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

The 40-year-long epic quest to build an Alaska natural gas pipeline started with a battle royal in the mid-1970s.

The pipeline project would be one of the largest privately financed ventures ever, if the swirl of forces in motion could settle on a single project, and if that project could deliver gas to the U.S. Lower 48 states at a competitive price.

The cast of characters included major oil companies, competing coalitions of pipeline owners, environmentalists testing the limits of their newfound clout and Alaska leaders trying to steer the young state’s destiny.

Much of the drama played out in Washington, D.C., before an administrative law judge, who found himself mired in an interminable Kafka-esque hearing on which of three proposed pipelines would be best. But the fight also spilled out of the hearing room into the halls of power in Washington and Ottawa, Canada.

At the time, Alaska was a place raw with opportunity, christened as a state only 15 or so years earlier and in the first stages of its metamorphosis into an oil barony — the first gas pipeline fight almost exactly overlapped the three-year construction of the $8 billion trans-Alaska oil pipeline.

At the time, aging Lower 48 gas fields, severe winters and government price controls helped cause a natural gas shortage in the United States that prompted gas rationing and threatened “profound hardship and danger for individuals and substantial economic disruption for the country,” as one contemporary account put it.

“The construction of an economically and environmentally sound Alaskan natural gas pipeline can reduce this nation’s energy vulnerability and provide greater energy independence,” the Federal Power Commission said in its 1977 recommendation to President Jimmy Carter to choose a pipeline route through Canada over the liquefied natural gas proposal Alaskans favored.

Carter made his choice, but nothing got built in Alaska. By 1982, roughly 10 years after the battle began, it was clear the state would not get a gas pipeline this time.

Still, the 1970s fight over Alaska’s natural gas bounty set the table for what came next as various parties continued to push differing gas pipeline projects forward. The themes that crystallized by the mid-1970s stayed hardened over the ensuing decades: A national preference for piping gas to the Lower 48, an Alaska tilt toward an LNG project, North Slope producers running hot and cold on a pipeline project of any kind and a world appetite for natural gas that just kept growing without Alaska gas.

Canada: the first mover

Oil companies had been probing along the Beaufort Sea coast on both sides of the U.S.-Canada border for a few years. But the Prudhoe Bay discovery announced in 1968 was a stunner — North America’s largest oil field by far and one of its largest natural gas reservoirs, an estimated 9 billion barrels of oil and about 26 trillion cubic feet of gas.

Smaller discoveries occurred in the Mackenzie River Delta on the Canadian side — oil in 1969 and gas in 1970. Pipeline companies in western Canada soon were studying how to get all that Arctic gas flowing through their networks.

Some Alaskans started to worry. The pipeline Canadian pipeline companies were discussing would run from Prudhoe straight east to the Mackenzie Delta. That would mean little of the construction in Alaska — only 195 miles of roughly 4,500 miles of line ultimately proposed. Further, the gas would bypass Alaskans, and the industry it could ignite would happen somewhere other than Alaska. In 1971, the state Legislature passed a resolution endorsing a law that would require a pipeline to head south from Prudhoe at least as far as the Yukon River in Interior Alaska.

The Anchorage Times editorialized in 1973 that a Prudhoe-Mackenzie line would leave “Fairbanks cold and crippled by ice fog in winter, still dependent on costly heating oil shipped in from refineries thousands of miles away.”

Despite Alaskans’ objections, momentum stayed through the early 1970s with a pipeline that would link the colossal Prudhoe gas reserves with the more modest Mackenzie discoveries — by mid-1975 eight Mackenzie fields were identified with proved reserves of 3.8 trillion cubic feet, about one-seventh the reserves at Prudhoe.

In 1973, a consortium of 26 U.S. and Canadian firms called Arctic Gas Study Group, proposed a Prudhoe-Mackenzie pipeline, with start-up projected for 1979. They conceived a $5.7 billion project that would carry more than 4 billion cubic feet a day — half from Prudhoe and half from the Mackenzie Delta.

