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Why We Can't Afford A Delay on the Gas Pipeline
By Gov. Frank H. Murkowski


November 03, 2006

I am deeply concerned about the potential delays associated with each major candidate's position on the gas pipeline project.

Each candidate would stop the existing process, solicit new proposals and start anew. In so doing they would ultimately find out that the producers' is the only viable proposal.

The producers have the gas leases, the financial ability to make the firm transportation commitments to finance construction of the gas pipeline and the markets for the gas.

In a letter to me dated July 13, 2006, TransCanada Chief Executive officer Hal Kvisle, said:

". . . TransCanada has consistently advised your administration to be wary of independent pipeline proposals that would seek to develop a pipeline without the agreement and support of the ANS producers."
Both candidates say the gas is not stranded. But in January 2004, when Natural Resources and Revenue commissioners accepted the producers' application under the Stranded Gas Development Act (SGDA), the gas price at Henry Hub (Chicago) was $6.04/Mmbtu. On October 19, 2006, it was $4.26.

The gas is also stranded because of the sheer size and risk of the project.

We need to continue with the SGDA process, make changes to the May 24, 2006 contract and ratify it ­ as soon as possible.

Why act now?

First, with oil production facing a 50 percent decline in ten years and gas revenue at least ten years off, a significant delay in the gas pipeline project startup will result in a serious fiscal gap occurring in the next few years, forcing severe budget cutbacks.

Between now and 2016, the state's discretionary budget is expected to have an accumulated deficit of $10 billion. A delay in constructing the gas pipeline would increase the state budget deficit until first gas flows.

Second, according to Information Insights' analysis, for each year of delay, the estimated net present value revenue loss to state and local governments would be approximately $1 billion per year.

Third, we can expect a dramatic increase in competition for Alaska gas from other energy sources: Coal that can be supplied for a price as low as $2 per MMBtu is now gaining ground in the electricity markets with strong support from the U.S. federal government and various coal producing states.

Liquefied natural gas (LNG) imported to the Gulf Coast of the U.S. is certain to become a stronger competitive factor. Because there are existing pipelines connecting the Gulf Coast to the Midwest, the most immediate competition will be from the new LNG facility currently being constructed at Sabine Pass on the Gulf Coast.

The LNG will directly compete with Alaska North Slope gas.

Fourth, a natural gas reserves tax would kill the gas pipeline project should the initiative be passed next Tuesday. It would result in a dramatic decrease in development of new oil and gas fields and hasten the closure of the TAPS oil pipeline within 20 years.

I urge the gubernatorial candidates to continue with the SGDA process first proposed by the Legislature in 1998, and then amended in 2003. As that process prescribes, my administration:

  • negotiated a draft contract with the producers;
  • conducted an extensive public and legislative comment process regarding the contract; and
  • prepared a 200 page response to the public and legislative comments that addresses those concerns in detail.

We will soon be presenting an Interim Fiscal Interest Finding (IFIF) that explains the project and what is needed to complete it.

The next step is to transmit proposed contract changes to the Legislature that reflect public and legislative comments-including legislative comments made during the special sessions.

We have completed that work and are prepared to present it to the producers as a first step in the negotiations, which are held up pending legislative willingness to consider ratification of a negotiated contract.

Alaska cannot afford a delay in this project. It makes no sense to set aside the work that has already been done, repeal the SGDA, and start over.

The more delay, the greater the chance that Alaska will suffer the greatest risk of all-no gas pipeline.

Governor Frank H. Murkowski
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Stories In The News
Ketchikan, Alaska