Alaskan Natural Gas Pipeline
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This article or section contains information about a planned or expected pipeline. It may contain information of a speculative nature and the content may change dramatically as the construction and/or completion of the pipeline approaches, and more information becomes available. |
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Since the 1970s, the state of Alaska and the oil and gas producers have considered ways to make the Northern Slope’s vast natural gas resources accessible to the lower 48 states. Recently, the industry has focused on two routes for a gas pipeline (see map). The Alaska route, or southern route, would build a 3,600-mile pipeline along the Alaska Highway, linking Prudhoe Bay to the lower 48 states. A shorter alternative route would link Prudhoe Bay natural gas through Canada’s Mackenzie River. (see below)
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[edit] History
The Alaskan Oil Pipeline began as a Canadian idea. Early Western explorers noted the availability of oil in the arctic, and prospect in drilling began soon thereafter. The first well was sunk in 1922 at Norman Wells. Moderate exploration and drilling continued during World War II, with the United States military constructing several large pieces of infrastructure through the Canadian northwest. The Alaska Highway was built to expedite traffic between Alaska and the rest of the nation and the Canol pipeline was built from Norman Wells to Whitehorse, Yukon to ensure oil availability for the war effort. The Canol pipeline was dismantled at the end of the war and continues to be used as a passageway.
Following the war, oil and gas exploration moved farther north and the first arctic island well, Melville Island, began production in 1961. The Mackenzie Delta received its first oil well in 1969 and the first natural gas well was built on the Delta in 1970 at Parson's Lake. Large natural gas reserves were discovered in Prudhoe Bay in 1967, which further excited the development prospects of the arctic.
Oil and gas production in the arctic prior to 1970 was minimal and the oil and gas drilled was usually shipped to southern markets for refining and distribution. This shipping was restricted due to the Arctic climate and shipping expenses. Pressure was increasing to build a pipeline to southern markets so that they could take full advantage of the available oil and gas reserves.
Talk of a pipeline peaked during the 1973 OPEC oil embargo and several companies came out in favor of large pipeline projects. Canadian Arctic Gas Pipeline, Ltd.—a consortium of large oil companies including Shell, Exxon, and TransCanada—proposed a route from Alaska's Prudhoe Bay across northern Yukon to the Mackenzie Delta, and then south through the Mackenzie Valley to Alberta. In addition, the Foothills Pipeline consortium pursued a competing pipeline, starting at the Mackenzie Delta and also running along the river valley to Alberta. Either proposal required the approval of the Canadian government, which named Thomas Berger to lead an inquiry into the proposals.
[edit] Berger Inquiry
The Ministry of Indian Affairs and Northern Development controlled and regulated the lands through which the pipelines would cross and at their request Justice Thomas Berger was commissioned on March 21, 1974 to investigate the "social, environmental and economic impact regionally" of a pipeline and propose terms and conditions appropriate to the construction, operation, and abandonment of a pipeline in the Yukon and Northwest Territories. Justice Berger’s commission was given the authority to subpoena testimony and evidence, hold hearings, and receive support through a Commission Council of neutral government experts. Berger made sure that all stakeholders had a say, and established a fund that supported any group that desired participation in the inquiry, regardless of financial ability. Fourteen groups became full participants in the inquiry, attending all meetings and testifying before the commission. Berger also took his commission to all 35 communities along the Mackenzie River Valley, as well as in cities across Canada, to gauge public reaction. Hearings were split into formal meetings where expert testimony was presented, and informal, town hall style meetings.
[edit] Findings
The Berger Commission released its first on June 9, 1977 and followed with a second volume several months later. The inquiry cost $5.3 million dollars (CAD), and produced over 40,000 pages of text and evidence, comprising 283 volumes. The commission recommended that no pipeline be built through the northern Yukon and that a pipeline through the Mackenzie Valley should be delayed for 10 years.
[edit] Environmental Impact
The Berger Report concluded that the northern Yukon was too susceptible to environmental harm. The commission even recommended that no energy corridor be built in the Mackenzie Delta region. The commission, however, saw no significant environmental risk further south through the Mackenzie Valley. Berger suggested that a number of sanctuaries and protected areas be created for threatened and endangered species, particularly porcupine, caribou, white whales, several bird species, and other animals inhabiting the Arctic National Wildlife Refuge (ANWR).
[edit] Economic Impact
The commission also found no significant economic benefit from the pipelines. The report concluded that large-scale projects based on non-renewable energy sources rarely provide long-term employment, and that those locals that did find work during construction could only fill low-skill, low-wage positions. In addition, Berger feared that pipeline development would undermine local economies which relied on hunting, fishing, and trapping, possibly even increasing economic hardship in the area. Berger ultimately found that the economy of the region would not be harmed by not building the pipeline.
[edit] Social Impact
The commission believed that the pipeline process had not taken native culture seriously, and that any development needed to conform to the wishes of those who lived there. Berger predicted that the "social consequences of the pipeline will not only be serious—they will be devastating." The commission was particularly concerned about the role of natives in development plans. At the time the report was released, there were several ongoing negotiations over native land claims in the area, and Berger suggested that pipeline construction be delayed until those claims were settled. The commission found that the local population would not accept development activity without some native control. In addition, land claims were part of a broader native rights issues that needed to be settled between the government and the First Nations. In Berger's view, rapid development in the north would “preclude settlement of these important issues due to the influx of non-native populations and growing business interests.”