After picking up Mackenzie gas, the pipeline would veer south toward Alberta. Some gas would get routed to the Pacific Northwest and West Coast. Some would head to the Midwest and East Coast. Some existing pipeline systems from Canada to the United States would need expansion. Some new pipelines to the West and Midwest would be needed.

Most of the Toronto-based consortium members were pipeline companies, including TransCanada Pipelines Ltd., co-sponsor of the proposed pipeline today that would run from Prudhoe Bay to Alberta, Canada, through Interior Alaska.

But three members stood out: Sohio (BP), Arco and Exxon, the main oil and gas producers at Prudhoe. The big three, on the cusp of constructing the oil pipeline from Prudhoe, also had picked a direction — east to Mackenzie — for a gas pipeline.

This project stirred genuine excitement in the United States and Canada, that Arctic natural gas would help rescue North America during its energy crisis, counter-punching the Arab oil embargo.

In March 1974, sponsors of the Prudhoe-to-Mackenzie-to-the-Lower 48 pipeline project filed with the U.S. Federal Power Commission and Canada’s National Energy Board for authorization to build. They announced their project to much fanfare at the National Press Club in Washington.

The companion pipelines needed to move the Alaska gas through Canada and deep into the Lower 48 soon filed for their own authorizations.

The project seemed to have unstoppable momentum.

But an upstart competitor was loading its cannons and bracing for a battle.

A new idea — LNG to California

El Paso was somewhat of an outlier compared with the mainstream U.S. pipeline companies involved in the Arctic Gas proposal. Those companies operated in the Pacific Northwest, Midwest, East and South and their proposal would bring the northern gas into their networks, many of which linked to one another.

El Paso’s domain was disconnected from that grid. Its pipelines spanned the Southwest, from West Texas to Southern California. Even if it could build a pipeline northward to connect into the other networks, it might get just a dribble of the Arctic gas. Where was the money in that?

El Paso came up with an out-of-the-box idea, and Alaskans soon fell in love with it.

After hinting for months about its plans, El Paso unveiled the details of its proposal in a September 1974 filing with the Federal Power Commission.

To get gas to its California grid, El Paso proposed jumping aboard the up-and-coming liquefied natural gas industry. Commercial trans-ocean LNG shipments had started only 10 years earlier, when a British utility contracted for gas from Algeria. The United States was dabbling in the industry — a small LNG plant started shipping Alaska gas to Japan in 1969 (gas from Cook Inlet near Anchorage, not North Slope gas).

The El Paso plan would greatly expand the U.S. LNG industry. The company asked the FPC for authorization to pipe over 3 billion cubic feet a day of Prudhoe Bay gas about 810 miles almost straight south from Alaska’s Arctic coast to its Pacific coast. There the gas would be superchilled into a liquid to compress it for transport via high-tech tankers to the California market El Paso already served. Project cost: An estimated $6.6 billion.

The El Paso pipeline would roughly follow the same route through Alaska as the trans-Alaska oil pipeline, which had started construction five months earlier. But instead of terminating at Valdez like the oil pipeline, El Paso’s gas pipeline would end at Point Gravina, near the fishing town of Cordova.

El Paso’s plan also involved building more pipelines in California and Texas to complete its grid and help carry the bounty of Alaska natural gas. Another company called Western LNG Terminal Co. would build an LNG receiving port at Point Conception, Calif., outside Santa Barbara.

El Paso’s emergence upset the Arctic Gas consortium. But the consortium’s members had another shock coming: Alaska leaders ardently embraced El Paso’s project.

Gov. Bill Egan backed the El Paso line, as did his successor, Jay Hammond. The state Legislature endorsed it. Former Gov. Wally Hickel made a chest-beating declaration that the state had the legal authority to dictate the LNG route. (Hickel would play an important role in keeping an Alaska LNG project alive in the 1980s and 1990s.)

In 1975, local business leaders launched a civic group called the Organization for Management of Alaska’s Resources to campaign for the El Paso line, which they soon dubbed the “All-American Line.” OMAR later evolved to the Resource Development Council for Alaska, which today advocates for the expansion of Alaska’s economic base.

