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Joseph LaRocca

Northern Gas Pipelines, (Alaska Gas Pipeline, Denali - The Alaska Gas Pipeline, Mackenzie Valley Gas Pipeline, Alaska Highway Gas Pipeline, Northern Route Gas Pipeline, Arctic Gas, LNG, GTL) is your public service, objective, unbiased 1-stop-shop for Arctic gas pipeline projects and people, informal and rich with new information, updated 30 times weekly and best Northern Oil & Gas Industry Links on the Internet.  Find AAGPC, AAGSC, ANGTL, ANNGTC,  ANGDA, ANS, APG, APWG, ANGTA, ANGTS, AGPPT, ANWR, ARC, CARC, CAGPL, CAGSL, FPC, FERC, GTL, IAEE, LNG, NEB, NPA, TAGS, TAPS, NARUC, IOGCC, CONSUMER ENERGY ALLIANCE, AOGA,AOGCC, RCA and more...

2009 LINKS: FERC Reports to Congress, 1, 2, 3, 4, 5, 6, 7....; USGS Arctic Gas Estimates; MMS hearings: RDC, Our NGP, AJOC, DH, ADN, KTUU; Enstar Bullet Line: Map and News Links; ANGDA; Alaska Energy Forum; Prosperity Alaska

2008 LINKS: Shell Alaska OCS Study; Mackenzie Gas Project EIS; Join the Alaska Gas Pipeline Blog Discussion; Governor Sarah Palin's AGIA Links; 2007 ACES tax bill links; Department of Revenue 2007 ACES tax documents;  2007 ACES tax Presentations; 2007 ACES tax news; Alaska Gas Pipeline Training and Jobs; Gas Pipeline and Economic Development; Andrew Halcro; Bjørn Lomborg; FERC's Natural Gas Website Links

WASHINGTON: Alaska Natural Gas Pipeline Act; History of H.R. 4; DOE Energy Bill Position, 6-02; Daschle-Bingaman Energy Bill (Alaska, Sec. 1236 & tax credit, Sec. 2503 & H.R. 4 Conferees), Tax Credit; See amendments, "Energy Policy Act of 2002";  "Alaska Natural Gas Pipeline Act of 2001 (Draft)" & Background Paper, 8-9-01;Alaska Legislature Joint Committee position; Governor's position; Governor's 10-Point Plan; Anadarko Analysis; U.S. Senate Energy Committee Testimony, 10-2-01 - text version;  U.S. Senate Energy Committee Testimony, 9-14-00; Report on the Alaska Natural Gas Transportation Act of 1971, prepared by staff of the Federal Energy Regulatory Commission, 1-18-01

ALASKA: 1-23-03, Governor Frank Murkowski's State of the State Speech; 2002 DRAFT Recommendations to 2003 Legislature; '02 Alaska Legislation; Alaska Highway Natural Gas Pipeline Policy Council; Joint Legislative Gas Pipeline Committee; 9-01 Alaska Models: Canadian Routes, LNG, GTL; HR 4 Story; Cook Inlet Supply-Demand Report: AEDC; Commonwealth North Investigation & Our Article; Report: Backbone; Legislature Contacts; State Gas Pipeline Financing Study; 5-02 Alaska Producer Update; Kenai: "Oil & Gas Industry Issues and Activities Report, 11-02"; Alaska Oil & Gas Tax Structure; 2-27-02 Royalty Sale Background; Alaska Gas Pipeline Office opens, 7-01, and closes, 5-02; Betty Galbraith's 1997-1998 Chronology Our copy.

