The US Senate bristles with contradiction where energy, labor, and wealth are concerned. For the sake of jobs and economic growth it eagerly subsidizes a probably uneconomic natural gas pipeline. Yet jobs and growth don't compel it to promote development of natural resources by approving leasing of the Arctic National Wildlife Refuge coastal plain.
The conference committee that soon will reconcile Senate and House energy legislation should reject the Senate bill's protectionist incentives for a gas pipeline from Alaska. And gas producers in the Lower 48 should wonder whether unrelated tax incentives in the House bill warrant compromise with a set of measures that would mean trouble in future gas-market slumps.
Yes, the US urgently needs new supplies of natural gas. Yes, Alaska's North Slope has 30 tcf or more of potentially recoverable gas with no way to move to market. Yes, a pipeline following the Alaskan oil line and Alaskan Highway into British Columbia would be one way to move the gas. And yes, this so-called Alaskan Highway pipeline probably needs market guarantees if it's to be built any time soon. But no, the government shouldn't provide them.
Price assurance
Citing the boost pipeline construction would give the Alaskan and Canadian economies, the Senate bill offers North Slope producers a 15-year tax credit in the amount by which Alberta prices fall below $3.25/MMbtu. Until producers paid back accumulated credits, they'd be subject to extra tax when the Alberta price exceeded $4.85/MMbtu. In addition to this price assurance for North Slope producers, the government would provide loan guarantees totaling $10 billion for pipeline construction.
This is bad policy. What the bill proposes isn't temporary relief to preserve an existing tax base, such as some states provide to keep marginal wells on production. It's a price guarantee to stimulate a project favored by politicians but not investors.
The government should stay out of energy pricing and project selection. And it certainly shouldn't help one set of gas producers at the expense of others. Under the system envisioned by the Senate bill, when gas prices fall below the tax-credit threshold, Lower 48 production would have to compete with unrestricted North Slope supply. Unsubsidized near-market production thus would give way to subsidized remote supply. And gas consumers would pay a premium in a down market.
Senate backers of this folly argue that the US urgently needs a new source of natural gas. They're right. But there are other ways to get it.
There's another pipeline route for Alaskan gas, for example. It's what industry calls the over-the-top route across the Beaufort Sea and through Canada's Mackenzie Valley. Supporters say it would be cheaper. Yet the Senate bill explicitly prohibits federal approval of a pipeline for North Slope gas following the Mackenzie Valley route.
There also are other options for moving energy from the gas resource to market. Others include rapidly growing LNG trade and emergent gas-to-liquids technology. And there are large pieces of the Lower 48 gas resource that should be explored and developed but that remain off-limits to drilling because of environmental politics.
So it can't be argued that the Alaskan Highway gas line represents the country's only available response to a looming gas deficit. It might represent the most expensive response of all. Yet the Senate wants to push it into development at the expense not only of competing and possibly superior projects but also-during future periods of gas-price weakness-of existing production. What's more, the measure would alienate Canada and subvert the interests of consumers.
Work subsidy
As energy policy, this is abysmal. It's a work subsidy offered to Alaskans in compensation for the Senate's ludicrous refusal to approve ANWR leasing. It's a way for lawmakers to pretend to act on energy without addressing politically difficult essentials like oil-and-gas leasing of disputed federal land and siting of LNG plants in California. And it joins a mandate for ethanol in gasoline as a Senate energy proposal oriented more to regional political gratification than to national energy and consumer interests.
The Senate won't support jobs and incomes by allowing unsubsidized resource development but will support them by federalizing an economically questionable pipeline. That's backwards. Its energy bill does more for politicians than for energy consumers and producers. That's irresponsible.
