1971-1982: Alaska gas pipeline wars

The quest to build a North Slope to market natural gas pipeline began after oil and gas were discovered at Prudhoe Bay in 1968

Bill White

Researcher/writer for the Office of the Federal Coordinator

Editor’s note: Part 2 of 3. See the March 25 issue for part 1 of this story.

Politicians and environmentalists

Congress and the president separately were rubbing at the edges of the Alaska gas pipeline issue.

On Capitol Hill, dueling legislation attempted to dictate the pipeline route.

Minnesota Sen. Walter Mondale and 25 co-sponsors introduced a bill in early February 1976 that mandated the Arctic Gas route.

Environmentalists wildly objected, and they wanted their voice heard this time. In the early 1970s, Congress enacted a package of laws — the Clean Air Act, the Clean Water Act, the National Environmental Policy Act — that became scaffolding for construction of the new conservation movement. Environmentalists felt betrayed that Congress approved the trans-Alaska oil pipeline in 1973 without full consideration of how that project would affect the environment.

The Arctic Gas project would trench the pipeline through the coastal plain of the Arctic National Wildlife Range (in 1980 the range was enlarged and renamed the Arctic National Wildlife Refuge). Environmentalists challenged the technical feasibility of using snow roads to avoid damaging tundra and permafrost. They warned that development would interfere with caribou breeding and birdlife. They argued that ANWR was intended to be left chaste, the one place in the country humans will leave alone.

They made the same argument to Judge Litt, and they had an ally in the state of Alaska.

Today the state favors oil and gas development in ANWR, but it didn’t back then, not for a gas pipeline route. Gov. Jay Hammond testified before Litt: “Some day, perhaps, we will need to have the oil and gas resources of the Range, if any, even more than we need to have the resource of wilderness. But clearly we should not allow construction of a gas pipeline in the Arctic National Wildlife Range when other less damaging alternatives are available, as they are.”

Contesting Mondale’s bill were proposals from Alaska’s senators, Stevens and Mike Gravel, mandating the LNG project.

“If the Canadian pipeline route is foisted on the American public by virtue of the power of international oil companies, it’s a decision they will regret very much,” Stevens fumed in response to Mondale’s bill.

The fight in Congress reflected lobbying by OMAR, the different pipeline sponsors and others across the United States. In particular, Midwest and East Coast members of Congress were pressed to favor a Canadian route that would benefit their consumers. That’s partly why Mondale’s bill had so many co-sponsors.

But as the fight raged on Capitol Hill and Judge Litt’s hearing plodded ahead, the White House made a jaw-dropping suggestion that broke both impasses.

A game-changing idea

The next month Ford sent to Congress legislation that detailed how it would work: Judge Litt and the FPC should abbreviate their work and, instead of picking a winner, merely recommend to the president by Jan. 1, 1977, which route looked best. The president then would make his pick, and if Congress sanctioned it the whole matter would be over by Oct. 1, 1977.

Congress lined up behind the idea, but first they stripped the Republican president’s name off of it. Ford was running for president and Democrats controlled Congress.

In June 1976, Illinois Sen. Adlai Stevenson offered a bill requiring a presidential decision by mid-1977, with Congress to approve or disapprove it within the following 60 days. Stevens and Mondale both were co-sponsors. Ford gave Stevenson’s bill his blessing.

Besides setting a mechanism for picking a pipeline project, the bill would fast-track construction.

“A natural gas supply shortage exists in the contiguous states,” the bill declared. “The expeditious construction of a viable natural gas transportation system for delivery of Alaska natural gas to United States markets is in the national interest.” Federal agencies would be ordered to expedite permits and other authorizations for the pipeline project and barred from taking certain actions that would slow the construction timetable. Review by courts would be limited as well.

The bill blitzed through Congress. Ford signed the Alaska Natural Gas Transportation Act into law in October 1976. But he would not get to choose the winning pipeline route. Eleven days after signing ANGTA, Ford lost the election. The choice would fall to the new president, Jimmy Carter.

Litt, FPC weigh in

His choice: The Prudhoe-to-Mackenzie route through ANWR.

“There is a consensus on the part of the Commission Staff, the most popular consuming states taking an active interest, and an array of pipelines and distributors serving huge sections of the country that if any pipeline applicant must be chosen now, their best interests would be served by choosing Arctic Gas,” Litt wrote. “The evidence in this record clearly supports that conclusion. ... The Arctic Gas application is superior in almost every significant aspect when compared to El Paso. Certification of its proposal, subject to appropriate conditions, will bring more energy to market cheaper and more reliably than El Paso and will do so in an environmentally acceptable manner. It is found that Arctic Gas’ prime route should be certificated.”

