Alaska Producers Say Gas Pipeline Would Be Too Expensive 
A natural gas pipeline to the Lower 48 states from Alaska would be too expensive to build and too risky, according to a preliminary study by Exxon Mobil Corp., Phillips Petroleum Co. and BP Plc, the three largest lease holders along the North Slope. The producers told Alaska Gov. Tony Knowles' natural gas development team at a meeting last week in Anchorage that the project looks like a long shot at best. 
The proposed pipeline would yield a rate of return on investment of about 10-11%, far less than the 15% sought by the producers. Neither the Alaska Highway route nor the Mackenzie Delta route would provide attractive enough returns to justify the enormous up-front costs associated with such a massive construction project, according to preliminary analysis by the producers. 
The Alaska Highway Route, which is favored by state legislators because it would bring in more tax dollars, provide in-state jobs and have less environmental impact would cost about $17.2 billion. The significantly shorter route under the Beaufort Sea and south through Canada's McKenzie River valley would cost about $15.1 billion, the companies said, according to the report. 
Exxon, Phillips and BP are still examining their findings but clearly consider the project a long shot. Nevertheless, they are still willing to examine potential cost cutting measures, such as reducing construction costs and streamlining the permitting process to avoid delays. 
"Despite how some of the press are portraying it -- that the producers have scrapped the idea (the Canadian press was writing the obituary on the Alaska highway gas line yesterday) -- reports of its demise are greatly exaggerated, to borrow a phrase," said Knowles spokesman Bob King. "Actually I think there is some good news in what they said. They talked about the project not meeting their goal of a 15% rate of return, but they did say it was profitable. In fact, they said it would provide a 10-11% rate of return. I think that portends well for the project. 
"There's still a challenge and there are issues to be dealt with to make this project more economic," King added. "There are some steps the state can take to address some of the risk, but I think the fact that their projection that the gas line is profitable bodes well for the project. They didn't say this project is over. There still is a tremendous resource that is there. There's still a tremendous national need." 
The governor is going to be in Washington, DC, this week to testify Senate Energy and Natural Resources Committee hearing. "He'll talk about his proposals, which include some financial incentives in terms of investment tax credits and the like in order to help make this project economically viable," King said. "He's also mentioned accelerated depreciation and also some potential tax credits if gas prices turn south." 
King noted the governor and the Alaska legislature are still vehemently opposed to the Mackenzie Delta route. Alaska has passed a law essentially blocking that route. "The governor has always supported the Alaska Highway route. He thinks the over-the-top route is a nonstarter. There are too many logistical and environmental concerns that I don't think can ever be resolved in order for it to happen. There is a lot of opposition within the state from the Eskimos who depend on the Beaufort Sea for subsistence whale hunting. They've made it very clear that they would strongly challenge any such project even though this is a group that is very supportive of responsible development on the Slope. They want to make sure it's done in an acceptable manner, one that doesn't threaten their traditional lifestyles." 
Another main criteria is making sure that Alaskans have access to the gas itself, King added. The over-the-top route would bypass the Alaska market entirely. "That's clearly not acceptable."