SAN FRANCISCO The jury remains out on Alaskas ability to pull off a multibillion-dollar pipeline to extract natural gas sitting under the states Arctic North Slope.
The Legislature is scheduled to adjourn Tuesday without being presented with a deal to construct a gas pipeline, a goal Gov. Frank Murkowski set out before the session.
But Murkowski says his administration is heavily engrossed in negotiations with potential pipeline groups with bond financing expected to play a major role in any of the options. The governor is expected to call a special session when and if such a deal is ready.
The natural gas in question sits on Alaskas North Slope, mingling with oil that has been exploited since late 1970s, when the Alaska Pipeline was built.
Taxes and royalties on the states oil bounty already funds more 80% of Alaskas general fund budget, and state leaders have long looked to the untapped natural gas resources as another source of revenue.
The reason they havent already done so is that natural gas is much more complex and expensive to transport than petroleum.
With oil, producers pump the liquid into the pipeline and slosh it south to Valdez, where they pour it into tankers for the trip south.
Moving natural gas is more complicated, and there are two competing points of view in Alaska about how to do it.
All-Alaska partisans want an 800-mile route next to the oil pipeline ending at Valdez, where the fuel would depart Alaska on ships.
But thats not as easy to do with natural gas. The gas must be converted into liquefied natural gas, or LNG, which requires an expensive processing plant to cool the gas to 260 degrees below zero Fahrenheit, at which point it becomes a liquid compressed into a volume 600 times smaller than in its gaseous state. That makes it feasible to transport by ship, where it is delivered to another plant at the destination port that reconverts it to gas.
The other option would avoid the expense and complexity of liquefying the gas by building a longer pipeline that would carry the gas all the way to the existing North American pipeline network in Alberta, Canada.
That would require 2,100 miles of pipeline 1,300 miles longer than the Valdez route, meaning the pipeline will take longer to build and cost about $20 billion.
There will be demand for natural gas, according to the Federal Energy Information Administration, which predicts total U.S. consumption will rise from 22 trillion cubic feet in 2003 to 30.7 trillion cubic feet in 2025 with more than half the increase accounted for by the growing use of natural gas for electricity generation.
An Alaska pipeline could deliver about 1.4 trillion cubic feet per year, according to the Alaska Gasline Port Authority, an agency created by three local governments in the state to build such a pipeline.
The ground rules for natural gas extraction are laid out in a state law called the Stranded Gas Act, which provides the framework for the Murkowski administrations negotiations.
The administration says it is negotiating with two different entities for a proposed Canada pipeline route one is a consortium of the three main North Slope producers and the other is Canadian pipeline firm TransCanada Corp.While the governor has said little about the shape of those negotiations, in recent weeks he has signaled in the local press that the state might make an equity investment in the pipeline project, and borrow money to do so.
The logical instrument would be bonds, said Murkowskis press secretary Becky Hultberg.
At least one vehicle exists to issue them. A law passed in 2003 authorizes the state-owned Alaska Railroad Corp. to serve as a conduit issuer for up to $17 billion in revenue bonds to finance a natural gas pipeline.
At the same time, two governmental organizations in Alaska are pushing the All-Alaska route to Valdez.
State voter created the Alaska Natural Gas Development Authority in a 2003 referendum, , while the Alaska Gasline Port Authority was formed in 1999 as a joint-powers agency consisting of the Fairbanks North Star Borough, Valdez, and the North Slope Bureau.
The Gasline Port Authority, spurred by elected officials in Fairbanks and Valdez, has been the more active of the two authorities in recent months.
In December 2004, it announced a development agreement with Sempra LNG, a San Diego-based energy firm that is developing LNG receiving plants in North America. Sempra has begun work on two such plants on the coast of the Gulf of Mexico, as well as a plant in Mexicos Baja California, which is to use LNG imported from Indonesia.
At the same time, the Gasline Port Authority announced that it had acquired the option to buy Yukon Pacific, a firm that has owned the permits to build a natural gas pipeline and LNG plant for years, without being able to develop it.
By early April, the Gasline Port Authority submitted its own application under the Stranded Gas Act and made a formal offer to buy gas from the North Slope oil producers.
But the plan must overcome some obstacles.
The authority needs to buy natural gas from the North Slope producers who are trying to build the pipeline to Alberta.
An LNG gasification plant would be required on the U.S. West Coast, where such proposals can expect fierce opposition from neighbors concerned about pollution, aesthetics, and safety.
And federal law requires domestic cargo shipments be carried in American-built ships, which is a problem because there is no modern fleet of American-built LNG tankers.
Port authority officials have said they will seek an act of Congress for an exemption from the shipping law. There is a precedent, under a 2003 congressional act that allowed three foreign-built cruise ships to serve Hawaii if their crews are American.
The other governmental group, ANGDA, which was also chartered to build a North Slope-to-Valdez pipeline, has pulled back from those efforts. Instead, it is focusing on developing a spur line from whatever pipeline is built to the Anchorage metropolitan area, which expects to see its current natural gas supplies from local fields diminish in coming decades.
Both ANGDA and the Gasline Port Authority have indicated that they would issue revenue bonds to finance their projects.
If and when any pipeline is built, it will be seriously expensive. The route through Canada is expected to cost $20 billion or more. ANGDA, in a document published when it was still planning an 800 mile pipeline to Valdez, estimated costs of $13.5 billion, including $3.8 billion for the pipeline, $4.5 billion for the liquefaction plant in Valdez, and $2.3 billion for a fleet of tankers.