Litt noted that support for El Paso was mostly confined to a couple of Lower 48 pipelines companies linked to the project and the state of Alaska. Although California would be the LNG destination, California backed the Arctic Gas project, which would deliver Alaska gas to the state via pipeline, he said.

As for the Alaskan Northwest proposed route down the Alaska Highway, which was filed with the FPC just seven months earlier, that project was half-baked, Litt scoffed. The cost estimates were shaky, the pipeline system poorly designed, the financing plan unreliable, the construction schedule fictitious. It wasn’t even certain how the Prudhoe gas would get from Canada to the Lower 48, he wrote.

But the Alaskan Northwest project wasn’t dead yet. It was a sluggish racehorse, but it had a winning kick for the finish line.

The four-person Federal Power Commission issued its combined environmental impact statement and recommendation to President Carter on May 1, 1977.

The commissioners deadlocked. Two favored the Arctic Gas line. Two favored the Alaskan Northwest route down the Alaska Highway into Canada.

They didn’t dislike El Paso’s LNG project. They said it had its advantages. But in a close call, they concluded that “An overland route can deliver each unit of gas more cheaply than a land and water route using liquefied natural gas technology. If Canadian gas is also developed, the sharing of facilities will lower Arctic’s cost of service to Americans slightly below that of Alcan (Alaskan Northwest).”

“Arctic has the greatest benefits and lowest costs, followed closely by Alcan, with El Paso offering the least benefits and the highest costs. However, all three systems can deliver the gas at a reasonable cost to the consumer,” they said.

The El Paso LNG project can be an option, they said, if Canada erects roadblocks making it difficult to flow Alaska gas to the Lower 48, the commissioners said.

As for ANWR, the commissioners echoed Litt in writing: “We believe it is possible to approve a buried pipeline through the Range without setting in motion an inevitable progressive violation of the Range.”

U.S. and Canada shake hands

The Ford administration had been negotiating since 1974 with Canadian officials on how Alaska gas could flow unimpeded to the Lower 48.

Canada fervently wanted to host the pipeline, which would help develop that nation’s growing gas reserves in Alberta. Clearly big stakes were involved in the diplomacy between Ottawa and Washington, D.C.

Ultimately, the cross-border talks resulted in key documents still active as a new Alaska gas pipeline project is pursued today.

The Transit Pipeline Treaty with Canada in January 1977 made it easy for the Alaska gas to flow through Canada via pipelines.

The Agreement in Principles that the Carter administration negotiated for the Alaska gas pipeline came in September 1977. It set details of the pipeline route, among other features. This bilateral agreement was a side document to Carter’s decision released simultaneously on the winning route.

Carter picked the Alaskan Northwest project down the Alaska Highway. Canada also favored that project. In July 1977, its National Energy Board tentatively endorsed the route and declared the Arctic Gas proposal “environmentally unacceptable.” Aboriginal land claims in Canada also crippled hopes for a Mackenzie Valley pipeline.

During that summer, the Arctic Gas consortium realized it had been KO’d. In early August, consortium member TransCanada, a Calgary-based pipeline company, announced it was joining the Alaskan Northwest project. Late that month, Arctic Gas announced it would disband.

In his decision, Carter sold the Alaskan Northwest (Alcan) project hard. “The Alcan system will deliver Alaskan gas at the lowest cost to U.S. consumers, but will do so directly to both the Midwest and West Coast markets,” he wrote.

“Under almost all criteria, the Alcan system is clearly superior to the proposal by the El Paso Alaska Company to liquefy Alaska gas and ship it to the West Coast,” Carter said. El Paso’s gas would be more expensive and bring a smaller net economic benefit to the United States, he said. Pipelines also deliver gas more safely and reliably than LNG projects, and they last longer, he said.

For the new pipes that would carry Alaska gas south of the Canadian border, Carter selected a partnership of six pipeline companies to deliver gas to Illinois, and two other companies to get the gas to California.

Between the two countries, the entire pipeline network would encompass 4,787 miles, with an average daily flow from Prudhoe Bay of 2.4 bcf.

The demise starts quickly

That turned out to be the high-water mark for the Alaskan Northwest project.

Within a month, the pipeline sponsors were pleading in Juneau for the state to finance construction cost overruns and possibly guarantee construction loans.

McMillian would make similar pleas in Washington. He also was mumbling that Congress or the Federal Energy Regulatory Commission, the newly formed successor to the Federal Power Commission, might need to mandate a wellhead value of the gas — its value as it leaves the ground at Prudhoe Bay — to ensure the North Slope producers would make money.

Earlier there had been hints that any Alaska gas project could be doomed by its high cost.

