The Works of Joe LaRocca

November 12, 1976, The All-Alaska Weekly

Law passed to speed up gas line authorization

A little-publicized provision of the Alaska gas pipeline act signed into law recently by President Ford would enable the builders of a gas pipeline to draw on federal funds to finance its construction if they can't obtain enough money from the private sector.

The act - better-known for features designed to speed up the authorization and construction of a gas pipeline and allow the State of Alaska to withdraw its royalty gas for use within the state -also contains a number of other major provisions which have received little or no public discussion. It is only the second law in U.S. history passed by congress to authorize the construction of a pipeline. The other was the Trans Alaska Oil Pipeline Act of 1973.
It permits, for example, the export of Alaska's North Slope gas to Mexico and Canada, and authorizes the president to approve exports to foreign countries if that would not diminish the quantity or quality, nor increase the cost of, energy to U.S. consumers.
The act also directs the U.S. Attorney General to undertake a thorough study of anti-trust issues and problems relating to the -production and transportation of Alaska natural gas, and submit its findings and recommendations to Congress by next Spring.
And it requires the President to furnish Congress with an analysis of the financibility of a transportation system for North -Slope natural gas. Unless the president finds in his report that he reasonably anticipates that the system he favors can be privately financed, constructed and operated, he must also include his recommendations concerning the "use of existing Federal funding authority or the need for new federal financing authority."
This requirement conveys the concern felt in some quarters that the enormous cost escalations experienced in the construction of the trans Alaska oil pipeline, now approaching $8 billion, may be repeated in the construction of the gas system, whose initial estimates range from $4 to $8 billion. Any escalation in its cost could drive the project beyond the financial capability of the private sector, and require governmental assistance.
Another curious provision which found its way into the gas pipeline act is embodied in a section which requires the president to determine and report to Congress on what procedures are necessary to guarantee that North Slope crude oil is equitably allocated to the so-called Northern Tier States. These include Washington, Oregon, Idaho, Montana, N. Dakota, Minnesota, Michigan, Wisconsin, Illinois, Indiana and Ohio. This section was written into the gas act at the insistence of congressmen from those states who discovered belatedly that earlier industry assurances that construction of the trans Alaska oil pipeline would not result in a excess of oil on the U.S. West Coast, were false.
These congressmen reluctantly supported the trans Alaska oil line in 1973 rather than the proposed trans Canada line because of industry claims that the Alaska line could be completed more quickly, and reduce the nation's. dependence on imported oil sooner during the emerging "energy crisis" of 1973.

Now they have learned that there will be a large surplus of North Slope oil on the West Coast which may be exported to Japan, and they are now seeking to devise a means of transporting the excess crude to their own energy-short states instead. Their support for the gas pipeline act was dependent upon the inclusion of this section in it.
Among other things, the so-called "procedural act" directs the president to compete his study and report on a Northern Tier oil transportation system within six months after the effective date of the gas act. It also requires all federal officers and agencies to expedite any applications and requests relating to the construction of a transportation system designed to carry North Slope crude oil to the Northern Tier states.
Officially entitled the "Alaska Natural Gas Transportation Act of 1976," the new federal law is more commonly called the "procedural act" because it spells out in precise terms the administrative process and timetable which are to be followed in selecting and authorizing a gas transportation system for North Slope gas. Now that the president has signed the act, the Federal Power Commission (FPC) has until May 1 to submit its recommendations to him on which of three proposed routes, if any, the FPC believes should be built, regardless of whether the Canadian government has authorized the construction of a pipeline system to transport Alaska's natural gas across its territory.
The FPC's recommendation must contain a description of the nature and route of the system it sanctions and designate which applicant should construct and operate it. Which ever system the FPC recommends must include provisions for any new facilities necessary to assure "direct pipeline delivery of Alaska natural gas contemporaneously to points east and west" of the U.S. Rocky mountains. Its recommendations must be accompanied by a public report explaining the basis for its choice, and discussing a series of factors relating to each transportation system that was considered. These include:
- the estimated volumes of Alaska natural gas which would be available to each region of the U.S., along with the transportation cost, delivered price, and effects on each region's projected gas supply and demand, by year through 1997;
- the extent to which the system provides a means of transporting other natural resources and commodities to lower U.S. markets;
- safety and efficiency in design and operation of the system, along with the potential for interruption in the delivery of gas;
- construction schedules, and the possibility of delays in achieving them;
- the extent of both proven and probable reserves in Alaska, and their
deliverability, by year through 1997;
- the cost and capability for expanding the system to carry volumes of gas which exceed initial system capacity, and
- an estimate of capital and operating costs, and possible overruns.
The FPC must also submit to the president along with its report, an Environmental Impact Statement (EIS) on the recommended system, and another EIS it may have prepared on any alternate system it considered. Between now and its May 1 deadline, the FPC may continue to hear arguments and testimony on behalf of, or in opposition to, any of the pipeline systems under consideration. During the following two months ending on July 1, 1977, any interested party, including any federal agency, state or municipality can submit written comments to the president concerning the FPC's recommendations and report.
During the same period, the federal Council on Environmental Quality (CEQ) must hold public hearings to take oral and written testimony on the FPC's recommendations and report, and submit to the president by July 1 its findings concerning the sufficiency of the FPC's environmental impact statement.