CANADA: 1-10-03, "Arctic Gas Pipeline Construction Impacts On Northern Transp."-Transport Canada-PROLOG Canada Inc.-The Van Horne Institute;Hill Times Reports, 8-30-02; 9-30-02, Cons. Info. Requirements; CBC Archives, Berger Commission; GNWT Economic Impact Study, 5-13-02; GNWT-Purvin & Gertz Study, 5-8-02; Alberta-Alaska MOU 6-02; Draft Pan- Northern Protocol for Oil and Gas Development; Yukon Government Economic Effects: 4-02 & PPT; Gas Pipeline Cooperation Plan Draft & Mackenzie Valley Environmental Impact Review Board Mackenzie Valley Pipeline MOU Draft, 6-01; FirstEnergy Analysis: 10-19-01; Integrated Delta Studies; National Post on Mackenzie Pipeline, 1-02;Northern Pipeline Act;  Haida Nation v. British Columbia; Indian Claims Commission; Skeena Cellulose decision -- aboriginal consultations required, 12-02; Misc. Pipeline Studies '02

COMPANIES: Alaska Gas Producers Pipeline Team Newsletter, 7-27-01; APG Newsletter: 5-02, 7-02 & 9-02; ArctiGas NEB PIP Filing Background; NRGPC Newsletter: Fall-02;  4-02 ArctiGas Reduces Field Work; BP's Natural Gas Page; Enbridge Perspective; Foothills Perspective; Williams Perspective; YPC Perspective, 7-02

 MEDIA REFERENCE: Alaska Journal of Commerce; Alaska Inc. Magazine; Anchorage Daily News; Canadian Broadcasting Corporation; Fairbanks Daily News Miner, Juneau Empire; Northern News Services; Oil & Gas Reporter; Petroleum News Alaska; Whitehorse Star, etc.

EXTENDED CONFERENCE NEWS: Alaska Support Industry Alliance, Anchorage Chamber of Commerce Canadian Institute, Insight Information, Inuvik Petroleum Shows, International Association of Energy Economists, Resource Development Council for Alaska, Ziff Energy Group











Northern Gas Pipelines: The Everywhere Opinion Page

Readers know that Northern Gas Pipelines is supportive of all of the people and governments working so hard on all projects.  We have treated all with respect and, we hope, equality.  Sometimes we editorialize both here and in other publications--not advocating our own special interests but rather advising on public policy.   Here we will insert opinion pieces from readers.  We retain editorial rights, discourage uncivilized language and honor good thinking and honest motives.  Beyond that, we leave you as judge.  The author's 2002 opinion pieces are here.  If you live in or outside Alaska or Canada, to have your opinion archived, email us.  -dh

10-3-02.     WHY DOES ARCTIC RESOURCES SPEND THE MONEY ON THE NORTHERN ROUTE? -- (Statement invited in response to 10-02 NGP editorial.)

Forrest E. Hoglund - Chairman & CEO - Arctic Resources Company (NGP Photo, 11-01)

            The first answer is that someone needs to support the right answer.  The right answer is one economic pipeline that picks up reserves in both Alaska and Canada, which is basically one-half the cost, and one-half the distance of the Alaskan’s two-pipeline proposal.  Look at a map--it is quite obvious.  The second answer is that Canada must be directly involved in the decision since two-thirds of the Alaskan line goes through Canada.  The tax subsidy, that is attempting to make an uneconomic pipeline become economic, will do great damage to the Canadian oil and gas industry in the Mackenzie Delta.  How can you expect cooperation from that country?  There is a very strong likelihood that the Alaskan line will not ever get built even with the mandate and subsidy.  The third answer is, we do not need a short-term answer in getting the 35 Tcf of Alaskan proven reserves on production when that answer is a definite negative toward realizing the 160 Tcf of reserve potential from new exploration in Alaska and Canada.  A high-cost transportation system is the worst enemy of new exploration.  A longer than necessary 52-inch pipeline which can only be made in Germany and Japan, going through 900 miles of mountains with every joint of pipe having to be carried individually on a truck along the ALCAN Highway, definitely fits the definition of high-cost.  The fourth answer is that every U.S. taxpayer and natural gas consumer will be damaged by the Alaskan mandate and tax subsidy.  More taxes and less natural gas are not to their benefit.  There are a lot of other reasons but the last one I will mention is, someone needs to save Alaska from their own shortsighted quick fix of a solution.  There is at least a 50¢/Mcf wellhead price differential at Prudhoe Bay by using the shorter, more efficient near-shore wintertime construction of the “Over-the-Top” route.  There are no show stopping environmental or regulatory problems with building the pipeline other than the ones that Alaska is trying to generate.  There certainly do not appear to be any in Canada, and regulatory bodies are in place in both countries to make sure all environmental regulations are met.  Alaska would receive about $4 billion more from its royalty and taxes on their proven reserves, would have a much better chance of actually getting the pipeline built because Canada would benefit also, and would see a much higher exploration effort with a lower-cost pipeline.  In any business, when your product is a long way from the market, the lowest cost transportation system is the most important factor in successfully getting to market.  Government mandated expensive subsidized solutions never work in the long run.