In 1975, a task force advising Alaska Gov. Jay Hammond warned the high transportation costs might result in a wellhead value of zero. No wellhead value would mean the Alaska royalty share of gas production would be worthless, and the producers would have no reason to pay to ship gas from the North Slope.

The Litt and FPC decisions in early 1977 are riddled with references to the marginal economics of all three pipeline projects under consideration. Alaska gas might be priced too high for the market to want.

Lots of lofty language had been lobbed about a Lower 48 natural gas crisis. The FPC decision in May 1977 noted the “profound hardship” for individuals and “substantial economic disruption” for the country. “The nation sorely needs new sources of economically competitive natural gas,” Carter said in his decision.

The natural gas shortage was real, and the emotions were genuine as oil and gasoline prices spiked in the wake of the 1973 Arab oil embargo. Nations across the world were scrambling to diversify away from oil.

Ironically, 1973 turned out to be a record year for U.S. natural gas production, a record that lasted until 2011. But the United States was burning through its natural gas reserves. Proved reserves fell by nearly one-third from its 1967 peak to 1977, when President Carter decided on the Alaska gas pipeline.

More gas was waiting to be found in the Lower 48, but rigorous federal price controls on interstate gas discouraged new exploration. Gas reserves would continue to dwindle for 17 more years before the dismantling of gas-industry regulations helped them to grow again.

In response to shortages, natural gas consumption fell in the mid-1970s. It plunged 24 percent from 1973 to 1983.

Natural gas prices did rise, but not to high enough levels until around 2000-2001, when piping Alaska gas to the Lower 48 started getting a new look.

Within a year of Carter authorizing the Alaskan Northwest project, it was obvious the gas line project had lost traction.

“Almost everyone knows that the Alaska Highway gas pipeline venture is floundering: government officials, businessmen, bankers and the press are expressing more frequent and deeper doubts about whether the project will be completed on schedule — or ever,” wrote economists Arlon Tussing and Connie Barlow in an early-1979 report to the Alaska Legislature.

No one wanted to take on the potentially huge risks of low prices, cost overruns, regulatory delays and on and on. “The gasline project is so large that its failure would be devastating to the pipeline sponsors, the gas producers (if they were to sink capital into conditioning and other facilities in the field), the lending institutions, the economy of Canada, and the political fortunes of the Canadian government,” Tussing and Barlow wrote. The time span during which conditions must be favorable to blunt the risks involved could extend 30 or more years, they said.

“The Alaska Highway gas pipeline almost certainly offers substantial net economic benefits to both the United States and the State of Alaska, but as a business venture it may be marginal at best without extraordinary kinds of government intervention,” they wrote in another 1979 report.

The bright side of no pipeline

In 1981, to try to help, President Ronald Reagan reversed Carter’s 1977 decision to bar North Slope producers from owning interest in the gas pipeline. The producers made a tentative commitment for 30 percent of the project’s financing. It wasn’t enough.

In April 1982, Alaskan Northwest announced it was delaying the project for at least two years. It was all over except the writing of a formal obituary.

The Lower 48 natural gas shortage was gone. U.S. markets were about to be amply supplied with Western Canada gas via the lower one-third of the Arctic gas project that actually was built - from southern Alberta to the Midwest and West. The Alaska pipeline proposed today would flow gas to these 1980s segments and other pipeline systems.

By late 1982, the North Slope producers were backing a new idea for the Prudhoe gas that rose up their oil wells. They had been reinjecting the produced gas to maintain reservoir pressure to help push oil up and out the wells. In November they announced a $100 million pilot project to inject gas enriched with gas liquids such as propane to make it “miscible” with oil — the injected gas would reduce the oil’s viscosity as they mixed, allowing more oil to flow freely to the wells. Today Prudhoe has the world’s largest miscible gas project in the world, according to BP.

One Alaska regulator recently observed that it perhaps was good for Alaska that the 1970s-era gas pipeline didn’t get built.

North Slope producers have used Prudhoe Bay’s gas for the past 35 years to coax billions of barrels of extra oil from the reservoir, said Cathy Foerster of the Alaska Oil and Gas Conservation Commission. Prudhoe has more oil production left, and the gas is still there, waiting for a pipeline, she said.

If that gas had left Prudhoe, the North Slope’s oil and gas era would be history by now, and the Alaska Legislature’s fiercest fights would be over fishing and tourism levies, not oil taxes, she said.

Next — 1982-2000: The Yukon Pacific era

Editor’s note: This is a reprint of the second part of an article from the Office of the Federal Coordinator, Alaska Natural Gas Transportation Projects, online at www.arcticgas.gov/Alaska-gas-pipeline-wars-1971-1982. See part 1 in the March 25 issue.