ALASKANS SHOULD DEVELOP GAS LINE ON THEIR OWN TERMS

Tony Knowles
Juneau, AK
Jan. 27, 2006

There's no more important jobs and business development project for Alaskans than a natural gas pipeline. Our blueprint for development should be directed by the underlying truth that it is our resource and our responsibility to determine Alaska's fair share.

With known gas of 36 trillion cubic feet - and perhaps triple that amount in undiscovered reserves - gas development will be Alaska's dominant economic engine for the next century. If we do it on our terms, this multigenerational legacy can create thousands of high-paying jobs, use existing businesses and create a surge of new, Alaska-grown companies.

The Alaska gas line has been a dream ever since the Prudhoe Bay discovery well hit oil and gas. The low price of gas made any gasline uneconomical. Gov. Walter Hickel and Gov. Bill Egan were visionaries in how Alaska's natural gas would benefit future generations and worked tirelessly for its development.

As governor between 1994 and 2002, I was fortunate to take the natural gas project several steps closer to reality by introducing the Stranded Gas Act, promoting Asian markets and developing an action plan with the help of a diversified group of state leaders.

Since 2002, there has been a significant structural change in worldwide natural gas supply and demand, with the price of natural gas almost five times its previous level. This change puts Alaska in the driver's seat. Projects previously uneconomical are now considered extraordinarily profitable.

As Alaska's gas-line prospects have improved, many Alaskans - myself included - are alarmed and disturbed by the direction of the Murkowski administration. For over two years, negotiations have been secret and sole-source with the oil companies to the exclusion of other legitimate proposals. The state appears to be offering unnecessary lucrative incentives, and, by their own admission, are addressing other fiscal matters, such as oil taxation, which is forbidden by law. Attempting to bind future legislatures in fiscal matters, in the opinion of many legal experts, is clearly unconstitutional.

The Murkowski administration justifies this inappropriate process by claiming it is allowed by the Stranded Gas Act and that incentives must be offered by the state to entice the producers to build a gas line. While this bogus claim is not supported by the economic facts, its real damage is that it works against the best interests of Alaskans.

Alaska does not have to go, hat in hand, to plead with the producers by offering costly incentives to develop our gas.

A fair and straightforward approach would involve the following steps.

• Keep negotiations open - not secret. Clearly stated objectives and requirements for a proposal, supported by the public, are essential.

• Request proposals from all interested parties, with a time deadline. We should include the producers, the Alaska Port Authority, Mid-America, Sempra, TransCanada - any proposal from any qualified bidder. Let them compete in developing the best deal for Alaska.

• Consider an Alaska majority interest in the gas line. As a regulated facility, the gas line should be able to realize a 14 to 17 percent return, and would have a life of 75 to 100 years. We should perform the due diligence necessary for considering such an investment.

• Set the minimum Alaska requirements for any legitimate proposal. These include requirements for Alaska-hire and job training, a meaningful project labor agreement, using Alaska businesses, specific time commitments to build and complete the project, and access to adequate gas for residential and industrial use in Alaska.

• Provide adequate gas for in-state job creation through development of LNG and using gas liquids for manufacturing.