That’s what Gov. Frank Murkow-ski’s representatives said in Homer on Tuesday about the proposed Alaska gas pipeline — an undertaking so large it that would rank as the biggest construction project in U.S. history.
That pipeline would take 4 billion cubic feet of North Slope natural gas per day down the trans-Alaska pipeline corridor, through Canada all the way to Chicago to supply North American markets.
Known, or “proven,” reserves of Alaska North Slope gas total 35 trillion cubic feet, with another 235 trillion cubic feet believed to be present. To make the project viable, another 18 trillion cubic feet would have to be found and developed. The United States consumed 22 trillion cubic feet of natural gas in 2004.
Between 9,300 and 9,500 workers could be needed to build the pipeline.
“It is a mega-project by any standard,” said Mary Ann Pease, a gas line adviser to the governor. “It will require between five and six million tons of steel. That’s a huge quantity.”
There are only four steel plants in the world capable of producing the 52-inch diameter, 1.5-inch thick steel pipe, and none are in the United States.
Three are in Asia and one is in Europe, said Roger Marks, a petroleum economist with the Alaska Depart-ment of Revenue’s Tax Division.
Until around 2000 when gas prices started rising, it simply wasn’t economical to build a gas pipeline. By January 2004, Gov. Frank Murkowski and his advisers were negotiating behind closed doors with the three major oil producers — BP, Conoco-Phillips and ExxonMobil — to hash out a contract that could lead to a pipeline construction project.
The contract, negotiated under the Stranded Gas Development Act, was released to the public May 10.
It includes no guarantee that a pipeline would be built and no Alaska labor agreement. It also would require Alaska to set aside for decades its ability to change tax rates imposed on producers — 30 years for oil, 45 years for gas. Those issues are key concerns among Alaska residents and lawmakers. The tax lock-up provision would very likely end up in court over its constitutionality.
“There’s a case to be made that you can constitutionally do this,” Marks said. “Is it a slam dunk? No. Is someone going to sue? Yes. Will the Supreme Court ultimately decide this? Yes.”
Will court action delay the project?
“It would slow it down,” Marks said.
On May 19, the governor’s office took the contract public, talking to Alaskans at project fairs, public hearings, statewide teleconferences and community presentations. Homer-area residents got their chance to ask questions Tuesday at the Homer Chamber of Commerce luncheon. Available to try and answer those inquiries were Pease and Marks.
Pease and Marks said reaction across the state so far has been mixed.
“There are some hot button issues with this contract … in a 30-second sound bite, it’s pretty easy to say ‘this is a bad contract,’” Marks said noting the contract’s lack of a firm start-up date, and the idea that Alaska would give up its ability to change tax rates.
“(But) there are some complex reasons why those are in the contract,” he said.
In engineering, there are three principles that must be balanced, whether one is building a house or a mega-project like the pipeline: cost control, quality control and timing, Marks said.
“If you put primacy on one of those, the other two will suffer,” he said.
Any number of things could go wrong — inflation in the cost of steel, the collapse of gas prices, for instance. That argues for flexibility, that is, no firm start-up date of completed project, currently estimated at 10 years out.
But Alaska has a card in the hole. “If the producers don’t exercise due diligence in moving the project, the state can go to arbitration and pull the plug on the contract, in which case the producers would lose their fiscal stability (the locked-in tax rates), which would be a huge blow to them,” Marks said. “They have 35 trillion cubic feet plus on the Slope, and they do not want to let that sit idle forever.”
Another issue is that the contract calls for the state to contribute 20 percent of the construction costs and own 20 percent of the pipeline, a significant commitment, Pease said. In exchange, the state would own and be able to use or market 20 percent of the gas. Pease said estimates show Alaska earning significant revenues under a broad range of possible gas prices.
For instance, with gas at $5.50 per million Btu (Chicago), the state’s income would be $77.8 billion over 30 years. It would be about a third of that at $2.50 per million Btu, and at $8.50, the state’s take would be $129 billion. The benefits to the state would be a stable revenue stream and “a seat at the table” with the other owners.
But the state would also share the risks — big ones — if circumstances were to halt or significantly delay the project, or if gas prices collapsed once money has been committed, Marks acknowledged.
“Those are called completion risks,” he said. “That’s one of the reasons you get such a high rate of return from regulators.”
For the major producers, the state’s financial involvement helps make the project viable, they said. Most important to Alaskans is having access to the gas itself. The contract calls for four locations called off-take points where distribution spur lines could tap the main line. One of those would bring gas to Southcentral Alaska and the Kenai Peninsula.
Alaska could opt to build distribution lines itself, perhaps using earnings from the Alaska Permanent Fund or the proceeds from gas sales. “I don’t think that is something that should necessarily be ruled out,” Pease said.
A statewide teleconferenced hearing also is scheduled for Monday from 6 p.m. to 10 p.m. Homer residents can participate at the Legislative Informa-tion Office, 345 W. Sterling Highway, Suite 105A. For more information, call 235-7878.
Another public hearing is set for the Challenger Learning Center in Kenai on June 15, beginning at 11 a.m.
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