Bob Swensen - Instate Gas Czar

Governor Parnell recently appointed Bob Swenson to lead the effort to review the viability of an in-state natural gas pipeline. Bob is an excellent choice. He is level-headed and rational in his approach to problems. I am not as optimistic about the prospects of an in-state line. What I expect Bob to find is a lot of energy and desire to bring North Slope gas to Fairbanks and the Cook Inlet without regard to the short-term or long-term costs of the project.

Several studies have been done in the past comparing a small in-state line to other alternatives, and although those studies have been completed a number of years ago the economics of the alternative proposals haven't changed significantly since those studies were completed.

Along the way Bob will discover a group of Alaskans that believe that "It's Alaska's gas, and we should use it to benefit Alaskans." By that they mean that cheap Alaska North Slope gas should be transported to Fairbanks and Cook Inlet and used to reduce the cost of energy to local users.

This is a nice thought, but economics don't follow their dream. Alaska North Slope gas is not cheap either to purchase or to transport. Bob will find out that it is cheaper to import LNG and store gas in Cook Inlet than it is to build a small gas line from the North Slope to Cook Inlet. If an Alaska Natrual Gas Pipeline is never built, it will be cheaper for Cook Inlet residents to pay for imported LNG than to pay for gas shipped through a small gas line from the North Slope. Those that want "Alaska's gas for Alaskans" are going to have to argue that they would rather pay more for their gas than use that cheaper imported gas. Their new mantra should be "Buy local, pay more." They will probably get a few die hard followers to support them, but most Alaskans follow their pocket books not emotions when making economic decisions.

Assuming an eventual success for an Alaska Natural Gas Pipeline, it will be cheaper to transport gas in the "big line" to Delta and build small spur lines to Fairbanks and the Cook Inlet than it is to build a small line from the North Slope to service those communities. If the State or its contractor builds a small line to Cook Inlet, the buyers of that gas will pay a greater price for that gas than the gas that is shipped down through the big line. The benefit of a small line is Cook Inlet gets gas a few years earlier and pays a premium for that gas. Those that agree to purchase that gas will pay that premium for up to 20 years. Those that decide to wait a few years will purchase the cheaper gas the flows from the "big line."

To recap, the following are the results I expect Bob to find once he completes his review and analysis.

It is cheaper to import LNG than it is to transport gas from the North Slope to Cook Inlet in a small gas pipeline.

It is cheaper to transport gas in the Alaska Natural Gas Pipeline with spur lines to Fairbanks and Cook Inlet than it is to build a small line from the North Slope.

For those that believe "Alaska's gas should be used to benefit Alaskans," their mantra will only earn them the right to pay more for their gas than any of the other viable alternatives.