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• Archived Blog Post

  Date / Time: 1/26/2009 1:33 AM UTC

  Alaska's Economic Devastation- It's a NEW Reality Show! 'The Reassuring Lie'
  

  

  (1/26/09) Admit it; you've been in a theatre and you've had the strong urge to yell at the characters on the screen during the tense moments of the movie. "What are you going to do now!? You lost your gun when you broke the window...what are you going to do now!?"

  For those of us who have been keeping tabs on the Palin administration's efforts to secure commitments for the construction of a natural gas pipeline, we've been yelling at the characters for almost two years.

  From the first day they rolled out their AGIA fantasy in March of 2007 to August of 2008 when they awarded the AGIA license to TransCanada, we've been yelling that "AGIA is a waste of $500 million because it ignores critical legal and fiscal realities." 

  And yes, even when Governor Palin stood before God and country, not to mention 70 million viewers watching the Vice Presidential debate and lied by saying "we're building that $40 billion pipeline, the most expensive infrastructure project in the history of the United States," we yelled at the screen then as well; "What the hell are you talking about?"

  But through all the gnashing of teeth and pointing to the reality scoreboard, nothing was more suitable for a good old fashion shout out, then the Palin administration's response this week to those who will pay the cost of the natural gas pipeline and assume all of the risk. 

  On Friday at the Meet Alaska Conference sponsored by the Alliance, Brian Frank, president of BP's gas marketing company said the recession and credit crunch have crippled natural gas customers, driving down demand and prices. The end result is that prospects are dimming for the Alaska Natural Gas Pipeline.

  On Friday, Henry Hub prices for natural gas closed at $4.73, down from almost $13.00 just seven months ago.

  "It's not a pretty story right now in terms of North American gas markets," said Frank, noting how gas customers are regularly filing for bankruptcy.

  Speakers at the conference also outlined some looming competitive challenges to an Alaska gas line, including an expected surge in imports of liquefied natural gas or LNG, production of huge gas discoveries in Lower 48 shale deposits and a rise in renewable energy such as wind power.

  Meanwhile, the state's response to the predictable fiscal challenges of the $30 to $40 billion project shows just how far we are from getting this gas pipeline.

  Alaska's commissioner of Natural Resources, Tom Irwin, says the economic recession will not last forever, and that the state should view the gas line in a larger, long-term picture.

  "It would be very foolish of us as a state to react to every change in the market," Irwin said in a phone interview with KTUU News. "You have to be wise and we certainly monitor and watch, but we have the right energy and we want to continue to develop for the future."

  What Irwin has always failed to publicly acknowledge is that the state can monitor and watch all it wants, but the state isn't going to be writing the checks to build the pipeline. 

  And while Irwin might say that the state would be very foolish to react to every change in the market, the point the producers have always tried to make since Irwin started this AGIA foolishness, is that change happens...thus the need for fiscal certainty. 

  However Irwin and Governor Palin have responded to the economic reality of risk and countered by propping up TransCanada and seeding them with $500 million in taxpayer money.

  Think about this; if the producers who will pay for the project and assume the risk aren't prepared to put up the cash, how in the world does the Palin administration expect AGIA to get a pipeline built, when TransCanada has already said publicly that they can't build anything without the producers financing the project?

  On Friday at the Alliance conference, BP's Frank said the dramatic changes in the market highlight the staggering risk of investing in a pipeline that could cost more than $30 billion to build. And he repeated a familiar refrain from BP and other oil companies controlling the huge North Slope gas reserves -- that steps are needed, in their view, to "mitigate project risk and uncertainty."

  Requests for fiscal certainty have been ignored so far, and Irwin along with others in Palin's administration have argued no such pact is necessary to achieve a profitable pipeline, even during times of low gas prices.

  So we will yell at the screen once more; if fiscal certainty is not necessary for the producers to achieve a profitable pipeline, why does the AGIA license holder require fiscal certainty?

  Better yet...if it's such a profitable proposition, even during times of low prices and declining demand, why doesn't TransCanada and the State of Alaska build it on their own?

  Why? Because neither one can afford to take the risk.

  Irwin's performance is getting worse, time to change the ending of this movie or else Alaska's pipeline hopes will suffer the same fate as the old Sundowner drive-in on Fireweed Lane.

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