[edit] After the Berger Report
In 1977, the National Energy Board accepted the report’s recommendation of a 10 year moratorium. Despite this setback, oil and gas prospecting and production in the arctic continued. Part of that continuing interest was fueled by the 1980 National Energy Program—a Canadian policy that allowed companies to write off more than 100% of their development costs in the Northern Slope. The policy also penalized them for developing in southern provinces. However, as gas and oil prices fell in the early 1980s, the incentive for building a pipeline dissipated.
Exploration continued at a steady pace and by 1995 there were over 1,900 wells above the 60th parallel. In addition, the natives settled numerous land claims. The Inuvialuit settled the first land claim in 1984, followed by the Sahtu and Gwichʼin. By the late 1990s, companies once again seriously considered a pipeline. The Canadian government sold mineral claim rights, leading to $400 million in bids and over $1 billion (CAD) in work commitments. In addition, United States energy policy began to favor increased production from nearby sources. With the first wave of land claims settled, negotiations began between oil and gas companies and local native groups. These negotiations proved successful in October 2001, when ConocoPhillips, Shell, ExxonMobil, and Imperial Oil signed a Memorandum of Understanding with the Aboriginal Pipeline Group [1]. The APG was formed to represent the Inuvialuit, Sahtu, and Gwichʼin. The Memorandum of Understanding offered the APG a financial stake in the pipeline. The APG bought its stake in February 2003, with the backing of TransCanada. The APG and oil and gas companies created the Mackenzie Gas Project to build a natural gas pipeline down the Mackenzie Valley from the Delta to Alberta. With the APG's full backing and support, planning for the pipeline began, and in June 2003 they submitted a Preliminary Information Package to the National Energy Board, launching the process of regulatory review and approval. The entire project is expected to cost approximately $7 billion (CAD). The Mackenzie Valley natural gas pipeline is expected to cost about $3.8 billion (CAD). When it is in operation, the pipeline will transport an average of 1.2 billion cubic feet of natural gas per day to southern markets. As of June 10, 2006, it is still awaiting approval.
[edit] Legislative Influence
Energy legislation currently under consideration in the United States Congress contains several key provisions that will impact the Alaska pipeline debate. The provision found in both the House and Senate legislation calls for the construction of the pipeline along the Alaska Highway route. This mandate also contains provisions to expedite the environmental review and appeal process.
In addition to the mandate, a Senate version of the bill—sponsored by Pete Domenici (R-NM)—includes provisions that would substantially subsidize the pipeline via loan guarantees and price support. The loan guarantees in each bill authorizes the federal government to back 80 percent of the loans for the pipeline.[1] The House version of the bill capped the loans to $10 billion, while the Senate version capped the loans at $18 billion.[2]
The price support subsidies in the Senate bill create a tax credit for the builders of the Alaska Highway route if wellhead prices fall below $1.35 per million BTU. The credit would begin in 2010 or upon completion of the pipeline, and last for 25 years. The credit is estimated to cost as much as $19 billion.
[edit] Competing Natural Gas Interests
The mandate and subsidies for the Alaska natural gas pipeline have created several splits in the oil and gas industry. The companies in Alaska attempting to bring the gas to market are ExxonMobil, BP and ConocoPhillips. ExxonMobil and ConocoPhillips own natural gas resources in both Alaska and the Mackenzie River delta. Surprisingly, ExxonMobil officials said they do not support the pipeline mandate and want to allow the market to decide which route is built. As for the price supports, BP and ConocoPhillips officials expressed support for the pipeline subsidies while ExxonMobil officials said they do not support the “incentives or subsidies” for the pipeline.
In the lower 48 states, independent natural gas suppliers are opposing the price supports for the Alaska natural gas. ChevronTexaco, the Texas Independent Producers and Royalty Owners Association (TIPRO), the Petroleum Association of Wyoming and Devon are all opposing the price supports. In a letter to Sen. Domenici, the Petroleum Association of Wyoming wrote, “Subsidies, in our view, are neither desirable or necessary to ensure security of supply and this applies equally to the proposed Alaska Highway pipeline.” In a statement in the Chicago Tribune, TIPRO executive Vice-president A. Scott Anderson said, “To the extent the [tax credit] makes an investment in Alaska more attractive investment for non-Alaskan gas reserves is likely to be artificially depressed.” The overall fear of subsidized Alaska natural gas flooding gas markets has rallied non-Alaska companies to oppose the tax credit.
[edit] Politics
Opposition to the Alaska natural gas pipeline route mandate and price supports are also coming from both the Bush administration and the Canadian government. In a letter to the Sen. Domenici, Secretary of Energy Spencer Abraham wrote, “[The administration] believes market forces should select the route of the pipeline.” He continued, “The administration strongly opposes the price-floor tax credit provision in the Senate energy bill and any similar provisions.” However strong the administration’s objections, Secretary Abraham suggested several non-price support tax provisions that could subsidize the construction of the pipeline. Canadian Ambassador Michael Kergin wrote, “Canada is of the opinion that the Alaskan pipeline should be built without subsidies and without the route being determined by legislation.”
[edit] Sources & References
- "Power Politics: The Alaska Natural Gas Pipeline" - Friend's of the Earth
- Article: "The Mackenzie Gas Pipeline" - University of Coloroda
- "The Berger Pipeline Inquiry" - Canadian Broadcaster Corporation
- ^ S. 14, referred to Committee on Finance Jan. 24, 2005. “A bill to provide fair wages for America's workers, to create new jobs through investment in America, to provide for fair trade and competitiveness, and for other purposes.” Congressional Record, vol. 152, p. S437.
- ^ H.R. 6, sign by the President on Aug. 8, 2005. “Energy Policy Act of 2005” Congressional Record, vol. 152.