Anytime after July 1, but no later than Sept. 1, the president is required to issue his decision on whether the FPC's recommended system, or any other one, should be approved. There is, however, a provision for extending the president's decisional deadline by up to 90 days if an EIS has not been prepared for the system he chooses; if he feels the EIS for the system he has chosen is inadequate, or if additional time is needed to enable him to reach a "sound decision."
While it's assumed that the president will select some pipeline system, the act also gives him the option of deciding that no system should be built. If he decides to designate a system for approval, the president must at the same time describe the route, specify which applicant should build the system, identify what existing laws must be waived to expedite construction of the system, and appoint an officer or board to serve as "Federal Inspector of Construction," subject to the advice and consent of the Senate.
The federal inspector, a cabinet-level official, is empowered to establish a joint surveillance agreement with the state of Alaska to monitor gas pipeline construction, enforce compliance with the terms of any permits, certificates or other authorizations issued to the pipeline builders, and oversee actions designed to assure timely completion of construction schedules and to achieve quality of construction, cost control, safety and environmental protections.
Following the president's decision, which may come on or before Sept. 1, or as late as Dec. 1, of 1977, Congress has given itself 60 days to pass a joint resolution approving the president's decision. If Congress has not acted by the end of 60 days, or if one or both houses has defeated the resolution, the president has another 30 days to submit an alternate decision which must differ "in material respect" from his previous
one.
Congress has also provided in the act means of preventing its members and committees from delaying action on the resolution encompassing the president's decision. If any committee to which the resolution has been referred fails to report it out within 30 days, the measure can be discharged from committee, with debate on a motion-to-discharge limited to one hour.
After the president's decision has been submitted to the congress, both the FPC and the CEQ have 20 days to file reports with Congress containing their comments on the president's decision. Both agencies, as well a the congressional committees considering the bill, must hold public hearings on the various subsidiary reports dealing mainly with environmental considerations.
After the resolution has been moved or discharged to the floor of either the House or Senate, any motion to consider it is not debatable. Once under consideration, debate on the resolution itself is limited to ten hours, divided equally between those favoring and those opposing it. The resolution cannot be amended, re-committed to committee nor - once a vote on it has been taken - reconsidered. The resolution must contain a finding by the president that the gas transportation system he approves is fully in compliance with the National Environmental Policy Act of 1969.
Once the resolution is approved, any permits, certificates, rights-of-way or other authorizations needed to undertake construction of the pipeline system must be issued "at the earliest practicable date." None of the terms or conditions of these authorizations may include provisions which would "compel a change in the basic nature and general route of the approved transportation system," nor prevent nor impair” its "expeditious construction and initial operation."
Under the act, only two types of legal claims are subject to remedy in the courts: one, that the act itself is invalid on constitutional grounds, and two: that actions authorized by it infringe on constitutional rights or are beyond the authority of statutory law. The validity of the act may be challenged only within 60 days after the president submits his decision on the selection of a gas transportation system to the Congress.
And claims that actions taken under the act deny or infringe upon constitutional rights must be raised within 60 days after the action has occurred. Any court proceeding under the act must be given precedence over all other matters on the docket, and completed within 90 days. Violation of the act, or non-compliance with any rules or regulations stemming from it - including the terms and conditions of permits, rights-of-way or other authorizations granted pursuant to it - are subject to civil action, including court injunctions or a civil penalty of $25,000 for each day of non-compliance.
The act includes a common carrier provision guaranteeing any shipper of North Slope natural gas access to the transportation system under the same rates and conditions which apply to any other shipper, including the system's owner companies. The same section contains the provision authorizing the State of Alaska "to ship its royalty gas on the approved system for use within Alaska and to the extent its contracts for the sale of gas so provide, to withdraw such gas from the interstate market for use within Alaska."
Lastly, there is a civil rights provision requiring federal operatives to take whatever action is necessary to assure that no one is excluded from employment on the transportation system because of minority traits.

March 18, 1977 - Politics endanger state's royalty oil

The Hammond administration's single-minded preoccupation during the past year with its politically-inspired scheme to sell all of the state's royalty gas from Prudhoe Bay has indefinitely deprived the state of its right to take its royalty oil for in-state use, or any other purpose.

Unless the North Slope producers voluntarily agree to foreshorten the six-month notice period provided in the state's oil and gas lease contracts for taking its royalty oil in-kind, the state is in the awkward position of having both forfeited its ability to take the oil in-kind and committed it to interstate commerce, from whence it shall never return.

These unfortunate circumstances arise from obscure regulations issued by the Federal Energy Administration during the Mideast oil embargo of 1973. Among other things, they prohibit suppliers of crude from terminating any contracts with purchasers of the crude without the consent of the purchasers and their buyers further down the line.

Moreover, FEA administrative law has interpreted the taking of royalty oil in value as a first sale by the state to the producer, which means that it cannot later be taken in kind, without the express consent of the producer.

When the effect of the FEA regulations under the Mandatory Petroleum Allocation Act initially came to light here recently with respect to the state's royalty oil, it was assumed that only the royalty oil not taken in-kind during the required six-month notice period provided in the lease would be forfeited by the state.

But more recent information now suggests that the producers' claim to royalty oil not taken in-kind - as a result of the state's failure to give timely notice - can be automatically extended to include all of the state's royalty share of incremental production. This would rise to 150,000 bpd of royalty oil as the initial flow of oil through the trans-Alaska pipeline is increased in accordance with the leaseholder's production schedule and the pipeline's operational timetable.

In short, the producer's authority to keep the 70,000 bpd royalty oil which the state has already forfeited, based on initial total production of 600,000 bpd, can be unilaterally extended by the producers to claim the 150,000 bpd or more of the state's royalty share stemming from total daily production of 1.2 million, and beyond. as production volumes rise.

Because the administration and the legislature have allowed themselves to be stampeded by special interests into devoting their efforts exclusively to the sale of Prudhoe Bay royalty gas for political leverage to the exclusion of other equally important concerns, the state now faces the real prospect of losing both its royalty oil and gas to export markets.

This double dilemma results from the state's misplaced focus upon the royalty gas question, based on the dubious - and rapidly eroding - assumption that commitment of the gas at this time would politically facilitate the selection of El Paso's all-Alaska gas pipe - line project by federal authorities who hold jurisdiction over more than half the proposed pipeline's right-of-way. Equal or greater attention should have been directed to the question of the disposition of the state's royalty oil at least a year earlier.

Oil production at Prudhoe Bay is imminent, perhaps three to four months away, in test volumes. The production of natural gas there, on the other hand, is four to six years removed, or longer. Thus the state is in the absurd position of having committed its royalty gas too soon, and its royalty oil too late, simply because it failed to observe - for purely political reasons - the elementary rule that first things come first. These reverse miscalculations both have the same dire result: they preclude the state from being able to
claim either its royalty oil or gas for in-state use, unless the FEA revokes the rule.

It's possible that the state may be able to negotiate a trade-off agreement with the producers whereby they would consent to a belated in-kind taking of its royalty oil by the state. But one can be sure that the concessions the state must make in such an exchange won't come cheaply.

Before he left for Washington, D.C. last week, outgoing Commissioner of Natural Resources Guy Martin, who has been the state's chief functionary in the execution of the royalty gas fiasco, wrote letters to all of the North Slope producers asking them if they would voluntarily foreshorten from six months to one the notice period which the state must observe in taking its royalty oil in-kind.

