Feasibility of Developing Gas Export Capability by Constructing
a Gas Pipeline from the North Slope
has vast resources of natural gas on its North Slope, estimated
at 24 trillion cubic feet (tcf) at Prudhoe Bay, 8 tcf at Point
Thompson, and other discovered sources of 35 tcf. Geologists estimate
a total of 100 tcf of gas on the Alaska North Slope. According
to Roger Marks, a petroleum economist with the Alaska Department
of Revenue, a gas pipeline to the Lower 48 with capacity to move
4.5 billion cubic feet (bcf) per day could provide between $400
million and $1 billion a year in public revenue for almost 60
years. At the low end,$400 million in public revenues assume a
market price of $2/mmbtu (millions of btus), property taxes of
$118 million, no royalty payments, severance taxes of $106 million
and state corporate income taxes of $190 million. The $1 billion
high scenario assumes a $4/mmbtu market price, property taxes
of $118 million, royalties of $236 million, severance taxes of
$163 million and state corporate income taxes of $470 million.
it is of course not quite as cut and dried as that. Exporting
gas from the Alaska North Slope to the Lower 48 or Pacific Rim
markets is a project of enormous dimensions and also enormous
risks. And there are some 'what ifs.'
if the price of natural gas drops? What if cheaper forms of energy
become available? What if there are significant cost overruns
in construction of a gas pipeline?
of natural gas to the Midwest will require a pipeline that could
cost $20 billion to build. Investors in the pipeline will require
a tariff to be paid to use their pipeline whether or not natural
gas is shipped through it. The tariff insures recovery of the
cost of building the pipeline, pays off any debt incurred, and
allows a rate of return on their investment.
natural gas pipeline has a higher profitability hurdle to overcome
compared to the existing Trans-Alaska pipeline that transports
oil from the North Slope to Valdez, Alaska. The pipeline tariff
for North Slope oil moving through the Trans-Alaska Pipeline is
only about 25 percent of $20 per barrel oil. Comparatively, the
pipeline tariff for natural gas is estimated at 75 percent of
the value of the gas when it comes out of the pipeline, or $3
of the current gas price of $4 per million cubic feet (mcf).
an Alaska North Slope natural gas pipeline were to be constructed
through Canada and into the Midwest, potential market competition
for Alaska gas includes natural gas from the Gulf of Mexico, liquefied
natural gas (LNG) from both the Atlantic and Pacific Basins as
well as coal-bed methane and any other new and cheaper energy
sources that become technologically feasible. This market is complex
and highly competitive.
the Roger Marks, Alaska Department of Revenue, a natural gas pipeline
from Alaska to the lower 48 will only be built if:
and investors think Lower 48 gas prices will be high enough
in future years so that North Slope gas will be profitable
- the state
and/or federal governments reduce the project risk either through
price supports or tax credits that favor natural gas development.
for marketing Alaska's North Slope natural gas is to build a pipeline
from the North Slope to tidewater in Alaska--Valdez, for example.
After being transported to Valdez, the natural gas would be liquefied
and shipped by LNG tanker to Pacific Rim markets. The Department
of Revenue estimates public revenues under the LNG scenario (assuming
production of 2 bcf/day) at $293 million and costs at $12 billion.
Assumptions include a market price of $3.50/mmbtu, property taxes
of $132 million, no royalties, severance taxes of $45 million
and state corporate income tax of $116 million.
with this plan is
that the market value of the natural gas must be sufficient to
cover the cost of moving it 800 miles by pipeline to tidewater
as well as all other production and development costs. There are
plentiful supplies of natural gas closer to tidewater around the
Pacific Rim with which Alaska's natural gas would be competing
for market share.
2002, over 60 percent of Alaska voters approved a ballot measure
to enable the State of Alaska to create the Alaska Natural Gas
Development Authority for the purpose of selling gas and building,
owning and operating a natural gas pipeline for LNG export. It
is not clear whether the Alaska Natural Gas Development Authority
will reduce risks and, like any other developer, the Alaska Natural
Gas Development Authority will have to convince potential investors
that such a pipeline project will provide a sufficient return
on their investment.
So, is a natural
gas pipeline from Alaska's North Slope feasible? Apparently it
is technically feasible. Economically? Well, it just depends.
Gas Pipeline web site provides a constantly updated list of
news articles related to Arctic natural gas pipelines.