            There is no reason for a mandate or subsidy now.  It is only being debated because Alaska does

not want to go through the normal project comparisons involved in U.S. and Canada regulatory process.

Many times the U.S. Congress and Administration come to the right answer, and there isn’t any Energy

Bill yet.  Basically, we are just trying to do the right thing for everyone—Alaskans, Canadians, and the

lower 48 states.

9-26-02: In response to, "For The President and The Prime Minister", we heard from several readers.

9-19-02.  The Wall Street Journal Weighs in today on Congressional manipulation of gas pipeline route and gas price/loan guarantees...links ethanol (as we have).

Alaskan Pipe Dream

There are many excellent reasons for President Bush to veto the energy bill now in House-Senate  conference. One of the best is its mandate for a natural-gas pipeline through Alaska, which the conference approved last Thursday. If the bill passes with the Senate's language, taxpayers will be on the hook for up to $20 billion in subsidies and another $10 billion in loan guarantees.

There's a lot of gas up there in the frozen North and it makes sense to figure out a way to get it down to the lower 48. But isn't that a job for the private sector?  The Bush Administration thinks so, as does the government of Canada, and a private energy consortium is pushing for a shorter and arguably cheaper route through Canada.

However, Congress has a different idea, and the Senate version of the energy bill would do two  counterproductive things: First, require that a pipeline go through Alaska or not at all, and second, approve a tax credit to guarantee a floor price for Alaskan gas.

Let's start with some pipeline basics. There are two possible routes for delivering gas from the Arctic to American consumers: the Alaska Highway route and the Mackenzie Valley route through Canada. As the nearby map shows, the problem for those who support the much-longer Alaska route is that two-thirds of it passes through Canada anyway. Similarly, a portion of the Mackenzie Valley route goes under American waters in the Beaufort Sea.

The energy bill provision would pre-empt the market by mandating the building of the Alaska Highway route, and it would forbid the federal government from giving Canadians permission to build under the Beaufort Sea. And therein lies the rub: Canadians are on record as saying that if Congress goes ahead with this route mandate, they might not issue permits for the two-thirds of the pipeline that runs through their territory. Given the cross-border political battles that would ensue, the likely upshot would be that we'd end up with no pipeline at all.

The good news is that Canada's position is more or less the same as the Bush Administration's. Energy Secretary Spence Abraham recently wrote, in a letter to conference chairman Billy Tauzin (R., La.), that the Bush Administration believes "market forces should select the route of the pipeline" and "strongly opposes the price floor tax subsidy provision in the Senate bill and any similar provision because it would distort markets, could cost well over $1 billion in annual lost revenue, and would likely undermine Canada's support for the construction of the pipeline and thus set back broader bilateral energy integration." Other than that, how was the play, Mrs. Lincoln?

So why is Congress even considering an Alaskan pipeline? Meet Frank Murkowski, a GOP Senator from Alaska who is now running for Governor. Having all but lost the fight for drilling in ANWR, Mr. Murkowski is out to bring Alaska home a pipeline as a consolation prize -- even if that means sticking it to taxpayers.  The politics gets worse. In exchange for his own support for the Alaska pipeline, Senate Majority Leader Tom Daschle gets Senator Murkowski's support for one of the South Dakota Democrat's pet causes, ethanol subsidies. Moreover, this horse trade gives the Democrats something that, at least superficially, looks like a pro-development energy policy.

