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Providing coverage of Alaska and northern Canada's oil and gas industry
June 2005

Vol. 10, No. 26 Week of June 26, 2005

Alaska Gasline Port Authority fights on

Hickel and Whitaker make case for an all-Alaska pipeline to Valdez to market North Slope natural gas via LNG project

Alan Bailey

Petroleum News Staff Writer

With Sempra Energy pulling its funding from Alaska Gasline Port Authority’s project, the port authority might seem to have its back to the wall. And the unwillingness of the North Slope producers to settle on terms to market gas through the port authority’s proposed pipeline system has added to the authority’s woes.

But despite the recent setbacks, the port authority vows to fight on with its proposal to build a gas pipeline from Prudhoe Bay to a liquefaction plant in Valdez, for the export of LNG to the U.S. West Coast.

At an Anchorage Chamber of Commerce luncheon on June 20 former Alaska governor Walter Hickel, a long-time supporter of the Prudhoe Bay to Valdez pipeline route, didn’t pull his punches.

“It’s a classic Alaska conflict – outside interests versus what’s best for Alaska,” Hickel said. “That … is why my generation 60 years ago fought for and won statehood … What is your generation going to do?”

Hickel said that the oil corporations understandably want to gain the maximum return for their shareholders. That doesn’t mean they have the right to run our state, he said.

The corporations have created huge revenues for Alaska, he said. But he questioned whether the corporations’ business decisions were necessarily in Alaska’s best interests. Why, for example, is most oil refined out of state?

“As Alaskans we must ask ourselves have we truly used our North Slope oil legacy to build a sustainable economy or have we been blown off by our personal dividend?” Hickel said.

Comparisons with the early days

Hickel likened the current gas pipeline situation to the early exploration on Alaska’s North Slope. He said that as governor he had to push Atlantic Richfield to continue looking for oil on the Slope before the discovery of the Prudhoe Bay field.

“… Today we are faced with a similar challenge,” Hickel said. “… The issue is simple: who is going to decide how that gas gets to market and who benefits?” Hickel said.

The port authority offered to buy gas from the producers at a reasonable price and the producers refused to settle, he said.

“They must have failed to read their leases or simply chose to ignore them,” he said, adding that Alaska leases mandate that the leaseholders develop and market North Slope gas if and when they have a reasonable expectation for a profit.

“The commissioner of DNR should have notified them that they had violated the lease terms, but the state did nothing,” Hickel said.

Sempra Energy, the port authority’s partner, frustrated with the lack of leadership from the state, withdrew from Alaska, he said.

“The roadmap is clear. We should demand that the producers sell or we should take back the leases,” he said. Gov. Murkovski has been outmaneuvered by the producers, he claimed.

Exxon Chairman and CEO Lee Raymond has stated that there won’t be an Alaska pipeline before there’s a Canadian gas pipeline, he said.

“All it needs ladies and gentlemen is the guts to take a stand,” Hickel said. “A pipeline across Canada is not good for Alaska and the Alaska people agree … just like the oil line it will export our resource economy.

“… In summary, this fight is not over – it has just begun.”

Based in law

“If we are to understand the great legacy of ownership that has been passed from Governor Hickel’s generation … we must first understand what this legacy of ownership is based upon,” Jim Whitaker, Fairbanks North Star Borough mayor and chairman of the port authority board, told the Chamber of Commerce audience.

“I’m here to say that this legacy of ownership is not based on emotion but on “nothing less than the very foundation of this Alaska civilization — the law,” Whitaker said.

At the time of statehood, the U.S. Congress gave the state of Alaska all mineral rights within state lands and specifically forbade the state to sell those rights, he explained.

“In other words the mineral rights will always belong to the people of Alaska — that’s the law,” he said.

Whitaker commented that Alaska’s constitution says that the state must encourage the development of its resources for the maximum benefit of the public. He went on to quote from specific laws such as the Right of Way Leasing Act and the Stranded Gas Development Act that spell out that pipeline systems need to strengthen free competition and encourage resource development for the benefit of Alaskans.

“The law is clear and that is the basis on which we move forward,” he said.

Whitaker also commented on the importance of understanding the volatile world natural gas markets. The major North Slope oil and gas producers do what’s in their own best interests and as a result “Alaska gas has nearly been precluded from entering the West Coast market,” he said.

Exxon, ConocoPhillips and BP plan to bring Australian LNG to the West Coast and that LNG will compete with Alaska gas, Whitaker said.

“Alaska’s major producers Exxon, ConocoPhillips and British Petroleum are also Alaska’s biggest competitors.”

The same market dynamics apply in the Midwest, Whitaker said.

“The Gulf Coast is and will be a major receiving sector for foreign LNG,” he said. Alaska’s major producers will supply much of this LNG, he said.

Whitaker went on to show a map of the network of pipelines connecting the Gulf Coast with the Midwest. Developing increased supplies of gas from Gulf Coast LNG receiving facilities involves incremental investment in the existing infrastructure, he said.

“Compare that with a $25 billion Alaska pipeline,” he said “The questions asked in the boardrooms of Exxon, ConocoPhillips and British Petroleum will be these: shall we spend more and make less on an Alaska project or shall we spend less to make more by bringing foreign LNG into the U.S.?”

Alaska gas is competitive

Whitaker dismissed any suggestion that Alaska gas cannot compete in world markets. “To that I say ‘nonsense!’” he said. “Remember the law — we own this gas and we have the responsibility to control it … Future prosperity lies in the hands of Alaskans.”

The port authority had submitted to the producers and the state a bona fide offer to purchase gas which Sempra Energy, the second largest gas wholesaler in North America, would market, he said. Sempra has now been forced to buy gas from Alaska’s producers from foreign sources, he said.

Whitaker also said that the port authority’s proposed pipeline would support a spur line to Southcentral Alaska and ultimately improve the economics of a Canada pipeline.

“If we can bring these projects together — supply Southcentral — supply the Midwest market — supply the West Coast market, we can create a project that will successfully compete with our major competitors British Petroleum, Exxon and ConocoPhillips,” he said.

But Alaskans can only compete “if we recognize the responsibility of ownership and then permit ourselves to take whatever action is necessary to ensure our competitiveness and the economic sovereignty that Gov. Hickel’s generation has provided to us,” he said.

Whitaker later explained to Petroleum News that the competitiveness of the port authority’s proposal particularly stemmed from the authority’s tax exempt status and the fact that the port authority did not need to make the high rate of investment return required by a private corporation.

Although most energy experts and studies show Alaska LNG is not competitive, Whitaker said international energy advisory firm Taylor-DeJongh has confirmed that Alaska LNG can compete successfully in world markets.

“Our conclusions are solid,” he said.






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