Dear Alaska Legislature,
We don't want to alarm you, but our concerns about a large-diameter natural gas pipeline from the North Slope to anywhere have been fluctuating wildly over the last week. We don't know how many potential nails that coffin lid can accept before it's considered good to bury, but it might be time to start seriously considering alternative plans for getting Alaska's natural gas to market -- and it's definitely not time to neglect oil policy at the expense of a project that's already been set in motion and is still years away from starting.
The Al-Can gas line's Arctic cousin, the Mackenzie pipeline project, was recently approved by Canada's National Energy Board. But rather than being lauded as a big step forward for the line, the decision's being derided as another example of how lengthy regulatory and legislative processes (or even 2006 gubernatorial elections) can help kill big petroleum projects.
Essentially, Mackenzie naysayers contend that while regulators were examining the project, the natural gas market changed radically, making project financing extremely difficult to obtain, which in turn makes the rest of the project more difficult. They contend the review process made sure that line won't happen because investment dollars are already landing elsewhere.
And the Mackenzie project is only estimated to cost $16.2 billion, less than half of what Alaska's big line is estimated to cost. If one thinks Alaska's gas line and the Mackenzie project have much in common, all the naysaying should be cause for concern.
Also fueling the rise in doubts about Alaska's big gas line is the most recent energy forecast published by the federal Energy Information Agency. The EIA's long-term forecast doesn't contain a trans-continental Arctic gas line at all. Aside from how difficult predicting long-term market behavior is, people are saying the EIA's forecast is flawed for various reasons, one commentator even said it lives in an "energy fantasy land." And others are saying that people are wrong to take the report's lack of an Arctic line as a statement about project viability because the report is intended to act as a baseline for policy watchers, not as the final word.
Given the number of Americans and members of Congress who are opposed to reducing greenhouse gas emissions (or who don't believe human activity is now driving climate change, for that matter), that assumption seems fair to The Concerned, but really, ceteris paribus, assuming a durable, persistent status quo is necessary to many kinds of economic analysis.
But reality may already be diverging from the EIA baseline projection. The EPA recently announced its timetable for regulating greenhouse emissions, and has even taken over air permitting for Texas, whose officials have steadfastly refused to enforce new rules. So far, it's unclear what either Congress or Texas might do about that or how those regulations will affect natural gas consumption in the U.S., but still. The status quo changed a tiny bit this week. And Canada has already started getting set to implement tough new emissions standards on its coal-fired power plants. Tightening emission standards will likely increase demand for natural gas and correct the rock-bottom market currently complicating Alaska's line.
All that market uncertainty might have a negative impact on the U.S. federal government's willingness to increase loan guarantees for the Alaska line. So it might be time to consider other, non-gargantuan options for getting the gas to market.
The Arctic Ocean's ice-free season is growing longer, and unless the market quiets down, transportation by LNG tankers straight off the North Slope could become a better option than a pipeline. Newly elected Lt. Gov. Mead Treadwell, the former chair of the U.S. Arctic Research Commission, may be able to sort through or come up with some ideas like that. But, so far, what role he may play in the Parnell administration's big energy project efforts hasn't been made clear.
Really, though, all potentially marketable gas aside, it's definitely time to concentrate on the pipeline Alaska already has. The U.S. still puts most of its petroleum products to use as fuel for transportation, and flow in the trans-Alaska oil pipeline is still dwindling away.
During the upcoming legislative session, you and the North Slope producers are probably going to discuss several different kinds of economic certainty, and we fear the someday-soon gas line will get folded into the discussion about right-now oil, and it will just confuse everything and everybody. Basically, we The Concerned are worried you won't really buckle down and concentrate on the half-eaten carrot right in front of you when there's a tantalizing, fuzzy pastel portrait of a sprinkly maple bar hung on the wall.
Right now, we can't imagine Alaska without an oil pipeline in 2015 any more easily than we can imagine it with a natural gas pipeline in 2020. But we know you'll do your best during the upcoming session to figure something out as long as you keep your wits about you.