May 3, 2007
Pipeline Dispute Dominates Alaska Gov's First Year
By Bill McAllister, Special to Stateline
The conflict is over how to spur the long-awaited construction of a natural gas pipeline from vast untapped reserves on Alaska's northern coast to the energy-hungry Lower 48 market.
The stakes are high. As production of crude oil declines from the dwindling reserves at Prudhoe Bay, projections show state government facing budget deficits within two years and into the foreseeable future. Therefore the natural gas line - worth tens of billions of dollars in taxes and royalties in coming decades - often is referred to as the future of Alaska.
For the rest of the nation, the natural gas pipeline is considered a key component in moving toward greater energy independence.
The crux of the dispute is whether the three major producers - BP, ExxonMobil and ConocoPhillips - are the only ones that can build what would be the largest construction project in North American history, with cost estimates ranging from $20 billion to $30 billion.
The big three oil producers had a tentative deal for the project last year with then-Gov. Frank Murkowski, who negotiated with them exclusively. But it was widely ridiculed as too generous to the industry, as it would have locked in oil tax rates for 30 years and gas taxes for 45 years, and the state would have surrendered regulatory and judicial powers. The proposed contract never came close to ratification by the Legislature.
Photo by Danny Dougherty, Stateline.orgGov. Sarah Palin (R) is proposing legislation that would welcome all bidders to compete to build a pipeline from Alaska to the rest of the country.
Instead of directly negotiating with the producers, Palin is proposing legislation that would welcome all bidders to compete to build a pipeline from the North Slope to the Alaska Highway and into Canada, either terminating at a hub in Alberta or continuing south to Chicago. Other proposals also are welcome, such as an alternative, in-state plan to take the natural gas to a plant at tidewater, where it would be chilled to a liquid and then shipped out on tankers.
But the major oil producers are balking, insisting only they have the Arctic experience, track record with mega-projects and the financing capabilities to make the pipeline happen. All three companies told legislators this week that under the governor's bill as written they will not bid to get the project license nor commit to ship the gas they have under lease if another company is chosen to build the pipeline.
"That's the multi-billion-dollar question there, I guess: whether the companies are bluffing or not," the governor said in an interview.
For Palin, whose previous highest political position was as mayor of Wasilla, population 6,000, this is "the biggest poker game in North America, if not the world," said state Sen. Fred Dyson (R).
The state's first woman governor and its youngest, Palin, 43, is in a strong political position as she goes toe-to-toe with the oil companies. Depending on the survey, her approval ratings range from 73 percent to 89 percent, with a negative never higher than 7 percent. Alaska pollsters say they've never seen anything like it in their careers.
Still, the oil industry is the most powerful force in the state, despite recent scandals and setbacks. As much as 90 percent of Alaska's general fund revenue comes from the petroleum industry, and every Alaska resident last year received a dividend check of more than $1,100 from oil royalties. Even Palin's husband, Todd - a snowmobile race champion affectionately referred to by Alaskans as "the First Dude" - works for the BP oil company on the slope.
Right-wing radio talk-show hosts, among others, are calling on Palin to abandon her proposal and negotiate directly with the producers. "It's difficult to believe that one woman could bring down the economy of Alaska, but it's no overstatement to say that's entirely possible and perhaps even likely," warned a columnist for the Voice of the Times, a section of the Anchorage Daily News editorial pages that is paid for by oilfield services company VECO Corp.
The governor's response: "If VECO's still attacking me, then I know I'm doing something right for Alaskans."
Construction of the long-hoped-for gas pipeline has been delayed for decades, even though a treaty between the United States and Canada during the Carter administration provided right of way for the line. Only after natural gas prices spiked in 2000 did the project appear to be commercially viable, although the big three producers continually cite enormous financial risks.
Palin's proposal, the Alaska Gasline Inducement Act , would offer a state subsidy of up to $500 million to help pay for engineering and other permitting work needed to gain federal approval. Meanwhile, taxes on production of gas for the project would be frozen for 10 years.
The measure is now before the finance committees in both the state House and Senate, where lobbyists for the producers are making their last stand for major changes, including the removal of deadlines for advancing the project.
State Senate President Lyda Green (R) worried this week about whether Palin's proposal would attract any bidders. "We have spent months trying to figure out: How do we get this to attract the applicants? And I think that's still of grave concern," she said.
Palin responded: "Well, if not this, then what? What's a better option? What's another alternative that you have perhaps, legislator? Bring that forward. We haven't heard any other options."
Bill McAllister is Capitol bureau chief for KTUU-TV, the NBC affiliate headquartered in Anchorage.