The Alaska Natural Gas Pipeline will benefit the nation and the state in a number of ways – through reduced dependence on imported energy, replacement of electricity generated by coal with cleaner-burning natural gas, accessibility to gas for Alaska’s energy needs and economic growth, construction jobs, royalties to Alaska’s Permanent Fund, taxes and other payments to state and federal governments.
One of the most important benefits, however, is the increased exploration and production that a natural gas pipeline would stimulate. The Trans-Alaska Pipeline (TAPS) will be almost ¾ empty by 2020, according to the Alaska Department of Revenue’s December forecast. Half of the oil projected to be flowing in the pipeline in 2020 is not being produced today. TAPS is 34 years old and needs billions of dollars of investment to keep it working for decades longer. Tens of billions more in exploration and development investment will be needed to find the oil Alaska is counting on for future budgets. Alaska will be more competitive in attracting those investment dollars if producers can turn not only their oil into profits but also any natural gas they find.
There are a number of myths, however, about the viability and benefits of the Alaska Natural Gas Pipeline project. It’s important for Alaskans to understand the truth in order to make good decisions going forward.
Myth: Shale gas has destroyed the market for Alaska gas. Shale gas has its own problems. Much of it is technically recoverable but not economically recoverable. Many of the new discoveries are near urban areas. Concerns about hydraulic fracturing, a technique used to extract shale gas which requires huge amounts of water mixed with sand and chemicals and injected deep underground, have caused several local and state governments to ban drilling for shale gas or at least consider restrictions. Shale gas production will continue to grow but may not grow as much as some expect, due to the environmental concerns and water issues.
Myth: The Lower 48 doesn’t need Alaska’s gas. There has been a substantial decline in older, mature gas fields in the Lower 48 and Canada, just like the decline in Prudhoe Bay production. Companies are drilling more and finding less – the number of gas and gas condensate wells drilled in the U.S. between 1989 and 2008 increased 80% while production only increased 20%. North America needs new production to meet the decline in conventional sources of oil and gas, plus meet forecasts for increased electrical utility demand. Shale may not fill the entire need.
Myth: It would be better to export Alaska’s gas because gas prices are higher in Asia. Alaska’s gas is at a cost disadvantage compared to other sources of liquefied natural gas (LNG) once pipeline costs are added in. There are $200 billion in LNG projects underway or under development in Australia alone for the Asian market – all at or near tidewater. China has shale gas that the U.S. is helping them develop, or they can import pipeline gas across the border from Russia. Asia is growing fast, but North America will continue to be the largest gas market in the world.
Myth: Well, then we should export our LNG to the U.S. West Coast. It doesn’t make economic and market sense to export Alaska LNG to the West Coast, because that market represents just 10% of total U.S. demand – with no pipes to the Midwest. The federal Jones Act would require that U.S.-built tankers carry Alaska’s gas to West Coast consumers, but no LNG tankers have been built in the U.S. in almost 40 years.
Myth: Gas prices are too low to make a pipeline project economic. Today’s prices don’t matter. The producers are looking at prices in 10, 20 and 30 years. Today’s gas oversupply is priced into the market and, as in the past, when supplies tighten, prices will rise. There could be a market for Alaska’s natural gas – if demand grows and if Alaska gas is priced competitively, which will require a reasonable state tax structure.
Myth: We don’t want to let Alaska’s gas go through Canada, or let it be siphoned off to meet Canadian needs. Canada is not going to steal our gas because they don’t need the methane, and they can’t legally tax it. Canada is already the largest supplier of natural gas to the United States, with many pipes crossing the border. In the end, however, it doesn’t matter who buys the gas, where they distribute the gas across North America, or what they use it for – natural gas is a commodity and Alaska’s molecules are no different than others. Any sale of Alaska gas generates taxes and royalties to the state based on the market value.
Myth: The EPA is our enemy. While Alaska has had tussles with the EPA over a bridge over the Colville River and clean air standards for Shell’s exploration program in the Chukchi Sea, when it comes to the Alaska Natural Gas Pipeline, the EPA could become one of our best friends. It is going to become more and more difficult for utilities to justify coal plants for power generation under EPA’s proposed greenhouse gas regulations.
The federal coordinator's office for the Alaska natural gas pipeline is sponsoring a public forum on natural gas markets on January 22, with experts from the government, financial and consulting sectors who will explain Lower 48 supply and demand issues including shale gas, the effect of federal clean air regulations on natural gas demand, and foreign markets for liquefied natural gas. The purpose of the forum is to help Alaskans understand the potential for a North Slope gas pipeline and the economic issues affecting that potential. For more information on the forum, click here.