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What if Bill Egan’s pipeline ownership plan had prevailed?
Jim Prevost
On Oct. 30, 1971, Gov. Bill Egan stunned those present at a meeting he had called with top oil company executives by declaring that he wanted the state of Alaska to own the proposed trans-Alaska pipeline. He proposed that Alyeska, the consortium of seven oil companies already committed to constructing the line, build the pipeline under contract to the state, which would finance the project with tax-free bonds.
Egan was concerned that the state would be denied fair royalty payments — that producers, by owning the pipeline, would be able to establish high tariffs for transporting the oil, thus decreasing the oil’s wellhead value. It was this wellhead worth that would determine Alaska’s royalty amounts, as well as severance taxes — payments made to compensate the state for the removal of its valuable resource.
The governor believed the state could finance construction of the line much cheaper than could the oil companies, and that the state, by owning the line, would do a better job of assuring local hire on the project.
The oil companies began a vigorous campaign against state ownership. This, coupled with Democratic party support of competing proposals, led to the governor’s bill being laid to rest by overwhelming votes in the 1972 legislature.
After another year and a half of political and legal infighting, the oil consortium finally began construction on the line. The first North Slope oil entered the pipeline on June 19, 1977. Someone would have built it If the state had gained ownership of the line, it is unlikely that Alyeska would have refused to build it. For one thing, the consortium had 800 miles of 48-inch pipe (purchased in Japan in 1969 for $100 million) stockpiled at Valdez, Fairbanks and Deadhorse. For another, the project was a billion-dollar plum that no one capable of picking would have refused, according to former Anchorage Borough Mayor Jack Roderick.
“Somebody would have built it,” he said.
Roderick, former oil-based small businessman, politician, resources and energy administrator and teacher, has been an expert witness to most of Alaska’s oil history. In “Crude Dreams — A Personal History of Oil & Politics in Alaska” (Epicenter Press, 1997), Roderick chronicles the Great Land’s oil experience from the days of the small, independent explorers to present-day Big Oil’s financial and political domination of Alaska.
In wrapping up his account, Roderick referred to the Knowles Administration’s policy of “partnering” with industry.
“The Knowles approach may work if it also reflects the idea that laws and regulations should encourage competition, not just jobs,” Roderick said. “Usually the greater the competition, the better protected is the public interest.”
Merger mania and competition In the years since the major oil companies first expressed interest in Alaska, the list of mergers and acquisitions reads like an Irwin Shaw family saga. With the recent proposed merger of BP/Sohio/Amoco with Atlantic/Richfield/Sinclair, added to the earlier Exxon/Mobil and Chevron/Gulf unions, the question rises as to just how much competition there can be, when it comes to developing new prospects.
“Assuming the (BP-ARCO) merger goes through,” Roderick said, “there’s a chance that other companies could compete up there for new fields, but the costs of dealing with BP and its gathering system and its facilities at Prudhoe and Kuparuk would have to somehow be quantified, so that a newcomer using those facilities wouldn’t be totally at the mercy of BP. I don’t know how you do that. Maybe that’s part of the negotiations — that there be a fixed, posted cost of using those facilities. Maybe it could be worked out.” What if? If the state owned the pipeline today, would it be better off?
“I don’t think you can say better or worse,” Roderick said. “It would just be different. Tariffs would be set differently, and there would be some problems there, because it would be a political decision as to where the rates would be set. I can see the Legislature, when they wanted more money, raising the rates. It would be entirely different, and I’m not sure it would have been workable.”
With higher rates lowering the wellhead value, it would be a juggling act, he said.
“It’s tough to speculate. As far as what the future holds, there is a question of dominance by one company. That’s obviously the question, and what might result from it.”
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