At the same time, Martin asked the chief spokesman for the North Slope producers in the on-going unit operating agreement negotiations to seek approval from the producers for the insertion of a similar provision in the pending unit agreement.

At this writing, Martin's successor, acting Commissioner Jack Roderick, reported that so far only two of the North Slope producers have responded to Martin's request. One, Phillips Oil, said it had already committed the state's royalty oil from its share of production to a refiner, while Amerada Hess said it would have a detailed response shortly. BP/Sohio, Arco and Exxon have not responded to date.

3-30-77 Governor Hammond’s gas sale blunder backfires

Although the magnitude of its folly has not yet been generally recognized by the public-at-large, the Hammond administration's abortive scheme to exploit the state's enormously valuable royalty share of natural gas production from Prudhoe Bay for purely political gain ironically ranks at the top of the governor's numerous political blunders to date.
A further irony is that the scheme's principal architect, former Commissioner of Natural Resources Guy Martin, has not only escaped the ill consequences of his role as the leading, most articulate advocate of the foredoomed contracts, dumping them unceremoniously into the laps of his former boss and colleagues; he has at the same time managed to parley that and other dubious achievements of his brief state tenure into a plush and prestigious federal sinecure for himself as an assistant secretary in the U.S. Interior Department.
For it was Martin who almost single-handedly devised and executed the Hammond administration's irrational plot to sell all of the state's surplus royalty gas from Prudhoe Bay to three major pipeline
companies in exchange for their political support on behalf of the El Paso Co.'s now-defunct proposal for an All Alaska gas pipeline, which Hammond mistakenly perceived as the routing alternative most likely to
enhance his re-election prospects in 1978, and the one to which he therefore threw his wholehearted support.
Now that both the El Paso project and the royalty gas sale contracts have exploded in his face, Hammond faces the unenviable task of attempting to defend his past actions, while at the same time acknowledging their failure by taking steps to repair or minimize the extensive damage they have wrought upon both his personal political aspirations and the integrity of state public policy. While Guy Martin deserves most of the credit for misleading Hammond along the path of political fatuity, he doesn't deserve it all.
Some must be reserved to Hammond's other leading policy advisor, Attorney General Av Gross, a nice guy, but an inept attorney general whose appointment to that position eloquently pleads the argument
in favor of elected attorneys general by demonstrating the hazards of substituting for them political flunkies.
More specifically, one of the lesser, but readily apparent adverse effects of Hammond's politically-inspired proposal to sell the state's royalty gas to El Paso, Tenneco and Southern Natural Gas was its wholesale
disruption of the 1977 legislative session, which was almost exclusively pre-occupied for more than a month with matters relating directly to the proposed gas sale contracts. If there is a single reason why the 1977
legislature broke all records for the length of a First Session it was, of course, its exhaustive preoccupation with the gas contracts, whose imminent dissolution concurrent with the predictable demise of the El Paso project accentuates both their inherent futility, and the valuable time lost and motion wasted which might have been spent more productively on truly urgent and viable legislative matters.
Not to mention the thousands of costly man-hours which industry executives, administration aides and officials, as well as the State Royalty Oil and Gas Advisory Development Board, devoted to the lengthy
negotiations and reparations leading to the ultimately worthless gas sale contracts.

            Even more harmful to the interests of Alaskans was the Hammond administration's inexcusable - bordering on criminal - neglect of the state's royalty oil from Prudhoe Bay. In his anxiety to cement his 1978 re-election prospects, Hammond ordered a crash program in early 1976 designed to commit the state's royalty gas, worth billions, to bidders who, as a condition of securing the gas, would agree to lobby on behalf of the El Paso pipe-line project, despite the fact that the state's royalty oil from Prudhoe Bay would be produced years before its gas would become available.
            As a direct consequence of its premature preoccupation with the politically-conceived royalty gas deals, the Hammond administration ignored the critical need to provide for the timely disposal of the state's
valuable royalty oil concurrent with the completion of the trans-Alaska oil pipeline, and is even now up to a year away from making the state's royalty oil available for processing and use within the state.
            Moreover, Hammond's delay in claiming the state's royalty oil in-kind led to the still-imminent danger that some or all of the royalty oil may be committed irrevocably to out-of-state use under the Federal Energy Administration's crude allocation regulations, thus making it unavailable for in-state use.

November 26, 1976, The All-Alaska Weekly

What royalty gas agreement?

By JOE LaROCCA

Last week, in a half-hour statewide address, Governor Jay Hammond announced his proposal to sell most of the state's royalty share of prospective North Slope natural gas to three major pipeline transmission
companies, El Paso Natural Gas, Tenneco and Southern Natural Gas.

There's an old speechwriter's rule that if you say something artfully, it doesn't much matter what you say. Hammond's speech hewed closely to that rule. It was one of his more stylish speeches, which suggests
that someone else wrote it. Its high style may have blinded casual observers to its dearth of substance.

All the weapons of the propagandist's arsenal were brought to bear. His speech was riddled with subtle misrepresentations, misleading nonsequiters, distortions, half-truths, demagoguery and outright - there is no other word for it - lies. For example, the governor said that in arriving at his decision to support El Paso's proposal for a trans Alaska gas pipeline, "It would have been easy to simply hop on to the all-Alaska bandwagon at the outset of my administration, since that route was obviously most popular with most Alaskans." Instead," he said, "we had to study the facts and come to an unbiased, supportable conclusion.

“ I therefore created a high-level group to study the proposed alternate routes for the pipeline," which ultimately concluded that the El Paso route "would bring the most greatest benefits to the state in the long run." What he neglected to say was that it would also bring him the most votes in his upcoming bid for gubernatorial reelection.

A ranking sub-cabinet staff member close to the discussions told me later that the governor's "high-level" study group privately met three times briefly, only to hear pitches from the proponents of the three pipeline
routes, with no input from opponents or critics. Its creation was a charade designed solely to lend credibility to a ritual agreement endorsing a pre-ordained political decision to support the El Paso route in order to serve Hammond's reelection aspirations, the source said.

A major advantage of the El Paso route, the governor said, is its potential for "maximum use of the existing (oil) pipeline corridor (which) permits beneficial usage of the enormous amount of environmental,
construction and engineering data gathered in the building of the trans Alaska (oil) pipeline." But he ignored the fact that the same rationale applies, in spades, to Northwest Pipeline's proposed Alcan route, which would not only follow the oil pipeline as far as Delta Junction, but would also parallel the Alaska Highway and the Haines petroleum products pipeline corridor through Alaska and Canada, unlike the final 100 miles or so of the proposed El Paso line, which would traverse relatively untouched terrain in Alaska.

