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Alaska bullet gasline legislation: A 'pipeline to poverty'

Merrick Peirce
Loren Holmes photo

To understand why the so-called bullet line from the North Slope to Cook Inlet following the Parks Highway is one of the greatest acts of sabotage ever perpetrated on Alaskans, one has to know some details about the project that have not received sufficient scrutiny.

For example, how many Alaskans -- or even most legislators -- know that if the bullet line legislation (House Bill 9) had passed, Alaskans living in the Railbelt would have forked over the equivalent value of their Permanent Fund Dividend checks each year to the equity owners of the bullet line? 

Here's how the scheme would have worked. Buried in HB-9 was language that allowed for a FERC regulated rate of return on equity. Sounds reasonable, right? Few legislators bothered to investigate the significance of what this means. With a $10 billion total cost, a typical 70/30 debt-to-equity ratio and a 14 percent return on invested equity, annual return on the equity piece would be about $420 million per year.

Who pays that bill? The users of the gas, with that cost built into the tariff, which is then built into the price of the gas consumers or Alaska utilities pay. So the bottom line? If there are roughly 400,000 Railbelt users of gas, the per-person cost on that equity return would be about $1,000 per year -- more than the Permanent Fund dividend issued last month. 

Could it get worse? Yep. That $420 million, per year, would be transferred to the out-of-state investors. Only the grossest incompetence by legislators would explain why they would deliberately try and transfer almost a half-billion dollars per year out of the Alaska economy.

When Alaskans figured out how they were being pillaged, they'd want reform. Alaskans would try and seek justice in court, or get help from the Regulatory Commission of Alaska. But they'd be barred from seeking relief via their own courts or their own regulatory agency. Why? Because HB-9 prohibits judicial review or RCA oversight.

Stunning, eh?

Could this betrayal of the best interests of Alaskans get any worse? One should never underestimate the current House leadership. The bullet line has earned the moniker of "the pipeline to poverty" for a good reason. It is expensive and has no economy of scale such that we would enjoy from a large diameter gasline. It follows the wrong route down the Parks Highway, and misses Fairbanks, North Pole, and Alaska's key military bases. The line also misses massive mineral resource potential found along the Richardson Highway corridor. 

Does this boondoggle propose to deliver new revenue to Alaska in a way that is anywhere proportionate to the massive volume and value of natural gas estimated to exist under the North Slope? Nope, not even close. Trillions of dollars' worth of Alaska-owned gas lies under the North Slope -- enough gas to export 2 billion cubic feet per day for the next 340 years. Did you pick up on the point where the value of the North Slope gas is worth trillions? If sold into the Asian market, that is a correct statement when trying to discern the gross value of the gas. Since that gas is owned by Alaskans that makes each Alaskan a multimillionaire on paper. Just divide the owners (you and me) by the gross value and you see what is at stake for each, and every, Alaskan.

One of the fundamental problems the "pipeline to poverty" presents is that Republican legislators ignored the massive quantities of gas believed to exist under Cook Inlet. All of the experts were ignored, among them the U.S. Department of Energy and U.S. Geological Survey, and private companies like Buccaneer Energy and Escopeta, which believe based upon scientific research that somewhere between 16 and 24 trillion cubic feet of natural gas lays beneath Cook Inlet. 

It is only the fact that nearly 20 years had elapsed since the last jack-up rigs were in-place to drill for new gas that seasonal shortages of gas were created. New drilling will solve that problem.  This gas reserve represents nearly a 200-year Railbelt gas supply based upon existing usage of 240 million cubic feet per day. So why would Anchorage want expensive gas from a bullet line when the cheap gas is proximately available? Do Anchorage gas consumers really want a doubling, or even a tripling of their monthly gas bills?

Finally, one must pay some attention to the unconstitutional "settlement" of the Point Thomson deal between Parnell and Exxon Mobil Corp. It is in that settlement language that one finds that if 500 MCF/D of gas is removed from the North Slope that Exxon Mobil gets significant, unconstitutional authority to deal with the vast public, hydrocarbon resource under Point Thomson. This may be another motivating factor that has caused Republican legislators to act so recklessly with their support for both the bullet line and with HB-9. 

We owe gratitude to the responsible legislators in the Alaska Senate (and some in the House) for stopping the HB-9 madness. We also owe thanks to rational legislators who tried to amend HB-9 during the House floor debate. Unfortunately, all of the reasonable amendments proposed were shot down. For example, when one amendment was proposed requiring Alaska hire and the use of Alaska businesses for the project, it was defeated on a party-line vote with almost every Republican voting "No." 

The same thing happened when another amendment was proposed to build the bullet line beginning from Cook Inlet moving north to Fairbanks. The logic was simple: Fairbanks -- where affordable, clean energy is absolutely needed -- would benefit by having access to cheap Cook Inlet gas. If for some reason all the experts and scientists were wrong about the massive gas reserves under Cook Inlet, the construction of the pipe could have continued north. House Republicans killed this plan, too.

The stark reality is that if the bullet line boondoggle advanced to actual construction there would not be adequate resources for Alaska to build a large diameter gasline -- the one that Alaskans voted for in 2002 with their initiative approval of Alaska Statute 41.41.010. One notes the same legislators that promoted this sabotage bullet line also worked with Parnell to kill the voter-created Alaska Natural Gas Development Authority (ANGDA). A coincidence?  One thinks not.

Meanwhile we have seen significant interest in Alaska LNG (from the deep water, ice free Port of Valdez) from the Asian markets. These markets are actually looking to buy more gas than may be available from Prudhoe Bay. So this means there is no reason whatsoever to continue dumping tens of millions of public dollars into the bullet line boondoggle that cannot convey adequate gas volumes to market -- or even the correct port. 

Merrick Peirce of Fairbanks serves on the board of the voter created Alaska Gasline Port Authority.  The mandate given to AGPA by voters is to build, or cause to be built a gasline to Valdez, Alaska. 

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