The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

Congressional research reportJun 9, 2011

Ask Donna

What actually matters in this document.

Text

The Alaska Natural Gas Pipeline:

Background, Status, and Issues for Congress

Paul W. Parfomak

Specialist in Energy and Infrastructure Policy

June 9, 2011

Congressional Research Service

7-5700

www.crs.gov

R40963

CRS Report for Congress

Prepared for Members and Committees of Congress

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

Summary

Constructing a natural gas pipeline from Alaska’s North Slope to the lower-48 states has been a

government priority—periodically—for more than four decades. Beginning with the Alaska

Natural Gas Transportation Act of 1976, Congress has repeatedly affirmed a national need for an

Alaska gas pipeline. In remarks to the press President Obama has likewise described an Alaska

gas pipeline as “a project of great potential ... as part of a comprehensive energy strategy.”

A key step in advancing the pipeline project was the inclusion of $18 billion in federal loan

guarantees for such a pipeline in the Alaska Natural Gas Pipeline Act of 2004 (P.L. 108-324).

More recent milestones were the State of Alaska’s 2008 award to TransCanada Corporation

(TransCanada) of a license to build a natural gas pipeline from Prudhoe Bay to the lower-48 states

and the concurrent announcement of a competing pipeline proposal, the Denali project, by BP and

ConocoPhillips. Through 2010, the Denali and TransCanada pipelines were proceeding along

similar tracks. However, in May 2011, Denali’s developers announced the discontinuation of their

pipeline project due to insufficient customer support. TransCanada officials reportedly maintain

that their project is still active and on pace to seek a pipeline certificate from FERC in 2012.

Despite these assurances, some industry analysts are skeptical that the TransCanada pipeline

could ultimately prove viable when the Denali pipeline did not.

Many potential obstacles to an Alaska gas pipeline remain at this time, especially the project’s

economics. Since passage of P.L. 108-324, the combination of new shale gas supplies and

reduced growth in gas demand due to the recent U.S. economic downturn have caused natural gas

prices to plummet. While demand for natural gas will likely rebound as the U.S. economy

resumes its growth, independent gas producers assure strong lower-48 domestic natural gas

supplies for the foreseeable future. The Energy Information Administration projects U.S. shale

gas production will nearly triple from 2009 to 2035, continuing to put downward pressure on gas

prices. In such a price environment, there are ongoing concerns as to the cost-effectiveness of an

Alaska gas pipeline, with long-term pipeline economics a constantly moving target.

Proponents maintain that, if an Alaskan gas pipeline begins transporting gas to lower-48 markets

by 2020 as its developers anticipate, it would result in reduced U.S. energy prices, increased

energy security, and lower U.S. emissions of carbon dioxide. They assert that the project would

also create a significant number of jobs and support regional economic development. Like other

infrastructure projects in wilderness areas, however, an Alaska gas pipeline would also involve

significant environmental costs, many of which have yet to be determined. Ultimately, the

regional effects of any pipeline development on the Alaskan/Canadian environment must be

weighed against its economic value, energy security value, and its global benefits in reducing

carbon emissions from fossil fuels. To date, the judgment of Congress has favored construction of

a pipeline—but ensuring that its public benefits continue to outweigh its costs will likely remain a

key oversight challenge.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

Contents

Introduction ................................................................................................................................1

Issues for Congress ...............................................................................................................1

Background ................................................................................................................................2

Stalled Development .............................................................................................................2

Marine Transport Options .....................................................................................................3

Renewed Interest in the Pipeline ...........................................................................................4

Alaska Gasline Inducement Act (AGIA)................................................................................5

Alaska Gas Pipeline Proposals ....................................................................................................6

AGIA Proposals ....................................................................................................................6

Other Proposals.....................................................................................................................7

Project Economics ......................................................................................................................8

Natural Gas Price Expectations .............................................................................................8

Construction Costs and Cost Uncertainties .......................................................................... 10

Economic Development ...................................................................................................... 10

Current Project Status ............................................................................................................... 11

The LNG Option................................................................................................................. 12

Policy Issues for Congress ........................................................................................................ 13

Alaska Gas Pipeline Development Uncertainty.................................................................... 13

Canada’s Mackenzie Valley Pipeline ................................................................................... 13

Federal Loan Guarantee ...................................................................................................... 15

Environmental Impacts ....................................................................................................... 15

Terrorism Risks and Infrastructure Concentration................................................................ 16

Conclusion................................................................................................................................ 18

Figures

Figure 1. Alaska Oil and Natural Gas Pipelines 2011 ...................................................................3

Figure 2. Growth and Volatility in Monthly U.S. Natural Gas Prices ............................................4

Figure 3. Annual Average U.S. Wellhead Natural Gas Prices .......................................................9

Tables

Table A-1. Key Events in Alaska Natural Gas Pipeline Development......................................... 19

Appendixes

Appendix. Key Events .............................................................................................................. 19

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

Contacts

Author Contact Information ...................................................................................................... 19

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

Introduction

Over forty years ago, large natural gas reserves were discovered at Prudhoe Bay, Alaska. Since

that time, Congress has been encouraging the development of those natural gas resources.