Further, the governor said, "The trans Alaska route will also provide the maximum revenue for the state primarily because of the large property tax base it would create within our borders.'' But neither the governor nor his alleged "study" group and costly consultants have yet quantified the ultimate costs of the El Paso route to include the necessary development or retrofitting of a system for distributing the gas from West Coast seaports eastward to distant markets in the U.S. south, and their impact upon the wellhead value on which the state's severance tax revenues depend.

Nor had they included the cost of building a new fleet of cryogenic, or refrigerated tankers to carry the liquefied gas from a southern Alaska port to receiving sites on the U.S. West or Gulf Coasts. Under Hammond's proposal, the state would buy, own and operate the liquefied gas ocean tankers, the cost of which has also not been calculated.

Thus, the governor's statement that the El Paso route would maximize revenues to the state is, at best, insupportable and, at worst, untrue. Contrary to his assertions, the El Paso line is not now demonstrably superior to the Alcan route, from either an economic or environmental standpoint, but is more likely inferior to it.

Hammond said that as soon as the third pipeline route proposal advanced by Northwest Pipeline surfaced "we directed the same attention to the Alcan route as we had to the two previous route proposals." Wrong
again.

As I've pointed out before, shortly after Northwest first announced last Spring that it might apply to the Federal Power Commission for an Alcan routing, the governor was quoted by the Anchorage Times as saying that "the state has done its own preliminary study of a natural gas pipeline route down the Alaska Highway. Based on the available information," he said, "our indications are that it is not economically feasible."

In fact, no study of the Alcan route had been undertaken by anyone in his administration, various Hammond appointees - including his press secretary - later admitted to me when my own research could find no
evidence of one. The governor had concocted an illusory study out of thin air.

It wasn't until later, after substantial support for Northwest's Alcan route had materialized both inside and outside Alaska, that public opinion prodded the Hammond administration into undertaking a study of that
alternative. Since then, the governor has been forced to re-trench considerably, and he now wants "to make it clear, however, that the Alcan proposal is a good second choice."

That sounds suspiciously like a knee-jerk response to U.S. Senator Ted Stevens' recent admonition to Alaskans not to bad-mouth the Alcan proposal, in the event the federal government rejects El Paso's route, thus compelling Alaskans to support the Alcan route as an alternative to the Arctic Gas' proposed trans Canada route, which is political anathema to the governor and his fellow chauvinists.

The governor's lengthy justification on the air of his decision to support the El Paso route was a preamble to his detailed rationale supporting his ensuing decision to sell most of the state's royalty gas from Prudhoe Bay to El Paso, Tenneco and Southern Natural Gas.

The proposed sale, which requires legislative approval, was mainly a means of gaining political support at the federal level through lobbying by the three companies for the El Paso route, he said. Another
"important reason why we should move now on a sale," he added, relates to the amendment recently passed by Congress which purports to allow the state to withdraw its royalty gas from whichever pipeline is built for domestic and industrial use within the state, if needed. The Congress had granted no other state that privilege.

Without divulging his source nor confirming its authenticity, Hammond told his statewide audience he has "been informed that an attempt will be made next year in Congress to repeal" that provision, thus
making it "prudent now to conclude an arrangement for sale of the gas while the law is fully in effect."

That's rumor-mongering of the worst sort, which raises the suspicion that the governor may be floating a red herring in order to create a false sense of urgency. There was absolutely no suggestion during the final
debate in Congress on the amendment, of any opposition to it. Alaskans should demand to know the source of the governor's "information," so that they can evaluate its validity. Hammond, who often upbraids the news
media for utilizing anonymous sources, rendered himself susceptible to his own criticism.

Hammond said his proposed gas sale "appears to have widespread support throughout the state," and that "No firm voice has been raised in opposition to such a concept for many months." While there is no opposition to the "concept" of a sale of the state's royalty gas, that obviously doesn't mean that everyone approves of the governor's current proposal to sell it in accordance with his specifications. In fact, there is widespread and vocal opposition to it. He noted that the proposed sale agreements are "a tentative contract" which must be submitted first to the state royalty board, and then to the legislature for approval, thus implying that the board's approval may be in doubt. In fact, the board - which was meeting in Juneau on Monday to consider the governor's proposed sale - was sure to rubber-stamp it.

Indeed, one member of the board accompanied Natural Resources Commissioner Guy Martin on a quiet overnight trip to Fairbanks last week to attempt to persuade recently-appointed board member Andy Warwick of Fairbanks of the merits of the proposed sale and support it. Warwick, a former state
legislator and commissioner of administration under Hammond has publicly criticized the governor's proposal

Hammond said the contract "builds in a clear incentive" for the three purchasers to support the El Paso line "by providing that the sale will be terminated if the route supported by the state is not the one eventually
selected for transportation of the gas."

But at the same time, he said that "If the state decides at some future time to support a different route than the trans Alaska route, the buyer under the contract will have the option of supporting this new route or in the alternative, losing its right to the gas.

As I've noted previously, it matters little to the three purchasers - particularly Tenneco and Southern Natural Gas, who together would receive three-fourths of the state's royalty gas from Prudhoe Bay - which
pipeline route is selected, once they've obtained a commitment from the State for its royalty gas, which is their major objective. They would have few, if any, qualms about switching their support to whichever pipeline
route is authorized by the federal government.

But the governor's most salient misrepresentation of this so-called royalty gas sale agreement was his failure to note that it's so riddled with opt-out provisions that any party to it can abandon it with impunity under virtually any set of contrived circumstances.

November 19, 1976, All-Alaska Weekly

El Paso, Tenneco and Southern Gas to Get Royalty Gas

Gov. Jay Hammond's unsurprising announcement last weekend that his administration had negotiated agreements to sell the state's North Slope royalty gas to three companies in exchange for their support of an All Alaska gas pipeline route, represented a triumph of public relations over rational public policy.

The hoopla that attended his announcement effectively concealed from most observers the fact that, with the stroke of a pen, Hammond signed away a precious state asset and got nothing, or less, in return. Fortunately, the buck doesn't stop at Hammond's desk. The agreements are subject to legislative approval, which guarantees a more public - perhaps even sane - approach to the disposal of the state's Prudhoe Bay royalty gas.

