Alaskan primary means gas pipeline hangs in balance
By Norval Scott
Last Update: 11:50 PM ET Aug 23, 2006
marketwatch.com
CALGARY (MarketWatch) -- Alaska Gov. Frank Murkowski's defeat in the state's Republican primary early Wednesday likely scuppers any chance of his gas pipeline contract passing through the state legislature in 2006.
In addition, Murkowksi's deposal opens up the prospect that a new governor will consider other alternatives to the planned $20 billion pipeline, throwing open the entire question of how Alaska's stranded gas reserves will be brought to market, according to industry observers.
"I can't see much happening with the contract now until the general election," said John Devens, executive advisor of the Prince William Sound Regional Citizens' Advisory Council, an Alaskan oil monitoring group.
With regard to what might happen to the contract thereafter, "all bets are off," he added.
In February 2006, Murkowski reached an agreement with North Slope oil producers ExxonMobil Corp. (XOM), BP PLC (BP) and ConocoPhillips (COP) over terms for the proposed Alaska Gas Pipeline, which would transport 4.5 billion to 6 billion cubic feet a day of gas from Alaska into Alberta, Canada and then down to the lower 48 U.S. states.
Proponents have touted the project, which is expected to be built by 2014, as a way to lessen the nation's dependence on foreign energy sources and bring billions in royalties and taxes to Alaska.
However, Murkowski has been unable to get the changes necessary to the state's Stranded Gas Act approved by the state legislature. Critics say the deal is too favorable to the oil firms and doesn't tie them down to any commitment to build a pipeline.
While Murkowski has been a rather unpopular governor, and his position hasn't been helped by BP's embarrassing recent pipeline outage at Prudhoe Bay, his election defeat does seem partly linked to his failure to come up with a gasline contract acceptable to Alaska. In his campaign, Murkowski effectively sought to make the primary a referendum on his pipeline proposals.
"We think the election result sends a strong message that what was negotiated between the administration and the producers was not acceptable," said Bill Walker, attorney at Alaskan law firm Walker & Levesque.
Despite his loss, Murkowski has vowed to continue to push his natural gas pipeline contract through before he leaves office in December. However, it may prove impossible to push through already-unpopular measures under a lame-duck administration.
Last week, Alaska House Majority Leader John Coghill, R-North Pole, said that if a different Republican nominee emerges in the primary, "it will be very difficult to get (Murkowski's) contract moved forward."
ExxonMobil spokeswoman Susan Reeves said, "the contract that was agreed provides predictable and durable terms for oil and gas negotiations to advance the Gas Pipeline contract to the next stage," but she wouldn't comment on what might happen if the contract wasn't approved. BP and ConocoPhillips weren't available for comment.
Where To Now?
If Murkowski is unsuccessful, the future for the gasline appears uncertain. While the new Republican and Democrat nominees haven't said they won't support the pipeline, they both favor re-opening the floor to alternative proposals, potentially threatening the North Slope producers' plans.
Murkowski's victor and the new Republican nominee, Sarah Palin, the former chairman of Alaska's Oil and Gas Conservation Commission, has said she will consider all pipeline proposals, not just the gasline. She has also backed the idea of an "All Alaska" pipeline, whereby a pipeline would be constructed from Prudhoe Bay, on Alaska's North Slope, to a liquefied natural gas export facility at Valdez. She couldn't immediately be reached for comment.
Tony Knowles, the Democratic nominee, has also said that he wants to invite all interested parties to submit proposals for projects that meet Alaska's gas export needs.
"The result will be a pipeline agreement that offers much more to Alaskans than the one now on the table," Knowles says on his campaign Web site. He is willing to consider proposals from parties that have previously registered an interest in building a pipeline, such as the All Alaska group, the Mid-America Company, and Canadian pipeline firm TransCanada Corp. (TRP). He couldn't be immediately reached for comment.
Both Palin and Knowles back using Alaskan gas in-state for heating, using the local workforce to construct the gasline, and not tying oil taxes to any gas pipeline deal.
"We could end up starting the negotiating process all over again," said attorney Walker. "We don't know yet if they'll try and fix the current study, or if we'll look at a new project."
He said that it is too early to say whether such a process might delay the bringing of Alaskan gas to market, or if - because of how long pre-construction studies for the Alaska pipeline are expected to take - it could actually expedite it.
"It doesn't necessarily hold anything up," Walker said.
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