Alaska governor defends Senate gas pipeline plan

June 6, 2002
Alaska Gov. Tony Knowles (D) defended a Senate energy proposal that gives North Slope producers a guaranteed "floor" price for their gas provided there is a pipeline that follows a southern route.

By OGJ editors

WASHINGTON, DC, June 6 -- Alaska Gov. Tony Knowles (D) defended a Senate energy proposal that gives North Slope producers a guaranteed "floor" price for their gas provided there is a pipeline that follows a southern route along the Alaska Highway then via Canada to the Lower 48. The incentive is in a sweeping Senate energy bill that also provides loan guarantees for pipeline owners that follow the southern route.

A House energy bill that passed last August does not include loan guarantees or a floor price, but it does calls on US regulators to approve a southern route. Lawmakers are expected to try and reconcile the two versions of the bill this summer, although no specific timetable has been set yet.

Some Canadian interests and proponents of a "northern" route traversing the Beaufort Sea and then through Canada's Mackenzie Valley have criticized the floor-price plan, calling it a subsidy that is unfair to Canadian gas companies. But Knowles said a study released by the Northwest Territories government to bolster those claims was off the mark.

"They ignore the beneficial impact to millions of consumers from the credit—a lowering of natural gas prices in the US and Canada," Knowles said. "More broadly, they also ignore that governments throughout the world typically enter into special concessions and support incentives for their domestic petroleum industries. In short, the commodity-risk tax credit is not out of character with what governments do to spur development of natural resource industries that will benefit their populations, businesses, and economies."

The report states that the "lower sustained market price" from a successful Alaska gas project could delay Mackenzie Delta gas production for years, but Knowles argued that a lower sustained market price means lower gas prices for retail consumers of natural gas in the US and Canada.

Alaska analysis
Knowles will meet with western Canadian premiers in Dawson City, Yukon Territory, June 6 to discuss the issue further. In a June 5 statement Knowles said a new analysis of US and Canadian energy development by his office finds that some Canadians are criticizing the US for proposing the same kind of incentives Canadians already use themselves.

"Governmental incentives for the domestic oil industry are a common part of the landscape in Canada," says the analysis prepared by the governor's Washington, DC, office in conjunction with energy consultants.

"In their eagerness to advance their own interests, they have ignored the reality that both the national government of Canada and the governments of other Canadian provinces provide special economic support to both developing and established oil interests, including protection against swings in commodity prices."

Knowles's report said that for more than 2 decades, the Canadian federal and provincial governments have provided incentives to develop and exploit its oil sands resource that are projected to total $820 million from 1986 to 2030. The Hibernia project in Newfoundland also relied heavily on governmental grants, loan guarantees, and tax exemptions. In 1988, when low oil prices put the project in jeopardy, the Canadian government came up with a $1 billion grant and a $1.66 billion loan guarantee.

Meetings with Alberta
The governor met June 4 in Anchorage with Alberta Premier Ralph Klein and welcomed Klein's support of two pipelines to carry arctic natural gas to energy-dependent North American markets.

"Premier Klein wisely pointed out that North American demand requires arctic gas from both Alaska and Canada and, in fact, much of the gas from the MacKenzie Valley likely will be used to assist in the development of oil sands in Alberta," Knowles said.

"That's another reason why America and Canada need two pipelines—one to carry Alaska North Slope gas to North American markets and one to tap smaller gas reserves in the Northwest Territories for domestic use."