Hammond's capitulation to the overt pressures of vocal and influential special interests was painfully reminiscent of the pre-OPEC era when gullible Middle East monarchs gleefully collected baubles from shrewd entrepreneurs in exchange for oil concessions worth billions.

There are at least two major reasons why Hammond's artless dealings with the three tentative purchasers of the state's royalty gas - were they final - would profitlessly deprive the state and the majority of its citizens of an enormously valuable asset. First, his premature commitment of a portion of the gas to the El Paso Co. renders that company's plan for an All Alaska pipe-line academic, since its real - if covert - motive was mainly to nail down a substantial share of North Slope natural gas.

Although El Paso will continue to pursue its pipeline proposal publicly in order to maintain the appearance of a good faith effort on behalf of an All Alaska line, if the legislature ratifies the governor's agreements it would matter little to El Paso whether its own or a competing pipeline route is certified by the federal government.

It's also irrelevant to the other two purchasers - Tenneco and Southern Natural Gas - who agreed to support and lobby for the El Paso proposal in exchange for a share of the state's royalty gas - which pipeline system is built, since they too would be guaranteed a major share. But in order to appear to live up to their end of the bargain, they will lobby overtly on behalf of El Paso's proposed All Alaska pipeline. Under the agreements, all three could retain their rights to the state's royalty gas if a route other than El Paso's is selected, simply by switching their support to whichever project wins federal approval.

Secondly, the national political realities - reinforced by President-elect Jimmy Carter's recent victory - guarantee the certification by the federal government of Northwest Pipeline's proposed Alcan route, now the only politically-viable alternative to the trans Canada route proposed by Arctic Gas.

The Arctic Gas proposal has been effectively foreclosed by a series of adverse events, which include the Berger Inquiry's recent staff report concluding that the resolution of native land claims in Canada - 10 to 15 years in the future - is a prerequisite to the construction of any pipeline through the Canadian arctic.

While that portion of the staff report was widely-publicized by Alaska's pro-EI Paso news media and political establishment, little was said about the Berger staff's concomitant conclusion that Northwest's Alcan proposal would not adversely conflict with Canadian natives' unsettled land claims.

And to the extent that the claims issue is a factor in the certification of the Alcan route, Northwest scored a shrewd coup when it captured Morris Thompson as its Alaska project director, whose Alaska native origins and recent experience as head of the U.S. Bureau of Indian Affairs in Washington provide a strategic advantage.

Arctic Gas' cause has been further prejudiced by the unexpected failure of explorationists to find sufficiently commercial quantities of gas in the Canadian arctic, upon which the economic feasibility of Arctic Gas' proposal depended.

These critical factors, which preclude any need for the State to commit its royalty gas to anyone - and which were effectively masked by yet another administration "study" purporting to establish the economic superiority by El Paso's proposal - were conveniently overlooked or ignored by the governor in the interests of furthering his recently-disclosed intentions to run for re-election in 1978, which he has loudly denied
for the past couple years.

From The All-Alaska Weekly, September 5, 1980

Interior Dept. Calls for Major

Changes in Gas Pipeline Route

By JOE LaROCCA

Responding to widespread criticism that the sponsors of the proposed $23 billion Alaska Highway Gas Pipeline Project are ignoring vital concerns of the state and others, the U.S. Interior Dept. has approved a rights-of-way grant over federal lands in Alaska which makes what one top official says are “significant departures “ from the initial routing proposed by Northwest Alaskan Pipeline Co.

Dr. Charles Behlke, state pipeline coordinator, says the new alignment adopts a 200-foot separation between the proposed gasline and the existing trans Alaska oil pipeline which is more than double the 80-foot separation initially proposed by Northwest.

It also includes an option for punching a two-mile tunnel through Atigun Pass in the
Brooks Range, instead of laying the pipeline over the top of the pass, Behlke said, a construction strategy which caused the oil pipeline to collapse after it was completed.

The rights-of-way grant was approved by the Interior Dept. on August 20, then submitted to Congress for review as required by aw, although – a former state commissioner of natural resources - has asked U.S. Senator Henry (Scoop) Jackson D-Washington, and other congressional leaders to waive the 60-day review period in hopes of expediting the project.

In a wide-ranging critique of Northwest’s application for a pipeline right-of-way across federal lands in Alaska, Behlke told Interior Dept. officials that the state does not agree that Northwest’s nominal 80-foot separation between Northwest’s proposed route and the oil pipeline – which it roughly parallels for about 700 miles within Alaska – is “automatically acceptable.”

And based on experience with the oil pipeline in Atigun Pass, Behlke said, “it is evident that serious consideration must be given to a tunnel (for the gas pipeline) or to another alternative route.” In his critique of Northwest’s application, which he submitted to the Interior Dept. late in July (See All-Alaska Weekly, Aug. 1, 1989) Behlke cited a long list of complaints centering on Northwest’s pipeline design and construction plans.

He said he has not had time to review Northwest’s new proposed 200-foot alignment in detail, but a cursory glance indicates that “a good deal more of the pipeline would be next to the haul road” than indicated by Northwest’s alignment.

Behlke has just returned to Fairbanks from a round of meetings on the pipeline in and outside of Alaska. One major topic of discussion, he said, has been the proposed $3-4 Billion natural gas conditioning plant that is an integral part of the project. “The state is up to it’s elbows,” he said, “working very hard to determine whether the economies of locating the plant at Prudhoe Bay are indeed real economies, or something that came off the wall.”

Northwest’s project plans call for construction of the conditioning plant at Prudhoe Bay. But state officials and Fairbanks boosters want it to be located in the Interior where gas liquids removed from the raw gas stream during the conditioning process could be used to promote in-state petrochemical development.

Behlke said he met with Northwest officials at their headquarters in Salt Lake City and urged them to review the economies of locating the plant at Prudhoe. Northwest’s cost estimates currently indicate that costs would be greater if the plant were located in the Interior.

“We asked them to substantiate their figures,” Behlke said, “and to make sure that the plant is designed properly so that the gas liquids don’t go down the drain.”

According to Behlke, this month will be a key period for pipeline planning because many critical issues, such as the site of the conditioning plant and the rights-of-way alignment are expected to be resolved. “It will be a hectic, but interesting month for the future of the pipeline,” he said.

