The 1973 OPEC oil embargo motivated some of the first serious discussions of a natural gas pipeline in Alaska. Responding to the severe natural gas shortage in the mid-70s, the 1976 US Congress enacted the Alaska Natural Gas Transportation Act (ANGTA), a legislation supporting the construction of an Alaska natural gas pipeline. [1] While a pipeline in the 1970s did not materialize for economic reasons, multiple factors, such as long term market projections and Alaska's desire to commercialize arctic gas, renewed serious consideration of a natural gas pipeline in Alaska around 2000. [2]
Presently, there are two competing initiatives to construct a natural gas pipeline transporting gas from Alaska to markets in the contiguous United States. In 2008, energy producers BP and ConocoPhillips began project Denali and in 2009, ExxonMobil Corporation joined TransCanada to advance the Alaska Pipeline Project ("APP"). [3]
The Alaska North Slope contains about 35 trillion cubic feet of "technically recoverable" natural gas. [4] A USGS assessment projects an additional 127 trillion cubic feet of "technically recoverable natural gas" will be discovered on the North Slope. [5]
A successful natural gas line project in Alaska will reduce dependence on foreign energy sources. At the expected transportation of 4.5 bcf/day, an Alaska gas pipeline will address approximately 6% - 8% of the current annual U.S. demand. [6,7] The U.S. Energy Information Administration (EIA) estimates that the U.S. demand for natural gas in 2013 will reach 30 TCF, which is approximately 40% higher than the demand in 1999. [8] Increasing demand for natural gas is projected through 2025. [9]
Given the increasing demand, market prices of natural gas are projected to increase if the Alaska pipeline project does not come to fruition. The Energy Information Agency (EIA) in its 2009 Energy Outlook estimates that Alaska's supply of natural gas to the Lower-48 states will reduce the cost to consumers by 63 cents per thousand cubic feet in 2022 (lowering Henry Hub spot prices by 63 cents per thousand cubic feet). [10]
Other benefits associated with the construction of the Alaska gas pipeline are also predicted, including the creation of thousands of direct jobs and tens of thousands of indirect/induced jobs during construction, which are likely to have a multiplier effect on their local economies. [11]
While the Alaska natural gas line project has faced political opposition, this report will briefly focus only on the fiscal and legal barriers that impede the gas line project. The competing ventures have estimated the building cost to be between $32 billion and $41 billion. [7] Lengthy discussions will occur between potential gas shippers and the respective independent venture (APP or Denali) before agreement is reached on conditions relevant to a project of this large magnitude. Shale gas developments in the continental US or poor economic climate could affect the price of natural gas, keeping it below a break-even point for debt holders. Therefore, before proceeding with the natural gas line project, producers and gas shippers will have to assess risks and lucidly establish fiscal certainty. Furthermore, gas producers are uncertain about the "government take" - long-term tax policies with the State of Alaska have not been clarified and the outcome of such negotiations could make-or-break the natural gas line project. [12]
Both APP and Denali just concluded their "open seasons," which are primarily intended to ascertain market interest in a pipeline project. In the open season, APP and Denali received bids for space from potential gas shippers. Following open season, APP and Denali will continue conversation with potential shippers to reach precedent agreements, before seeking regulatory approval from the US Congress. [13]
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[1] "Alaska Natural Gas Transportation Act," Report to the U.S. Senate Committee on Energy and Natural Resources, U.S. Federal Energy REgulatory Commission, 18 Jan 01.
[2] A. Mason, "The Condition of Market Formation on Alaska's Natural Gas Frontier," Focaal 46, 54 (2005).
[3] B. Casselman, "Latest Risk to Alaska Gas Pipeline: More Gas," Wall Street Journal, 30 Jan 10.
[5] C. P. Thomas et al., "Alaska North Slope Oil and Gas: A Promising Future or an Area in Decline?" National Energy Technology Laboratory, DOE/NETL-2009/1385, 8 Apr 09.
[6] R. G. Stanley et al., "Oil and Gas Assessment of Yukon Flats, East-Central Alaska, 2004," U.S. Geological Survey, Fact Sheet 2004-3121, 14 Dec 04.
[6] "About the Alaska Gasline Project," The Alaska Gasline Project.
[7] "Large Diameter North America Option," Office of Governor Sean Parnell, State of Alaska, 2010.
[8] J. E. Hakes, "Prospects for 30 TCF," Natural Gas 16, 12 (1999).
[9] R. Pirog, "Foreign Trade Effects of an Alaskan Natural Gas Pipeline," CRS Report for Congress, RS21787, 30 Mar 04.
[10] S. Palin, "Outer Continental Shelf Testimony," Resource Development Council, 14 Apr 09.
[11] "Oil and Gas Employment and Training Opportunities," Alaska Job Center Network, 7 Dec 10.
[12] A. Halcrow, "When Will Alaska Get a Gas Pipeline?" Alaska Dispatch, 18 Nov 10.
[13] "Wait and See: Gas Line Open Season Results Remain Unknown," Fairbanks Daily News-Miner, 2 Aug 10.