Myths - and the Truth - about Alaska’s Natural Gas Pipeline

By Larry Persily
Federal Coordinator
Office of the Federal Coordinator

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.  

 

Comments

[Kana]

Important observations, Andrew. I think the point is most snlciuctcy encapsulated in one sentence you wrote above, towit If you want emissions-free innovations, price emissions. I would amplify this by suggesting that if you wish to achieve a specific outcome, it is unrealistic (and frankly wishful thinking) to rely on an inadequately structured market to do your work for you. Reliance of this type suggests either a high degree of complacency or a fundamental failure to apprehend the complexity of society or both. In the end, markets are great tools, but they still need to be shaped by policy and that can be hard work.More generally, while it may be possible to set forth a few plausible statements of principle about the way markets function (eg scarcity leads to increased prices in light of continuing high demand and increased prices lead to a search for substitutes ), the outcomes arising out of the interactions between resources, technological innovation and markets over time are fundamentally unpredictable. Thus, if societies (or more precisely groups within societies, whether local, regional or global) wish to at least shape the field of possible outcomes in a context where markets are some of the key tools available to us, the proper conceptual space in which to operate is that in which social norms are formed and, in the case of the modern state, regulatory powers are exercised. (Obviously, I don't accept the fundamentalist idea that free and open markets are themselves desirable outcomes markets are tools; important tools, but tools nevertheless.)Given this, regarding carbon emissions, the best way to proceed may be by getting adequate societal agreement to put a price on all carbon emissions in order to better shape the market for energy (as your remark quoted above suggests). Then, as non-carbon substitutes come to the fore in light of a market that discriminates against high-carbon outcomes, it will be necessary to be ever-vigilant and to deal with the deleterious consequences of some or all of those substitutes too; all in a never-ending process of adjustment.Alternatively, another possibility would be to coax into existence social norms that stigmatize excessive carbon emissions. Thus, even where the price of carbon remains low', it may well be possible to stigmatize its use through non-market social mechanisms. Such a process might mirror the growth of the organic food industry in North America and Europe which has operated through a scheme of moral choices, combined with follow-through by markets that developed in order to cater to those choices (ever more efficiently), providing options that fit within the zone of acceptable moral bounds.Returning to your original thesis, then, because of the complexity of social and economic realities, without a much more detailed picture of the world over time (which we will never have), I agree that it is impossible to state what impact specific prices of carbon will have on the anthropogenic emissions of CO2 into the atmosphere (I'm not sure that you would state your thesis in this manner, so I may be taking some liberties). We do know however that, if we can achieve a consensus to limit those emissions by such means as are available, and are willing to make the efforts required to do so, the outcome that matters CO2 levels in the atmosphere can be influenced profoundly over time regardless of the price of carbon.

[online flash game]

As we watch, the Canadians are steaming ahead with their MacKenzie Delta pipeline, and as we all know, if they build that line, the only gas pipeline the lease-holders will need will be a very short tie-in pipeline over the top between the North Slope and the Mac Delta.

Nobody here is fooled. Why are you?

Many of the things you say are pure hand waving----Shale gas MAY not be as big as people have said? Well, my taxes MAY not rise, either.

The American market is no longer the largest energy market. As of 2010, the Chinese took that honor. And they have reasons they dont want to be dependent for energy on the Russians, plus the fact that we are already in a dangerous trade deficit with China. From both aspects, LNG makes sense.

Tell us all exactly why anyone would spend $40 billion on a pipeline to reach a gas market that is flooded with gas and is going to stay flooded for decades? You forgot to note that in addition to the Shale Gas weve got conventional gas in the Willeston and Powder River Basins sufficient to light up America for the next 200 years.

On top of that, we have gas hydrates in the Arctic Ocean Basin (a mile deep all over the bottom of the Arctic Ocean) that contain 15 gigatons of methane that can be harvested using conventional drilling methods. How STUPID do you think we are?

Tell us why GTL imported to the West Coast wouldnt work? Sounds like what we need is liquid fuel (70% of what we import goes into automotive fuel)not gas, so why arent you hot shots converting all that methane to GTL? No biohazards, no sludge build up in motors, far cleaner burning that conventional gasoline, easy to add another nozzle to the existing gas pumps and introduce it just like we introduced unleaded gas thirty years ago.

