reynolds' final point that the North American natural gas market will sustain higher prices is correct as is most of his supporting rationale. But Reynolds is absolutely wrong when stating that "the Pacific Rim [is] (the endpoint for the all-Alaska route)."
The truth is, the all-Alaska gas line endpoint is not the Pacific Rim. The all-Alaska gas line project as proposed by the Alaska Gasline Port Authority will deliver gas to receiving points on the West Coast, including one in Canada that links Alaska to the market the Canada route is envisioned to serve -- only sooner and with more certainty. Therefore, Reynolds' comparison of value differential between selling Alaska's gas in the Pacific Rim versus North America is invalid.

As the discussion of natural gas development in Alaska continues, factually based commentary is critical to the best interest of Alaskans. Also of critical importance is beginning the conversation from the correct point; Alaska owns its natural gas -- the producers are merely tenants in our house.
Until we overcome the challenges of unlocking the opportunities associated with natural gas on Alaska's North Slope, we have failed to manifest the destiny of Alaska as a resource owner and sovereign.

Ryan Colgan is executive administrator for the Alaska Gasline Port Authority.

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