Senator Daschle and Alaska Governor Tony Knowles also figure that a pro-Alaska pipeline position helps the Democratic gubernatorial candidate, Lt. Governor Fran Ulmer.  And even if she loses, the thinking is that support for an Alaskan pipeline will help whichever Democratic candidate (probably Governor Knowles) runs for Mr. Murkowski's Senate seat.  Governor Knowles is at least acknowledging some reality: He's just written an op-ed for Canada's National Post calling for both pipelines. So there we have the ultimate conclusion of America's energy politics: If you can't settle on just one pipeline that wouldn't make it without government support, push for two.

Let's hope this political scam dies in conference along with the rest of the energy bill, or that Mr. Bush will put us out of its misery with a veto.

Updated September 19, 2002 12:29 a.m. EDT

7-13-02: Though not especially gas related to Arctic oil & gas, we suggest this to be the greatest headline of the year, on a subject that will benefit corporate governance for years to come: National Post-"When Bush Comes to Shove"

APRIL 10 ,  2002

   David Keene
   The Right View
A pork project of elephantine proportions

4-10-02-When one thinks of pork, the names of two famous — or infamous — senators comes to mind for “bringing home the bacon.” They are West Virginia’s Bobby Byrd (D) and Mississippi’s Trent Lott (R). It was Byrd, after all, who once tried to get the CIA to move its headquarters to West Virginia for him, and Lott who seems to believe that anything the federal government builds, buys or does ought to be built, bought or done somewhere in Mississippi.

It turns out, though, that these guys are pikers. The world-class operators in this game are from much, much further north — in Alaska.

Indeed, the all-Republican team of Rep. Don Young in the House and Frank Murkowski and Ted Stevens in the Senate from Alaska make everyone else look like amateurs. At least that’s the view of Citizens Against Government Waste, which is this week issuing its 12th annual Congressional Pig Book.

Since 1995, the average representative or senator has been able to come up with about $150 or so in pork per constituent. The Alaskans, by contrast, have brought home roughly 18 times this much or $2,791 per constituent.

Now, these guys make up an incredibly effective team and their focus on delivering for the folks to the north is, shall we say, unwavering. Some of what they’ve managed to do over the years is even commendable, but occasionally they go over the line.

That’s what happened recently on the Senate floor with the approval by 93 to 5 of an amendment to the energy bill. It mandates that if a natural gas pipeline is ever built to deliver Alaskan natural gas to markets in the rest of the country it will have to follow a circuitous route through Alaska. The amendment won the support of Democratic Senate Leader Tom Daschle (S.D.) and was viewed by many in his party and within the environmental community as a compensation prize for the Alaskans who aren’t going to be allowed to drill for or deliver Arctic National Wildlife Refuge (ANWR) oil.

The amendment was essentially sprung on the Senate and only a few senators even spoke against it, but a lot of them thought they smelled something objectionable.

It turns out that the amendment was designed to make certain that an alternative pipeline route through Canada would be taken off the table. That route, it seems, is far more economically viable than the Alaskan route, which would have to traverse some 900 miles of Alaska’s most rugged mountains. What’s more, a number of private investors have actually shown an interest in building the pipeline through Canada, but none have evinced the slightest interest in the all-Alaskan route.

So as it stands right now, the amendment adopted before the recess simply guarantees that no pipeline at all will be built. The answer to that, however, is simple. Murkowski is preparing to introduce another amendment that will grant a subsidy to gas producers in Alaska and to the pipeline company that will get his pipeline built — at a potential cost to the rest of us of as much as $30 billion. That’s pork with a capital “P.”

That money, in the form of tax credits to Alaskan oil producers (mainly Exxon-Mobil, British Petroleum and Phillips) and whatever entity they set up to actually build the Murkowski line will be paid out over 15 years.

The good senator and his allies argue that if gas prices overall go up enough between now and the time the pipeline opens, the needed subsidy could be reduced or even eliminated. The problem is that no independent analysts believe that is going to happen.