Tell us how you are going to provide security for a 1700 mile pipeline running through two countries?

Nothing worthwhile got answered on Saturday and I dont see any posting on your website (as promised) to answer all the questions (mine included)that were submitted prior to the event?

This is the single most important development initiative Alaska can make. It is crucial for our economy and it cant just wait, wait, wait.

The biggest question was asked by my husband *who is still waiting for a reply)----what is going to keep Alaska afloat, if the oil dries up and the gas pipeline isnt built yet?

I think we all know the answer, but maybe it is something that you and the other civic leaders should consider more soberly and with a greater sense of urgency.

Without enough oil available on the Slope (ANWR, NP-168, etc) to justify those billions of dollars of investment in TAPS rebuilding and repair you mention, the oil companies are NOT going to make that investment. Right now, they arent shoving development dollars our way for the simple reason that nobody but the feckless State of Alaska expects TAPS to be functioning ten years from now.

So you are dancing around and acknowledging the hard facts, but not AS hard facts.

Larry, these ARE hard, deadly, nasty, damning facts. So unless you are suggesting that Alaska pay to rebuild TAPS, you better clue the Governor and the other good people who are supposedly working so hard on gas pipeline that they need to stop talking and start walking.

+1

[Anna von Reitz]

As we watch, the Canadians are steaming ahead with their MacKenzie Delta pipeline, and as we all know, if they build that line, the only gas pipeline the lease-holders will need will be a very short tie-in pipeline "over the top" between the North Slope and the Mac Delta.

Nobody here is fooled. Why are you?

Many of the things you say are pure hand waving----Shale gas MAY not be as big as people have said? Well, my taxes MAY not rise, either.

The American market is no longer the largest energy market. As of 2010, the Chinese took that honor. And they have reasons they don't want to be dependent for energy on the Russians, plus the fact that we are already in a dangerous trade deficit with China. From both aspects, LNG makes sense.

Tell us all exactly why anyone would spend $40 billion on a pipeline to reach a gas market that is flooded with gas and is going to stay flooded for decades? You forgot to note that in addition to the Shale Gas we've got conventional gas in the Willeston and Powder River Basins sufficient to light up America for the next 200 years.

On top of that, we have gas hydrates in the Arctic Ocean Basin (a mile deep all over the bottom of the Arctic Ocean) that contain 15 gigatons of methane that can be harvested using conventional drilling methods. How STUPID do you think we are?

Tell us why GTL imported to the West Coast wouldn't work? Sounds like what we need is liquid fuel (70% of what we import goes into automotive fuel)not gas, so why aren't you hot shots converting all that methane to GTL? No biohazards, no sludge build up in motors, far cleaner burning that conventional gasoline, easy to add another nozzle to the existing gas pumps and introduce it just like we introduced unleaded gas thirty years ago.

Tell us how you are going to provide security for a 1700 mile pipeline running through two countries?

Nothing worthwhile got answered on Saturday and I don't see any posting on your website (as promised) to answer all the questions (mine included)that were submitted prior to the event?

This is the single most important development initiative Alaska can make. It is crucial for our economy and it can't just wait, wait, wait.

The biggest question was asked by my husband *who is still waiting for a reply)----what is going to keep Alaska afloat, if the oil dries up and the gas pipeline isn't built yet?

I think we all know the answer, but maybe it is something that you and the other civic leaders should consider more soberly and with a greater sense of urgency.

Without enough oil available on the Slope (ANWR, NP-168, etc) to justify those billions of dollars of investment in TAPS rebuilding and repair you mention, the oil companies are NOT going to make that investment. Right now, they aren't shoving development dollars our way for the simple reason that nobody but the feckless State of Alaska expects TAPS to be functioning ten years from now.

So you are dancing around and acknowledging the hard facts, but not AS hard facts.

Larry, these ARE hard, deadly, nasty, damning facts. So unless you are suggesting that Alaska pay to rebuild TAPS, you better clue the Governor and the other good people who are supposedly working so hard on gas pipeline that they need to stop talking and start walking.