March 6, 1981, The All-Alaska Weekly
Conditioning plant site on North Slope confirmed

By JOE LaROCCA

    By March of 1981, two critical decisions contrary to the state's perceived interests had been reached in the development of plans to construct a $4 - $6 billion gas conditioning plant to prepare North Slope natural
gas for shipment through Northwest Alaskan Pipeline Co.'s proposed Alcan as pipeline. Both decisions negated the state's contention that the conditioning plant could be located in the Interior rather than on Alaska's North Slope.
    Northwest Alaskan Pipeline Company's Design and Engineering (D&E) Board for the project had decided on a plant design which used a patented process known as "Selexol" to separate the gas liquids from the natural gas stream. For technical reasons, this process could only be utilized if the plant were located on the North Slope.
    At the same time, the Alaska Department of Natural Resources had conceptually agreed to grant Northwest a lease permit for a 2,000-acre site for the conditioning plant at Prudhoe Bay, although the state and Northwest were still embroiled in a heated dispute over the terms and conditions of the grant which, Northwest said, could seriously delay the project.
    Both decisions implied the Hammond administration's belated admission that the two-year controversy over the location of the gas conditioning plant had finally been resolved in favor of Northwest's stated preference for the Prudhoe Bay site, which most Alaskans opposed.
Northwest's selection of a North Slope location for the conditioning plant had been heavily criticized by local government officials in Fairbanks and elsewhere who wanted the facility located in the Interior in order to give the economy there a much needed boost.
    Apart from the stimulus which the construction and operation of the $4 to $6 billion facility would have provided there, it was also seen as a prerequisite to the development of an in-state petrochemical industry based on feedstocks produced from the natural gas liquids, which in turn would be extracted from the raw gas stream by the conditioning plant.
    Among other things, it was expected that a conditioning plant located in the Interior would have made the gas liquids available for value-added processing there, and help to launch a multi-million dollar petrochemical industry within the state. Critics blamed Northwest's decision to build the conditioning plant at Prudhoe Bay on the Hammond administration's and the legislature's joint failure early on to insist on a pipeline design which would have made it possible to transport the gas liquids to a gas conditioning plant located in the Interior, near Fairbanks.
    While the state has argued that the decision could still be reversed in the face of other long-standing indications to the contrary, these two developments - the D&E Board's selection of the "Selexol" process, and the state's conceptual agreement to grant Northwest a conditioning plant site at Prudhoe Bay - clearly indicated that the decision was irreversible.
    The D&E Board was established last June under an agreement setting forth a preliminary financing plan for the pipeline project which was signed by Northwest, the North Slope oil and gas producers, and the state. One of the D&E Board's first tasks was to come up with designs for the pipeline project and the conditioning plant upon which a reliable project cost estimate could be based, so that the sponsors could proceed with arrangements to finance the project.
    Rough cost estimates of just the Alcan pipeline ranged from $25 billion to $40 billion, with half that dedicated to the Alaska segment. It wasn't known whether the D&E Board has refined the estimates for the project yet. While the D&E Board's decision in favor of the Selexol process meant that the gas conditioning plant would be located on the North Slope, it did not necessarily imply that the gas liquids would not be available for in-state petrochemical development.
The conditioning plant design could be modified in a way that would permit the extraction of the gas liquids, if feasibility studies then underway indicated that a separate small diameter gas liquids pipeline to
ship them to downstream processing facilities would be economical. However, most experts considered that doubtful.
    The Dow-Shell Group, was a consortium of nine Alaska, U. S. and Japanese companies led by Dow Chemical U.S.A. and the Shell Chemical Co. They undertook comprehensive studies in late 1980 at the Hammond administration's behest to ascertain whether in-state petrochemical production based on North Slope gas liquids by that consortium would be feasible. If so, they would be given an option
by the state to purchase the state's one-eighth royalty share of gas liquids from North Slope natural gas production.
    The Group, chosen by the state from amongst several competitors, had budgeted $5 million for the studies in 1981, and expected to complete them and submit recommendations to the state by September.

The Dow-Shell group indicated earlier that it doesn't matter whether the D&E Board picked the Selexol process or an alternative known as the "Salfinol" process, insofar as extraction of the gas liquids
was concerned, because they had assumed from the outset that the gas conditioning plant would be located on the North Slope.
    If their studies indicated that in-state petrochemical production based on gas liquids was feasible, the Dow-Shell Group and some of its members expected to proceed with the design and construction of selected transportation, production and export-marketing facilities. The state had agreed to make its one-eighth royalty share - about 25,000 barrels per day - of North Slope gas liquids available for in-state petrochemical processing.
However, several experts have said that most of the remaining seven-eighths share of the gas liquids owned by the North Slope producers would be required to justify the expense of building a separate liquids pipeline needed to transport them to downstream processing facilities.
    While negotiations had been underway between the state, the North Slope oil and gas producers, and the Dow-Shell group for some time, the producers had not yet indicated whether they would commit their share of the gas liquids to any of the prospective facilities being contemplated by the Dow-Shell Group. On the contrary, they had unequivocally indicated that they tentatively planned to use the liquids on the North Slope as field and conditioning plant fuels.
    Lt. Gov. Terry Miller, the state's representative on both the D&E Board and the Dow-Shell Group, said Wednesday that he was very encouraged by the efforts of both. While the question of economic feasibility had not yet been answered, Miller told me that "I personally am becoming increasingly optimistic that the results of the studies will show that an in-state petrochemical industry based on natural gas liquids will be feasible."

     Miller said he was now convinced that "there's an industry there that a couple years ago everybody was dismissing." While the question of the location of the gas conditioning plant had finally been officially laid to rest, a new controversy quietly erupted between the state and Northwest Chief Executive John McMillian over a site for the plant on state lands at Prudhoe Bay. In late January, 1981, State Natural Resources Commissioner Bob LeResche asked Northwest not to submit its application for a separate lease on a 2000-acre site at Prudhoe Bay under the state's general land leasing law. LeResche wanted Northwest instead to include its application for the plant site in its application for the gas pipeline right-of-way over state lands, in keeping with the state's contention that the conditioning plant is an integral part of the pipeline project.
    But Northwest contended that the conditioning plant was a separate entity, and the Federal Energy Regulatory Commission (FERC) agreed. FERC, the licensing authority for energy projects in the U.S., had issued Northwest a conditional certificate for building the pipeline which, in effect, separated the conditioning plant from the rest of the pipeline project.
    But the state contended that separating the plant from the pipeline project would have significant adverse impact, and hoped to persuade FERC to change its position when it issued Northwest a final certificate.

