Two days before she was picked as John McCain's running mate last week, Gov. Sarah Palin of Alaska presided over what she called "one of the most historic and exciting events" in Alaska since statehood when she signed a bill that could clear the way for a massive natural gas pipeline. Standing in a hotel ballroom in Anchorage, flanked by labor leaders, nurses, electricians, and other union members, Palin inked legislation to spur what analysts say could be the largest private capital project in U.S. history—the construction of a new pipeline to carry natural gas from Alaska's resource-rich North Slope to the rest of the country.
It's an ambitious project. The price tag for the planned 1,715-mile pipeline is an estimated $26 billion—and it's been a long time in the making. Alaskans have been eyeing their vast natural gas resources and attempting to sell them to buyers for decades.
McCain's campaign team, along with Alaskan Republicans, has been quick to credit Palin for overcoming past obstacles and pushing the project through. But with support for the proposed pipeline cutting across party lines, she was in part the beneficiary of lucky timing, with high energy prices driving demand for some kind of a deal. Indeed, the pipeline's promise has even been trumpeted by Democratic presidential nominee Barack Obama, who, in a speech this summer (given well in advance of Palin's selection), praised the project's potential for "delivering clean natural gas and creating good jobs in the process."
The pipeline will take at least a decade to build, so it will be years before the project can be judged a success or failure. But by almost any measure, its potential energy contribution is large. Alaska's North Slope contains about 35 trillion cubic feet of recoverable natural gas reserves, most of it in Prudhoe Bay. The pipeline, which is scheduled to be completed by 2018, is expected to carry about 4.5 billion cubic feet a day—the equivalent of about 8 percent of the country's current natural gas production. (Today, in fact, the eight largest natural gas-producing shale fields in the U.S. yield a combined 6.6 billion cubic feet a day, according to a recent private report.)
On top of that, Alaska officials say an additional 220 trillion to 230 trillion cubic feet may be recoverable with further exploration. "Alaska has tremendous reserves and resources," says Marty Rutherford, Palin's chief adviser for the pipeline. "We've always wanted to move this gas to market." At least one oil exploration company, Anadarko, was exploring for untapped natural gas in Alaska last winter.
The timing couldn't be better. As gas prices have climbed and energy independence has become a chief concern, natural gas is being billed as a promising domestic alternative, both for electricity and for fuel. Today, it already provides about 23 percent of the country's energy (mainly as electricity), and recent technological advances have led to a production boom of a scale not seen in several decades. Though natural gas is still a fossil fuel, it burns much cleaner than coal or oil, and everyone from Democratic House Speaker Nancy Pelosi to Texas oilman T. Boone Picken's has suggested it as a transition fuel to allow other technologies, like wind and solar, to come up to scale.
Alaska, officials there say, has been pushing to sell its natural gas since the 1970s, but it's taken a number of complementary factors—Palin being just one of them—to ignite the necessary effort to build a pipeline. Three well-known oil and natural gas companies—BP, ConocoPhillips, and ExxonMobil—control most of the North Slope's natural gas, and they've long used it to boost their own oil production, reinjecting it down into oil-and-gas wells to force out any remaining oil. Without the gas, their oil recovery would have been abysmal, says Cathy Foerster, the engineering commissioner at the Alaska Oil and Gas Conservation Commission.
But in recent years, production in Alaska's aging oil fields has dropped off. The value of natural gas, meanwhile, has increased, and state officials have been increasingly eager to find a way to sell it to the lower 48 states.
Politics, however, has frequently gotten in the way. Palin's predecessor, Gov. Frank Murkowski, tried to get the legislature to sign off on a gas pipeline plan that he had hammered out with the big oil companies, but the deal quickly unraveled. "The gives [to oil companies] were way in excess of what the economics required," says Alaska's Department of Natural Resources Commissioner Tom Irwin. (Irwin, who held the natural resources post under Murkowski as well, was fired at the time for opposing the deal, and six other top state officials resigned in protest.)
Under Palin, supporters say, the state has taken a much different—and ultimately more fruitful—approach. In 2007, she pushed the legislature to pass a law laying the groundwork for a new pipeline. This summer, after a long, open bidding process, the state awarded a license to TransCanada, a Canadian pipeline company, to build it. The company will spend the next year and a half doing field work and environmental assessments. Then, in 2010, it will try to line up gas suppliers (BP, ConcoPhillips, and ExxonMobil, mainly) before applying for the final nod from the Federal Energy Regulatory Commission. The next eight years would be spent building the line, which would cut from the North Slope down to Fairbanks and over toward Alberta, and then into the U.S., probably terminating near Chicago. As part of the agreement, the state has pledged $500 million to help move the project forward.
But the state's project could still run into trouble. Earlier this year, BP and ConocoPhillips got together and formed their own pipeline company, Denali, to build a competing Alaska natural gas pipeline. "It is clearly in our interest as gas lease holders and prospective shippers to make sure this line is done right and managed efficiently," says a BP spokesperson.
The upshot is that there are now two natural gas pipeline projects in Alaska, and analysts say that only one of them will get built. Some critics see the Palin-TransCanada plan as a gamble, because, to succeed, it will need the cooperation of the big oil companies that have the gas—in other words, their competitors.
There are also other concerns, such as whether TransCanada, even though it has laid some 36,000 miles of pipeline elsewhere, is up to the challenge, or whether the people of Alaska will benefit from the gas sales. Perhaps the biggest question is whether the state is forfeiting half a billion dollars by betting on a pipeline that may not get built. The plan's backers remain unfazed. "None of those parties have committed their gas to any pipeline at the moment," says TransCanada Vice President Tony Palmer. "We will be doing all we can to attract potential customers."
Palin's backers say her support for the TransCanada project underscores her effort to limit oil companies' influence over the state's affairs—a common refrain from the McCain campaign. Many Alaskans, they say, remember all too clearly the oil spill in the North Slope in March 2006, the largest such spill in that region's history. More than 200,000 gallons of oil were released from BP-operated pipelines, which investigators later said were corroded because of lack of cleaning and inspection.