El Paso was a good fit for the emerging mindset of Alaskans. Alaska was a poor state with just a few highways and little internal control of its own economy. Outside interests controlled the small fishing and timber industries. Washington controlled the economic mainstay – federal defense and civilian spending.

But with the oil pipeline started, Alaska was about to become fabulously rich. It would become richer still if the gas pipeline could bisect the state instead of skirting the Arctic coast, if Alaskans could siphon off a bit of the gas for their own use and possibly even build a new petrochemical industry that used natural gas as its feedstock.

With the Arctic Gas proposal on the FPC docket and the El Paso project getting some buzz, one of Alaska’s U.S. senators, Ted Stevens, was asked in May 1974 which one he favored. Neither would get his endorsement right then, he replied. Then he elaborated, and summed up the sentiment that many Alaskans shared:

“The time is long gone when Alaskans have to fall over and play dead to a bunch of Texas oilmen.”

The battleground

An administrative law judge for the FPC, Nahum Litt, started taking evidence in May 1975 about which project should get the go-ahead. It was widely understood that only one project would prevail.

Each side took its turn extolling its own project and shredding its competitor’s. A contemporary news account described the two proposals “tearing each other apart” before the FPC. Nearly 200 attorneys were signed on to represent the menagerie of pipeline companies, gas utilities, power companies, state utility commissions, and oil and gas producers with a stake in the outcome.

It was impossible to keep track of who was ahead, or even who was scoring points. Along the way, the North Slope oil and gas producers dropped out of the Arctic Gas consortium. Sohio (BP) exited in late 1974, saying it had fulfilled its original intent to belong only until the pipeline development phase.

Litt’s hearing dragged through 1975 and then 1976. Ultimately, the hearing spanned 252 days of testimony. The transcript weighed in at almost 45,000 pages, bound in 253 volumes that if stacked on end would stand two stories tall. About 1,000 exhibits got introduced, with some running more than 1,000 pages.

Each side tried to out-maneuver the other. Early on, Arctic Gas announced that nearly half of Prudhoe Bay’s gas had been committed to U.S. pipeline firms through its project.

El Paso negotiated with Alaska for rights to the state’s royalty share of Prudhoe gas production to front-load its LNG project and won a tentative contract, valid if its project prevailed before the FPC.

Then, in mid-fight, 15 months after Litt started his hearing, a new event exploded on the proceedings like a hand grenade.

The entrepreneur from Utah

But it had an acutely appealing feature: It was a sort of hybrid between the Arctic Gas and the El Paso lines; it offered a compromise.

The new project, filed with the FPC in July 1976, was the brainchild of John McMillian, a Salt Lake City entrepreneur.

McMillian was a former petroleum engineer whose career had taken him from Texas to Australia and back to Texas. By 1976 he was head of Utah-based Northwest Pipeline Co., which ironically got its big break a couple of years earlier by acquiring a piece of El Paso’s network.

McMillian’s project was ultimately called Alaskan Northwest, and it would carry 2.4 bcf a day of Prudhoe gas, both bringing it to Alaskans and piping it through Canada.

The Alaskan Northwest route would parallel the oil pipeline south from Prudhoe Bay to Fairbanks and Delta Junction. From there it would continue along the Alaska Highway into Canada. This is basically the same route proposed today by the TransCanada/ExxonMobil partnership. Alaskan Northwest’s partner for the Canadian construction was Foothills Pipe Lines of Calgary, which TransCanada now owns.

The Alaskan Northwest proposal added new complexity to Litt’s decision. And that complexity promised to add months to the hearing process.

Congress and the president were getting restless. They were in an election year. The country was enduring natural gas shortages and voters were grumbling.

Something needed to be done to break the stalemate developing in Litt’s hearing room.

Editor’s note: This is a reprint of the first 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 2 in the April 1 issue. Parts 2 and 3 of this story will run in subsequent issues of Petroleum News.