     For that reason, the state was continuing to insist that Northwest combine its lease application for the plant site with its application for the pipeline right-of-way over state lands. LeResche had also asked Northwest to apply for a temporary lease or land use permit so that the company could proceed on site work planned for this summer.
    In a strongly-worded telegram on Feb. 13 to LeResche, McMillian said that Northwest "can find no legal basis for your insistence that we proceed under (the pipeline right-of-way) rather than (under general land leasing law). "Neither can we find any legal basis," McMillian added, "for your plan to convert a temporary use permit into a long-term lease. You have not responded," the Northwest executive told LeResche, "to our request for a statement of legal authority to support your position."
    Said McMillian: "The inevitable consequences of this refusal to permit us to proceed immediately under (general leasing law) as we are prepared to do would delay the issuance of a long-term lease for the
conditioning plant site until pipeline right of way negotiations are completed."
    He added: "The gas conditioning facility is the pacing item for the over-all project. If you persist in your present position, you must be prepared to accept the responsibility for a project delay, with the resulting increased costs to U.S. consumers who utilize Alaskan gas and the postponement of the use of Alaskan gas as a substitute for imported OPEC oil."

McMillian told LeResche that "We are effectively blocked by state inaction from proceeding further," and "cannot hold the project schedule if you hold your present course of conduct."
LeResche was traveling out of the state when McMillian dispatched his telegram, so it was forwarded to Governor Jay Hammond. In response, the Governor told McMillian that all permits and authorizations for land use within the Prudhoe Bay unit must be coordinated with the unit operators (ARCO and BP).

     Hammond said the operators had been notified of Northwest's application for a lease for the conditioning plant site, and the state was awaiting their reply. Said Hammond: "The Commissioner's temporary absence is in no way delaying actions by the state. He told McMillian that the state attorney general had advised him
there was sufficient legal basis to issue a temporary lease or special land use permit which would allow site preparation to proceed as scheduled for the 1981 season.
    The Governor also told McMillian that there appeared to be some confusion over who should be issued the lease or permit. "Our representatives to the D&E Board do not recall Northwest being authorized by the board to seek this lease," Hammond said. And he asked McMillian to send the state "the relevant portions of the minutes containing such authorization."
    Mary Halloran, a special assistant to LeResche, said time was growing short for Northwest to apply for the permits it needed to proceed with work on the conditioning plant site during the short summer construction season on the North Slope. Northwest planned to purchase gravel from the state for the plant's foundation, and competitive gravel disposal procedures, including public notice and comment, must he followed which would take at least 60 days to complete.
    Said Halloran: "It's perfectly clear, regardless of what we do with the long-term lease, that there are procedures for doing what they want to do this summer. But we have to receive their applications soon," Halloran told me. "This is a bureaucracy, and we have to have the paperwork."

From the All-Alaska Weekly, October 8, 1982

CO2 Content is Key to Economic

Viability Of All-Alaska Gas Pipeline

By JOE LaROCCA

Can the lower costs of conditioning North Slope natural gas at a pipeline terminus on Alaska’s south coast outweigh the loss of pipeline capacity devoted to the unavoidable shipment of a sizeable but worthless component of the raw gas – carbon dioxide? That’s a critical economic question facing proponents of an All-Alaska pipeline which would carry natural gas and gas liquids from Prudhoe Bay to a southern Alaska seaport.

It’s one of many questions currently under study by a citizen’s advisory committee appointed last summer by Gov. Jay Hammond to consider alternatives for getting North Slope natural gas to market.

The committee, co-chaired by two former governors – Bill Egan and Wally Hickel – has retained Brown and Root of Houston to undertake engineering and economic feasibility studies. The committee is to submit its report to the legislature when it convenes in January.

Don Hale, manager of Root’s pipeline engineering department, was in Anchorage this week in connection with the study. He will submit a progress report to the committee, which is scheduled to meet there today.

Hale, a veteran of pipeline engineering in Alaska, first worked here in 1958. He emphasized that the proposed all-Alaska pipeline is a concept, not a final design. “Not a bit of this is set in concrete,” he said. “We’re not proclaiming that it’s a designed system, but it’s pretty well thought-out.”

Under the proposal, the entire natural gas and gas liquids stream would be separated from the crude oil stream at Prudhoe Bay, refrigerated and pumped directly into the proposed gas line. On the other hand, under the Natural Gas Transportation System (ANGTS) designed by Northwest Alaskan Pipeline which would be routed partly through Canada, the raw gas would be stripped of water, natural gas liquids (NGLs) and carbon dioxide, cleaned and conditioned at Prudhoe Bay before entering Northwest’s proposed pipeline.

The carbon dioxide would be discharged into the atmosphere and most of the NGLs would be used as field fuels on the North Slope. That processing would require the construction of a gas conditioning plant there, estimated to cost $6 billion.

But Hale says the the exorbitant costs of building, operating and maintaining a gas conditioning plant on the North Slope can be avoided by simply transporting all the raw gas and gas liquids through the proposed all-Alaska gasline for processing at points south, where industrial costs would be much lower.

“Anything done on the North Slope is more costly than farther south,” he said. “We can get away from processing there by bringing the total gas stream down to a tidewater location, then do the processing where it’s more controllable and economic.” Instead of putting processing and extraction facilities at Prudhoe Bay,” Hale said, “we would transplant Prudhoe Bay to tidewater.”

But relocating the gas conditioning facilities at the pipeline’s southern terminus mans that significant chunk of its capacity would be taken up by non-productive carbon dioxide, which constitutes about 12 percent of the raw gas stream. The central question is whether the greater cost of building and maintaining the gas conditioning facilities on the North Slope would outweigh the cost imposed by shipping the un-usable carbon dioxide through the length of the pipeline. Hale said the economies realized by avoiding the higher North Slope costs “may have a positive effect that’s greater than the negative effect of carrying the carbon dioxide.”

While the CO2 content is presently considered a liability, it’s possible that some of it can be profitably utilized : for example, in tertiary – or third-stage - recovery of crude oil from depleting pools in Cook Inlet; or, in the long term, to produce urea there, of which there is currently a world glut, Hale said.

