Alaska pipeline stakes are high, governor says

JUNEAU, Alaska — Gov. Sarah Palin is a few weeks away from handing lawmakers a plan for a 3,600-mile natural-gas pipeline from the North Slope to the Midwestern markets.

Until then, the Republican is laying groundwork for a process she pledges will be transparent and available for public vetting. The stakes, Palin says, are too high for the state's economy and nation's energy supply to do otherwise.

In doing so, she's applying salve to lawmakers' wounds from last year's bickering over a deal negotiated with Exxon Mobil, BP and ConocoPhillips by former Gov. Frank Murkowski.

Many questions linger, including: Is the transparency really just window dressing for a reprisal of a Murkowski-like plan, or does the openness come with a new plan?

It's a development lawmakers, the industry and Wall Street will be watching closely throughout the year.

Critics have long said Murkowski's idea was based on the state's Stranded Gas Act, and gave far too many concessions, something Palin reiterated in a recent State of the State address.

"The deal was a 'no deal,' " she told lawmakers. "And our Legislature was handed a plan that even exceeded the administration's authority.

"Remember, in exchange for those unnecessary concessions, the producers didn't have to commit to preparing applications, much less build a gas line."

Rep. Hollis French, an Anchorage Democrat, called the transparency credible. Last year, French sued Murkowski for withholding the deal from lawmakers.

"There are still a lot of questions that we have, but she's not being coy, not at all," French said.

"She's not hiding the fact that she's taking a new direction," he said. "And she's not hiding the fact that she's leaving the Stranded Gas Act behind."

Palin calls her solution the Alaska Gasline Inducement Act, or AGIA. Successful passage essentially means replacing the Stranded Gas Act, though not through any repeal.

Her bill will re-establish project criteria that energy companies must meet in exchange for incentives from the state.

Palin says she's close to sharing her ideas with lawmakers, but is having the plan reviewed by consultants, the Department of Natural Resources and the Department of Revenue.

"It's imperative that this is vetted by more experts," she said one day after delivering her State of the State. "It's very complex: the strategy and the economics.

"I've asked that this not be put in the Legislature's hands until we have absolute confidence that this is something that is going to result in a project."

Last year's proposal called for 4.5 billion cubic feet of natural gas, about 7 percent of the nation's current supplies, to move through the pipeline daily.

Ed Kelly, natural-gas analyst for consultant Wood Mackenzie in Houston, said the pipeline won't completely offset increased imports.

Still, analysts are keeping tabs on the prospects of an agreement being reached this year, he said.

"Other supply investments would take a back seat if this thing happens because you're going to know this is coming," Kelly said. "It would definitely be a nice addition to our domestic supplies."

Striking any kind of deal was hardly feasible several years ago when wholesale natural-gas prices weren't high enough to justify the massive investment required to move fuel from the North Slope to the Lower 48, in this case close to $30 billion.

Today, prices are in the $6-plus range per thousand cubic feet, well below the December 2005 peak of $15.38 but still nearly three times that of five years ago.

The value of a pipeline to the state is akin to the Prudhoe Bay oil development that became a boon to the state since its discovery in the late 1960s.

Alaska relies on natural resources, primarily oil, for 88 percent of its revenue, but oil production is in a slow decline.

Meanwhile, the nation could receive a much-needed boost in domestic production with a pipeline that could start at the North Slope, continue through Canada and reach the Midwest.

The proposed gas line has implications on the nation's growing dependency on imported natural-gas supplies, which stand at about 15 percent, according to the Energy Department.

That figure could grow to about 25 percent by the time any Alaskan gas line gets built within the next 10 to 12 years, analysts said.

Palin and members of the state's revenue and natural-resources departments wasted no time in reaching out to oil producers and pipeline companies after being sworn in Dec. 4.

Since then they have met with executives from producers such as Exxon Mobil, ConocoPhillips, BP and Anadarko, plus pipeline companies MidAmerican Energy Holdings and Trans Canada.

Pat Galvin, commissioner for the Department of Revenue, warned that the meetings were not negotiations.

"We are not negotiating at this point because we don't know who is bringing forward the best project," Galvin said. "The purpose of the discussions is not to negotiate a deal, but to set up a framework that will allow maximum participation."

Galvin said the state wants to make as much information public as possible, including the proposals.

Galvin and lawmakers, however, said some proposal information might be withheld because it would disclose companies' competitive practices.

Republican Sen. Gene Therriault of North Pole agrees, saying companies place trust in legislators with proprietary information and are entitled to certain protections.

Still, the administration and lawmakers must be mindful of their obligation to the public, he said.

"As far as companies coming forward, the administration is striving to make it a more competitive and transparent process," Therriault said.

"We need to err on the side of as much information out there as possible," he said. "I believe it's what the administration is really striving for."