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Featured Articles
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Mar 2007
| Source: Oilweek Magazine
| | | Palin steals the show
| | | Alaska Governor Sarah Palin’s new plan may breathe new life into the Alaska Pipeline
| | | Andrea W. Lorenz
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| On Friday, March 2, Alaska’s new governor, Sarah Palin, revealed details of her administration’s Alaska Gasline Inducement Act. The plan should send a ripple of fear through the hearts of Canadian companies that have pinned their hopes on development of Canada’s Arctic gas.
The new plan, known as AGIA, “is critical to national security policy,” said Palin. “The President is concerned about dependence on foreign oil. We cannot afford to allow domestic energy supplies to lie untapped any longer.”
Governor Palin has scrapped a plan developed by the state’s previous governor, Frank Murkowski, which she says included too many inducements to the Big Three producers, BP, ConocoPhillips, and ExxonMobil. Known as the Stranded Gas Development Act, it failed to include what she calls the state’s “must-haves.” It also did not do enough to foster competition. In a Feb. 11 article she wrote for the Alaska Journal of Commerce, Palin described Murkowski’s plan as “a millstone of which we are free,” and added that the AGIA “will induce construction of the gas line without selling Alaska’s sovereignty.”
Governor Palin is offering potential pipeline builders a $500-million sweetener plus a ten-year tax moratorium for gas that is committed during the first open season. But is that enough of an inducement to get producers to commit to the enormous project?
AGIA requires the pipeline builders to commit to firm timelines and benchmarks. It also provides for five off-take points in Alaska.
The plan is clearly not as attractive to the Big Three as the 30-year freeze on oil tax rates and 45-year freeze on gas tax rates promised by Murkowski. Yet each of the companies sent representatives to the March 2 unveiling, and each one made a polite statement about his company’s support for the plan.
What gives AGIA horsepower is that Palin and her team sweet-talked their way across Capitol Hill to win congressional support for their plan before announcing it back home. Last week, she met with Federal Energy Regulatory Commission Chair Joseph Kelliher, Interior Secretary Dirk Kempthorne, and Energy Secretary Samuel Bodman. Kelliher boosted her plan, saying, “I believe it represents the best hope for building a pipeline to bring Alaska’s vast natural gas resources to the energy-consuming lower 48 states.” He promised that FERC will help to the extent that it can.
As Palin quickly deduced, U.S.-Govern-ment support for an Alaska pipeline is critical. Although building a pipeline is not a partisan issue, the fact that she is a Republican no doubt pleases the current Administration, which has little to boast about. If Alaska can get this project off the ground, it is likely that Republicans will regard it as a political plum, one they can hold up to the American people as proof that this Administration is working to reduce their nation’s dependence on foreign oil.
What a contrast to the non-committal noises made by her counterparts in Alberta when it comes to Canada’s northern gas project. On March 1, Alberta’s new premier Ed Stelmach gave limp support to both gas line plans when he told the audience at the Arctic Gas Symposium that he is hopeful that both pipelines will proceed, and that they will use Alberta as their hub. Unlike Palin, he feels no need to persuade Ottawa of the importance of the MGP to this province’s future.
Not only has Palin stolen the lead, but there is another critical issue: no matter how much Ed Stelmach and others think that two pipelines can be built within 20 years of each other, they cannot. Alberta already faces a 100,000-plus skilled worker shortage in the next ten years. Competition looms not only from a booming oilsands sector but from a number of liquefied natural gas projects that are expected to ripen to fruition over the next decade.
ExxonMobil will have to make a choice. Imperial Oil, the lead producer on the MGP, is majority-owned by Exxon and will have to defer to its parent company if the latter decides to choose the Alaska Pipeline.
Given the enthusiasm and momentum that Palin’s announcement has given to the Alaska Pipeline and the lack of either here in Canada for the Mackenzie Valley line, my guess is that ExxonMobil will put its best resources into the Alaska plan. Let’s hope the MGP dies a dignified death.
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