Instead, not satisfied from the simple royalties that would flow to Alaska if gas flows through just any old pipeline, our team of inveterate Alaska-firsters is after it all — the royalties and the jobs and the profits that go with building the pipeline along their chosen route.

If their colleagues don’t stand up and vote against this one, they will have guaranteed that a non-economic boondoggle of historically unique proportions will be built with federal subsidies when an alternative was available that would not have cost the American taxpayers a penny.

Moreover, by allowing subsidized natural gas into an incredibly volatile market, they will screw up that market. At the same time they’ll look the other way while major oil companies blast through 900 miles of one of the most rugged and scenic mountain ranges in the world.

This is way out of Lott’s class, but it’s just the sort of thing that could get them made honorary West Virginians.

David Keene is chairman of the American Conservative Union and a Washington-based government affairs consultant.

 3-28-02: Responses to 3-27 news/editorial items primarily addressing Alaska's determined routing position and the US Administration's tariff actions.  Northern Gas Pipelines receives much comment from readers; particularly timely are a few of the messages we received yesterday and today from highly respected leaders in their own fields, some preferring no attribution:  

From a distinguished consultant in Canada-What ever happened to free enterprise? cooperation? letting the market decide? doing what's best in an overall context? Those in the Lower 48 often seem to forget that Canada is an integral part of North America; Alaska could be accused of the same oversight. ... working together toward a common and equitable goal is likely the only way success will be achieved.    *      An Alaska University professor says: I am reminded of neighbors that each try and raise themselves up to reach a solution that makes both of them poorer.    *     Former Alaska Governor Steve Cowper writes that, "The ultimate fate of Alaska North Slope gas is too complex to be trusted to political bluster, but bluster is all we're getting. There are other people who  understand this, but most of them are hiding in the tall grass.  The interests of our neighbor and our most important trading partner, Canada, are being completely ignored by Alaska and the US. Unlike us, the Canadians aren't confrontational, but in the end they will strongly protect their own interests. And it seems clear that removing every option but the highway route, and offering subsidies to a line which bypasses Canadian reserves, are unacceptable. Some people think they're just going to shove the highway line down Ottawa's throat, but they're in for a big surprise."      *     Sunny Munroe, Editor of the Far North Oil & Gas Review in Yellowknife writes, " ... calling for high-level statesmanship at this time. Unfortunately, it seems to be missing, and the gap is huge. Prime Minister Chrétien was just in Washington meeting with President Bush a few days before the softwood lumber issue blew apart, but to no avail. Is this an indication that they completely misread each other? Or that Canada is taken for granted?  Now we have a minister of the Crown - Herb Dhaliwal, wanting to link softwood to energy, an opposition spokesman from the Cdn. Alliance party saying the government should subsidize the lumber industry ... and the premier of BC wanting to form a committee to come up with a response. Today I read that the EU has applied tariffs against US steel imports, yesterday I read that a tariff against American tomatoes had been applied by Canada. Last week Bush was in South America calling for free trade, but it is difficult to know what he means in light of his recent actions. Does he mean "free for us, but not for you?" It seems to me that America had a huge amount of international political capital because of Sept. 11, but it also seems that Bush is in the process of squandering it over trade issues. If the trade disputes go global, it will affect not only northern pipelines, but the American economy as a whole, which in turn will have a huge impact on the world economy. ... I understand it is very difficult to not want to retaliate in a situation like this. It seems to be the first human response - "oh yeah, well take this." But we need to be grown-up and civilized about solving these kinds of problems. I hope for the best. I hope saner heads prevail. Canada has already been to the WTO twice over this issue, and won both times. Pierre Pettigrew has said he thinks Canada will win again. This means to me that Canada will not take any action in haste, despite calls for retaliation. And I know there are saner heads in United States. They need to come to the fore and be heard. Any attempts to tie softwood into energy issues would surely be a recipe for trade disaster. Everybody loses.    *       And, this reaction from economist, Dr. Arlon R. Tussing:  ... dismay over the current tenor of gas-pipeline politics, both in Alaska and in the US Congress. Both policy branches of the State government have focused first and above all on prohibiting or discouraging exactly those marketing arrangements for Arctic gas that they fear would turn out to be financially more prudent to the gas producers, and more profitable both to the producers and to the State treasury. The top taboo is, of course, a Northern  route for the gas  pipeline, but a true-blue Alaskan must now reject gas-to-liquids, LNG, and deferring even an Alaska highway pipeline until the market is ready, as worse than no gas sales at all, ever.  Locally popular embargoes and mandatory enhancements, imposed by law or regulation on investors in a pipeline system, clearly jeopardize the prospects for any system of gas commercialization. Advocates nevertheless propose to obscure negative effects on gas marketability by lunatic threats of punitive taxes on the reserves owners, or offset them with tax gimmicks and price supports that would shift their costs to Lower 48 taxpayers, consumers, or producers of natural gas in New Mexico and Alberta.  Such self-serving legislative projects are inevitable byproducts of the isolationism and entitlement mentality deeply rooted in Alaskan culture, and are also the normal stuff of pork-barrel posturing in the United States Congress. What nonetheless surprises me is how far such a strategy seems to have succeeded, driven by myopic local interests and prejudices, and nurtured in the current national environment of Enron-style everything-for-sale energy policy, and in post-9/11 anything-goes fiscal extravagance.  What specially shocks me is how readily and recklessly Alaska¹s representatives in Washington and the Congressional leaders of both parties are conspiring to reject the natural-gas lessons, principles and reforms of the 1980s. That is the period in which competitive restructuring of markets and regulation freed natural-gas in North America from fragmented markets, a dysfunctional hodge-podge of government controls on prices and investment, and a relentless parade of shortages or surpluses, both chronic and acute. For the last decade, restructured North American gas markets have performed smoothly and efficiently as successful showpieces of free enterprise.  I write this as an active participant in the gas-pipeline debates in Alaska, and in the national energy policy determinations of the U.S. Congress, FERC, Canada¹s National Energy Board, and several State and Provincial governments, during the 1970s and 1980s, Our generation made many costly and often wrong-headed decisions, and was not wholly free from cynicism or corruption. However, on the whole, the big decisions were taken publicly after searching analysis and earnest deliberations involving all affected interests. The patriotism, good faith, and seriousness of the major contestants was seldom in question. What is most depressing about today¹s maneuvers is how little their principal drivers, including such as (...various Democrat and Republican leaders), seem to understand or even care about the impending reversal of direction    *    From a government official: It sometimes seems as if political and economic posturing by all parties has become the means of communication. There is too much at stake to be silent.  *   From a distinguished energy analyst: Unfortunately, the mood in Ottawa is turned from one of disbelief, then dismay, then discouragement, to an angry resolve. Senior Canadian bureaucrats are developing a strategy of gradually increasing pressure that can go up to and including nastiness. The gradual approach is in recognition that it could hurt Canada and give a chance to the Americans to rectify their mistake. The "up to and including nastiness" is in recognition that "the schoolyard bully must be stood up against otherwise the bullying will only get worse". This augurs ill for everybody. A fast track International Commerce Tribunal or NAFTA determination could head off the worst.  I know that in the U.S. the softwood dispute has not hit the general press as a big issue. In Canada, it's front page news. The asymmetry of public interest means that the political will in the U.S. is not there while the political will to do something in Canada is high. Hence my fear of "nastiness". Hence my belief that a fast track international approach might be the only way to head off a particularly nasty period in the U.S. - Canada trade relationship.   

Energy policy is front and center in our national political debate. That means special interests and pork-barrel politics are front and center, too, led by Senate Majority Leader Tom Daschle, and Alaska's two senators.

A Senate amendment calls for construction of a "Southern route" pipeline to bring natural gas from the North Slope of Alaska. The amendment is a thinly disguised compromise that would "give" the Alaskans something without agreeing to oil exploration in the Arctic National Wildlife Refuge.

