Time to act on proposed gas pipeline is now

April 4, 2006

Spectrum/Ted Stevens

Last month, I spoke with our state Legislature about creating a &#8220climate for investment” in Alaska. Alaska's economic opportunities are staggering, with two-thirds of the United States' Outer Continental Shelf (OCS), trillions of cubic feet of gas hydrates, half of our nation's coal, and enormous development potential in the National Petroleum Reserve-Alaska (NPR-A). And, the Alaska Gas Pipeline will become a reality if we work together now.

Approximately 35 trillion cubic feet of natural gas, produced with 15 billion barrels of oil at Prudhoe Bay, has been re-injected back into the ground. This gas has not been taken to market because we lack the infrastructure to transport it.

In 2004, Congress passed the Alaska Natural Gas Pipeline Act, which provides important financial incentives for the construction of the pipeline that will bring our gas to the Lower 48. The market for this resource is tremendous, but competition from offshore liquefied natural gas (LNG) producers could fulfill this demand.

The best market for our gas lies in our nation's farm belt. Our gas must reach the Midwest before offshore LNG is delivered there.

If our gas reaches the Midwest first, it will be sold under long-term contracts, which will give us a serious competitive advantage. If our gasline is delayed, LNG transported from East and West Coast ports will reach these markets first and reduce the demand for Alaska's gas.

There is also serious potential competition from foreign countries. Each of the producers operating in Alaska is deeply involved in exploration, development and production of new oil and gas prospects overseas.

While many believe our state's ability to produce more oil and gas is virtually unlimited, the industry has been restrained by efforts to block production in ANWR, restrictions on NPR-A, and moratoria on OCS exploration.

Companies which seek to invest here must navigate the most regulated development process in the world. Resource development in Russia, Indonesia, West Africa and the Gulf of Mexico can proceed with little to no delay. In our country, lawsuits often delay development for years.

Our natural gas resources present an incredible opportunity, but because of these hurdles, time is of the essence. Decisions about the pipeline must be made as soon as possible. The federal act authorizing the pipeline's construction provided an 18-month permitting period for this project.

However, the federal agencies involved believe 44 months will be required, which includes time for the &#8220pre-permitting” process. I believe this timeframe is excessive, but Congress cannot attempt to shorten it until our state approves the proposed line under the Stranded Gas Act.

One of the most difficult issues our state faces is determining the proper tax level for oil production. Oil production in Alaska is declining, but oil prices continue to rise. The major producers in our state realized that existing tax rates for production under the Economic Limit Factor (ELF) were unpredictable, so they asked for an adjustment in current taxes to ensure fiscal certainty for future activities.

As our Legislature debates this issue, our goal must be to ensure that the international oil and gas industry recognizes our potential now. This requires determining the investments necessary to develop our oil and gas potential.

This involves not only examining the tax structures of other nations, but evaluating the inducements they offer for new exploration and development. Alaska must establish new, attractive incentives to remain globally competitive.

Part of building the &#8220climate for investment” involves decisions about the tax rate on our existing reserves, but the &#8220climate” will not be determined by taxes alone. Equally, and perhaps more important, will be the approach our state takes on incentives for exploration and development.

If we fail to recognize this need, we will not fulfill our potential. If we are a partner in these efforts, if the world's oil and gas industry is attracted by our &#8220climate for investment,” the benefits will be extraordinary.

Ted Stevens is Alaska's senior senator.