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February 24, 2006
The Alaska Gas Pipeline: A Critical Analysis
Part Two of a Two Part Series
by Brian Yanity, insurgent49

     Rarely does a choice between two engineering project alternatives generate such large-scale public debate as the two competing Alaska gas line proposals.  A vibrant, democratic debate about the merits of the two different large-scale pipeline proposals is essential.

     Natural gas cannot be transported in an oil pipeline such as the Trans Alaska Pipeline System, so an entirely separate pipeline system must be built for the North Slope’s gas to be brought to market. Given the massive national and global economic forces demanding more sources of gas in the years ahead, construction of some form of North Slope gas pipeline is virtually certain. A gas pipeline is planned to have a capacity of 4.5 billion cubic feet (bcf) per day, and the vast majority of the economic value of such a project would be the export of gas to outside of Alaska.

Alaska Highway “Producers” Gas Line Proposal

     There are two principal routes for a North Slope gas pipeline moving south along an interior, all-land route. The northern route, also called the ‘over-the-top’ route, would travel east from Prudhoe Bay through the Arctic National Wildlife Refuge, to connect to the proposed MacKenzie Valley gas line (see below), and then from there further south to Alberta.

     This pipeline route was first proposed in 1970 by the Arctic Gas Consortium, which was a group of large U.S./Canadian oil and gas companies. However, routing a major pipeline through ANWR would not be politically acceptable, not only for environmental reasons but also because only 200 miles of the pipeline would actually be in Alaska. The other, southern, route is the only all-land gas pipeline route being seriously considered.

     This route would follow the route of the Dalton Highway from the North Slope to Delta Junction, and then roughly follow the Alaska Highway through the Yukon and British Columbia. The majority of this 1700 mile route would be in Canada, and would connect to the existing gas line network in Alberta. From Alberta, a comprehensive gas pipeline network connects to energy users across Canada and the contiguous 48 states.

     The “Big Three” Alaska oil producers (BP, ExxonMobil, and ConocoPhillips) released in 2001 a joint study of their proposed southern route gas pipeline, which cost $125 million to complete. The total gas pipeline project was estimated by the study to cost $20 billion, though if cost overruns on past Alaska mega projects are any guide, this amount could ultimately be as much as $30 million or more.

     A rival plan along the same route as the Big Three proposal has come from Calgary-based TransCanada Corp., which is the largest natural gas transmission company in Canada, moving two thirds of that country’s gas. The company is in a separate set of negotiations with the state government, but has been sidelined in favor of the Big Three. TransCanada claims to have had rights to develop an ‘Alaska Highway’ gas line within Canada since the late 1970s, but the Big Three disputes this. The state legislature must approve any deal with that the governor makes with the Big Three, and is not expected to see a gas contract until summer 2006.

     According to the state’s lead gas line consultant Pedro van Meurs, the Midwest and Eastern North America is a more lucrative market for gas than the West Coast, and thus the all-land route through Canada would be more economical than an all-Alaska LNG project. The media in Alaska has constantly quoted van Meurs and other state consultants uncritically, so it would be useful if other experts would be brought in by the state, or questioned by the media, to provide a more independent assessment of these claims. As expressed by economic columnist David Reaume in the December 11, 2005 Anchorage Daily News:
   
     One the one hand, we have Gov. Frank Murkowski’s heavy reliance on consultant Pedro Van Meurs. Is it overly heavy? Van Meurs’ database contains volumes of information from prior negotiations in which he has sided both with and against major oil and gas corporations. Although his undisputed accumulation of facts is an assurance of his professional experience, it is no assurance at all that his perception of a good deal coincides with that of most Alaskans.

     Then, of course, there is the governor’s apparent unwillingness to heed the advice of his own in-house experts. The firing of former Department of Natural Resources Commissioner Tom Irwin may or may not have been justified, but the subsequent resignation of six top experts does tend to make one wonder if there is not some serious cause for concern.

The “All Alaska” Gas Line Proposal

     The ‘all-Alaska’ route is a North Slope to Valdez gas pipeline, basically following the same route of the existing oil pipeline. Key features of this proposal include a Liquefied Natural Gas (LNG) liquefaction plant and terminal in Valdez, and a spur line along the Glenn Highway connecting to existing gas lines in the Cook Inlet region. LNG is liquefied and stored at about -260° F (-162° C), requiring more than 600 times less storage volume than regular natural gas. Specialized LNG tankers would then ship the LNG from Valdez to terminals (presumably) on the West Coast, where the LNG would be re-gasified for conventional gas distribution.

     Overall, transportation of gas as LNG is less energy efficient than a conventional (non-LNG) gas system due to the extra energy required to cool the gas. All gas pipelines require energy to operate, but an LNG pipeline typically consumes 20% of the energy in gas compared to a non-LNG pipeline consumption of 10% of carried energy.

     Since the shipment of LNG began in 1964, transportation costs have declined due to improvements in technology, and this is expected to continue. LNG represents only 1% of current gas consumption in the U.S., but this amount is bound to increase, as imports will become more necessary in the years ahead. LNG use is growing rapidly worldwide, and the major energy industry consulting firm Cambridge Energy Associates estimates that 25% of the U.S. gas market will be LNG by the year 2020. Alaska’s only LNG plant today is operated by Marathon and ConocoPhillips at Nikiski. Opened in 1969, it was the first LNG export facility on the Pacific Rim.