This is an eminently uneconomical project that would require massive government subsidies. Those are in the pipeline, too, and could eventually cost taxpayers more than $50 billion. Ironically, these billions in subsidies would go to oil companies that are not even asking for it.

This story goes back to the very beginnings of the Bush administration's energy policy, which was quarterbacked by Vice President Dick Cheney last spring. The House of Representatives moved fairly quickly and approved a $23 billion energy bill in July. Thus, the ball rolled squarely into the court of the newly Democrat-controlled Senate.

The Senate was slow to follow the lead of the administration and the House, primarily because both had supported development of ANWR, a hot-button issue. Daschle and other prominent Democrats, with an eye fixed to environmental groups, vowed to oppose ANWR. But politics makes strange bedfellows and even stranger divorces. Another powerful and traditionally Democratic group, organized labor, used a late and vocal push, based on the number of jobs created by ANWR development, to keep the ANWR provision in the House energy bill.

Then came Sept. 11, which only worsened Daschle's predicament. With 15 of 19 hijackers hailing from Saudi Arabia, Americans became acutely aware of the exposure to Middle East oil supply interruptions. The previous modest plurality of opposition to ANWR in the Senate gave way to modest majority approval to opening the refuge for oil development.

Daschle sensed the sea change and introduced his own 500-plus page energy bill to the Senate floor. Last week, the majority leader offered the first amendment to his own bill, mandating the so-called Southern route, a pipeline that would traverse half of Alaska, then veer into Canada and eventually to the Lower 48 states.

This pipeline, debated now for 20 years, is one of two things that Alaskans and their legislators desperately want, the other being ANWR. Alaska Sens. Frank Murkowski and Ted Stevens, both Republicans, became co-sponsors of the Daschle amendment. It passed 93 to five.

The mandate for the Southern pipeline route for Alaska natural gas is $5 billion more expensive than the proposed northern over-the-top route, and is not justified by the current market price for natural gas. Exxon, BP and Phillips spent $100 million last year studying the options for bringing their Alaska natural gas to market and concluded that neither pipeline is economically attractive, but clearly the northern route is much closer to being so.

Daschle, aided by his Alaskan Republican colleagues, has painted a pretty picture of high-paying union jobs, a huge new market for U.S. steel (notwithstanding that no U.S. mill is capable of rolling the required 48- to 52-inch pipe) and much-needed clean energy.

Unfortunately, the true picture is far more somber. The pipeline cannot happen without a huge government subsidy. The math is indisputable. Let's say the pipeline, which would carry 4 billion cubic feet per day, will cost $20 billion, which is conservative by our estimates. This cost equates to a tariff of $2.83 per thousand cubic feet of gas. Add $1.20 at the wellhead, and the natural gas price becomes $4-plus.

With gas trading today in the $3 range, with liquid natural gas (LNG) or compressed natural gas (CNG) imports planned for mid-decade at less than $3, this price guarantee will cost the U.S. taxpayer an estimated $5 million to $7 million per day, or $40 billion to $50 billion over 20 years (in 2002 dollars).

A huge subsidy such as this is possible because of the "scoring rules" used in Washington, D.C., which only require that the financial impact of new legislation be tracked for 10 years. Because the pipeline will not be completed for seven years, this means only three years of subsidies get "scored." Thus, at $1.8 billion per year, this amendment "scores" as less than a $5 billion subsidy.

This $50 billion subsidy to Big Oil -- one it did not even ask for -- is bad news for taxpayers.

Economides and Oligney are professors at the University of Houston and authors of The Color Of Oil -- The History, the Money and the Politics of the World's Biggest Business. Oligney was born and reared in Alaska. Economides was a professor at the University of Alaska from 1980-1984.  (See Northern Gas Pipelines bibliography for their earlier study on Arctic gas transportation options; also, see our 3-12 comment, "Tinkering With Mother Nature and Free Enterprise" and other related stories and editorial comments, 3-14-02)

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