The Brown and Root study contemplates a 36-inch diameter, high-pressure pipeline and 14 compressor stations with a maximum design capacity of 2.8 billion cubic feet per day. To accommodate the higher pressure, the pipe wall would be made of thicker and tougher steel than Northwest Pipeline’s proposed 48-inch diameter line, although total steel tonnage would be nearly the same, according to Hale. But because of the higher pressure, he said, “we can carry the same volume in a 36-inch line as they can in a 48-inch.

“The (all-Alaska) project will benefit by utilization of al the heavier hydrocarbons (NGLs),” Halke said. “hauling those heavier ends would overcome the deficit effect of hauling the CO2,” he said. But he declined to specify the level of pressure under consideration.

Northwest has set 1260 pounds per square inch (psi) as the pressure for the Alaska segment of its proposed pipeline. That’s well above the pre-existing industry standard for large diameter gas pipelines, although some interested parties unsuccessfully argued for a higher pressure line which would accommodate more of the NGLs.

The state of Alaska, for example, pressed for a level of 1470 psi for the Alask segment of the Northwest pipeline. And Exxon contended that 2000 psi, while unprecedented, would be feasible. (The controversial pipeline pressure issue was eventually decided in Northwest’s favor by a federal circuit court of appeals in Jan., 1980 on purely legal, not technical grounds).

Hale said the all Alaska pipeline concept assumes that all of the gas and gas liquids from Prudhoe Bay – the producers’ seven-eighths share, and the state’s one-eighth royalty share – would be available for shipment down the line. That assumption, among others, has already come under attack by some critics who say the producers are not likely to commit their shares to such a transportation system.

Hale said the committee’s study does not encompass end uses of the gas stream, but stops with the delivery of the gas to tidewater. Other interested parties would deal with the other commercial and industrial aspects, which could include shipping liquefied natural gas LNG) and gas liquids via ocean tankers to U.S., Pacific Rim, and other markets; or petrochemical production within Alaska.

Hale said the committee’s report to the legislature would include findings on the economic and technical feasibility of the various alternatives; cost estimates bearing a “high degree of confidence;” and whether further in-depth evaluation and study of one or more alternatives is warranted. The committee has publicly stated that one possible outcome is that the studies may indicate none of the options is viable.

Other options the committee is considering include continued state support for the Northwest pipeline project; construction of a smaller gas pipeline to Fairbanks; generating electrical power within Alaska, and petrochemical manufacturing.

Several other organizations are working for or with the committee. They include a Dow-Shell joint venture; the Mitsubishi Research Institute; Dillon, Reed and Co., the New York investment firm which is looking at the financial aspects of the various options, and Birch, Horton, Bitner and Monroe with offices in Alaska and Washington, D.C., which has been retained to provide legal services.

From the All-Alaska Weekly, October 29, 1982

Gas Pipeline an Example of U.S. Energy

Policy ‘Gone Haywire,' says Congressman

By JOE LaROCCA

The stalled Alaska Highway gas pipeline is “an example of our natural gas policy gone haywire,” a ranking Republican congressman from Illinois told an industry group in Chicago recently. And legislation passed by Congress last year which enables the sponsors of the pipeline to “pre-bill” consumers for gas they may never get or need” should be repealed by the end of next year if the project hasn’t gotten underway, he added..

Rep. Tom Corcoran, addressing a meeting of the Chemical Manufacturers Assn. earlier this month said he introduced a joint resolution last April which would put a two-year time limit on the effect of the controversial waivers adopted by Congress in December of 1981.

The pipeline sponsors and their supporters said that private sector financing of the project, which is required by federal law, could not be secured without passage of the waivers. The most controversial waiver is one which enables the owners of the proposed pipeline to bill gas consumers for certain project costs even if it’s never completed.

Several months after Congress approved the waivers, the sponsors, Northwest Alaskan Pipeline Co., put the project on the shelf for at least two years because they were unable to arrange private sector financing even with the waivers.

One “unfortunate aspect of this,” Corcoran said, “is that waivers last forever – there is no expiration date involved with those waivers.” He said his resolution, HJR 467 “would place just such a cap on the effectiveness of those waivers as well as re-state that there would be no federal financial assistance forthcoming on this project.”

According to Rep. Corcoran, who unsuccessfully fought approval of the waivers, 40 House members have joined as co-sponsors of the measure, including several who voted in favor of the waivers last December.”

If passed by Congress, the resolution would have the force of law and, in effect, repeal the waivers by Dec. 15, 1983, if financing has not been arranged and work resumed on the project by then. Said Corcoran: “I am certainly not opposed to making use of natural resources we have in Alaskan natural gas. However, I do strongly object to the method by which the consortium proposes to “pre-bill” certain natural gas ratepayers for gas they may never get or need.”

In his Oct. 4 speech, the Illinois Republican strongly criticized several other aspects of the U.S. government’s natural gas policy which call for importing “the most exotic, most expensive and least desirable supplies of gas.” These include the importation of liquefied natural gas (LNG) from Algeria, and surplus natural gas from Canada, at a time when vast supplies of lower-priced domestic gas are available.

“It seems incredible that Panhandle (Eastern Pipeline Co,) would choose a time like this now to commence imports of Algerian LNG…Virtually every natural gas pipeline in the country now has more natural gas than it can sell and is shutting in significant amounts of domestic natural gas production. In fact,” he said, “in Ohio, there is so much natural gas that it is actually being flared (burned off) during production.

Corcoran, a member of the House Energy and Commerce Committee and two other energy-related subcommittees said: “I am not opposed to the importation of Canadian gas, per se. But I do object to such importation at a more expensive price than domestic Lower 48 gas, and at a time when we have in our country large quantities of our own gas.”

Corcoran said he’s not “overly critical” of Panhandle’s judgment to pursue the Algerian option back in the mid-70s.”At that time the conventional wisdom was that there was a shortage of natural gas. But “Times have changed, and maybe we ought to look closely at the federal energy laws that came out of that era,” he said.,

While blaming the Democratic majority in the House of Representatives and the Carter administration for “natural gas policy gone haywire,” Corcoran admitted that “Republicans are not without fault.” For instance, he said, “it was a Republican president (Reagan) who submitted to Congress the pipeline waiver package, which was “dictated by Senate Republicans” and supported by “a good many Republicans.”