     In 1975, the El Paso Natural Gas Co. unveiled a short-lived proposal for an “All-Alaska” gas line from the North Slope, with receiving LNG terminals to be built in California. The all-Alaska pipeline idea was then kept alive by the Yukon Pacific Corp., which was formed in 1983 with the intent of exporting North Slope gas to Asia. It is now owned by the CSX Corp., though Yukon Pacific’s efforts officially ended in 1995. The Alaska Gasline and Port Authority (AGPA), created in 1999, is a joint effort of three Alaska municipalities: the city of Valdez, the Fairbanks North Star Borough and the North Slope Borough.

     The major impetus behind AGPA’s proposal is to ensure that Alaska’s gas wealth, and gas-related jobs, would not simply be piped out of the state. Backers of the All-Alaska line highlight the possibilities of various gas-based industries for Alaska such as expansion of fertilizer and ammonia production (i.e. the Agrium plant in Nikiski), propane production for rural Alaska communities, and gas-to-liquids (GTL) fuels for vehicles.

     The main disadvantage faced by AGPA is that it has no large financial backing yet, unlike the Big Three. Competition with LNG imports from Asia has been brought up as a reason against an LNG project by the state’s consultant van Meurs, but once again this claim should be verified by independent consultants. Gas markets are likely to change in Alaska’s favor by the time a gas pipeline is completed a decade from now.

     In terms of water pollution risks from spills, LNG tanker ships do not have the same problems as oil tankers; however LNG terminal proposals are facing fierce opposition around the world due to worries of explosion risks. Noted LNG disasters in the U.S. include the infamous Cleveland, Ohio fire in 1944 which killed 128 people, and a 1973 incident in Staten Island, New York, which resulted in 40 people killed. Dozens of people died in two separate LNG blasts in Algeria and Belgium in 2004. Given this bad reputation, the political support of West Coast port communities, from B.C. to Baja California, for LNG terminals would be essential for an all-Alaska LNG project.

MacKenzie Valley Pipeline

     While not in Alaska, the MacKenzie Valley gas project will undoubtedly affect the economics and politics of Alaska’s North Slope pipeline project. The fields near the Arctic coast of Canada’s Northwest Territories are estimated to have between 9 and 20 trillion cubic feet (tcf) of gas. The proposed 800-mile MacKenzie Valley pipeline, starting about 250 miles east of Prudhoe Bay, would take at least $6 billion and three years to build.

     According to an article in the December 11, 2005 Washington Post, many gas industry analysts say that so much capital, steel and labor would be needed to build either the MacKenzie or Alaska gas pipelines that it would be impractical to build both at the same time. According to some experts, the big oil companies would prefer that the MacKenzie Valley pipeline be built first, as it would be closer to existing gas lines in Alberta.

     Several major environmental groups have stated their preference to an Alaska gas pipeline over the MacKenzie project, which would punch through untouched land as opposed to existing highway corridors. Another major environmental concern of the MacKenzie gas line project is that it would connect to oil-tar sands areas of northern Alberta, where the gas could be used directly in the extraction of liquid petroleum from oil tar-sands. Thus the relatively clean gas would be involved in an industrial process that causes a lot of air pollution including carbon emissions.

Relevant Concerns for Alaskans

     Of particular concern at this stage in the gas pipeline proposals is the 1998 Stranded Gas Act, will allows for special fiscal terms (on state taxes) on large projects for ‘stranded’ gas. Under the law, natural gas is stranded only if it cannot be developed economically. The most recent economic analysis commissioned by the state legislature, done on the Alaska Highway route proposal by the consulting firm Econ One, contradicts the claim that the gas is stranded. These special tax concessions will not be necessary, and basically would result in a massive amount of corporate welfare for Big Three producers. To help prevent such as situation of subservience, here are three concluding thoughts:

     Alaskans should play hardball with the Big Three oil companies, demanding transparency and no more secret negotiations. As an appropriate check and balance on the abuse of executive powers by the governor, the state legislature should thus reject the present Big Three deal, and give other gas line proposals a fair hearing.

     It is entirely possible for the state to build an all-Alaska gas pipeline without the Big Three if it had to, especially since Congress has already granted an 80% federal guarantee on gas pipeline bonds. Thus, the governor and legislature should not be afraid to simply walk out on the Big Three negotiations. The big oil companies can’t just pack up and leave the state as easily as they may claim: they need us a lot more than we need them.

     Like all fossil fuels, natural gas ultimately represents not the future but the (geologic) past. For long-term planning, a reasonable expectation is that all of the state’s oil and gas reserves will be exhausted by the year 2040. A great opportunity in light of this situation is the taxing of gas line revenue to fund renewable energy development in Alaska. The Alaska Energy Futures Trust, proposed by a group of forward-thinking energy experts from the Fairbanks area, would be set up to support energy efficiency and renewable energy programs across the state. In addition, Alaska needs a comprehensive state energy plan that takes into account all forms of energy, not just fossil fuels.

     Alaska’s citizens must keep themselves informed about the latest gas pipeline proposals and negotiations, because the stakes are just too high for apathy at a time like this.


[Click here to read Part One of this series]







Brian Yanity is a graduate student at UAA, where he is president of the Palestine Club and the Sustainable Energy Society. Brian resides in an undisclosed location in Southcentral Alaska. He can be reached at byanity@insurgent49.com.
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