A Comprehensive Plan - What is Necessary

In May of this year Bud Fackrell, Denali Pipeline Project President announced that “Denali is ending its efforts (to continue the pipeline project) because of a lack of customer support.” This was not a surprising outcome. The pipeline project, without a more comprehensive strategy, will not proceed ahead. The price of gas in the lower-48, current oil and gas taxes and the uncertainty of those taxes in the future, and the lack of a long term plan to finance state government, all contribute to decisions by the shippers of the gas not to commit their gas to a pipeline.


Some will say that TransCanada’s Alaska Pipeline Project is still moving forward, but the only reason it is still moving forward is because the State of Alaska is financing 90% of the costs from the open season until the filing for the FERC certificate. TransCanada’s project will flounder as well once the FERC does not award a certificate due to the lack of shippers for the gas. Gas pipelines aren’t awarded certificates and pipelines don’t get built if they do not have gas to ship.

What is necessary for any gas pipeline to proceed is a comprehensive plan that changes the playing field, a plan that assures a reasonable tax, a plan that provides a modicum of certainty that the tax will not change every time the state needs additional revenue to balance its budget, a plan that shows the industry the state can manage its short-term capital and operating budgets in a way that shows restraint/discipline/understanding of their impact on the long term, a plan that includes a long-term fiscal plan that is not dependent on the oil and gas industry to balance its budget. What the state needs is a plan that changes the economics of the gas pipeline. It is time for a more comprehensive approach to Alaska’s future.

Some have advocated the state should build a large diameter gas pipeline through Canada. Some believe LNG will save Alaska through a large diameter line to Valdez. Some believe a large gas pipeline project will never get built and that Alaska should focus on a smaller diameter in-state gas pipeline. Some tout “Alaska’s gas for Alaskans” like it is some creed or motto that will automatically make whatever project they are supporting economic. The problem with all of these ideas is that without a more comprehensive picture, none of them will be economic, and none of them will ever get built.

There are at least eight issues that must be addressed in a comprehensive manner in order to move Alaska forward in bringing Alaska’s gas to market. Every proposal to bring Alaska’s gas to market should be required address all eight issues.

1) Fair oil and gas taxes

2) Long term fiscal plan

3) Short term annual capital and operating budgets

4) The permanent fund, its present and future use

5) Gas pipeline economics

6) Exploration and filling TAPS and the Gas Pipeline

7) Fiscal certainty/stable oil and gas tax environment

8) Point Thomson (hopefully this will be resolved soon by the State of Alaska and the Point Thomson owners)

Over the next several weeks I will propose alternatives that will address all eight issues. I have written previously about most of them, but I have a few additional ideas I would like to place on the table in advance of the October 18th Alaska Gas Pipeline Forum.