Principal among its policies has been promoting the construction of a natural gas pipeline from

the Alaska North Slope to the lower-48 states. Beginning with the Alaska Natural Gas

Transportation Act of 1976,1 and continuing through the Alaska Natural Gas Pipeline Act of 2004

(P.L. 108-324), Congress has repeatedly affirmed a national need for an Alaska natural gas

pipeline. 2 The presidential administrations of Jimmy Carter, Ronald Reagan, and George W. Bush

also supported an Alaska gas pipeline project. The Obama administration has also voiced support

for such a pipeline. In remarks to the press during his first month in office, President Obama

described an Alaska gas pipeline as “a project of great potential ... as part of a comprehensive

energy strategy.”3

While it has been on the drawing board for decades, on and off, interest in an Alaska natural gas

pipeline revived in the early 2000s because of accelerated growth in U.S. natural gas demand,

price volatility in the natural gas market, and the increased importation of liquefied natural gas

(LNG) from overseas. Moreover, many analysts expected a national policy of carbon dioxide

control, which could further increase natural gas demand for electric power generation and,

possibly, transportation fuel. These factors led legislators to revisit the potential for an Alaska

natural gas pipeline to meet future growth in U.S. demand for natural gas and to restart the

process of Alaska gas pipeline development.4 Important milestones in this activity were Alaska’s

August 2008 award to TransCanada Corporation (TransCanada) of a license to build a natural gas

pipeline from Prudhoe Bay to the lower-48 states and the concurrent announcement of a

competing pipeline proposal. To date, however, despite renewed support at both the federal and

state levels, construction of an Alaska natural gas pipeline has not begun.

Issues for Congress

This report provides a brief review of the history of efforts to develop an Alaska natural gas

pipeline, including project status, recent developments, and the current project outlook. It also

discusses key policy issues related to the construction of the pipeline and its potential role in the

context of U.S. energy and climate policy.5 Specific issues of particular interest to Congress

include the implications for U.S. energy supplies and energy prices of an Alaska gas pipeline, and

proposed legislation to raise the federal loan guarantee for the pipeline’s construction. Other

issues include an Alaska gas pipeline’s environmental impacts, its physical security, and its

relationship to the proposed Mackenzie Valley pipeline in Canada.

15 U.S.C. § 719 et seq.

For example, see P.L. 108-324 § 103(b)(2)(A) “a public need exists to construct and operate the proposed Alaska

natural gas transportation project.”

Erika Bolstad, “Obama Calls Alaska Gas Pipeline Promising,” Anchorage Daily News, February 11, 2009.

U.S. Energy Information Administration, Natural Gas Monthly, August 2009, Table 2. Full initial pipeline capacity is

4.5 billion cubic feet per day.

Portions of this report previously appeared in CRS Report RL34671, The Alaska Natural Gas Pipeline: Status and

Current Policy Issues, by William F. Hederman.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

Background

Arctic Alaska has substantial natural gas resources. The U.S. Geological Survey (USGS) has

estimated that conventional natural gas reserves on Alaska’s North Slope potentially exceed 100

trillion cubic feet (Tcf), over four times the total annual gas consumption of the United States.6

The agency’s assessment of undiscovered conventional gas resources across the entire Arctic

region concluded that over 1,600 Tcf of additional natural gas reserves remains to be found, with

a significant share located under U.S. territory.7 The USGS has also estimated that the North

Slope, specifically, may contain up to 158 Tcf of technically recoverable natural gas in the form

of methane hydrates.8 Although methane hydrate resources cannot yet be developed because there

are no commercially viable methods to do so, future technologies may make such production

economic. Taken together, these vast natural gas resources—both proven and anticipated—in

Arctic Alaska have been the motivation for a natural gas pipeline to supply Alaskan natural gas to

the lower-48 states.

In 1976, Congress passed the Alaska Natural Gas Transportation Act (ANGTA) to provide for

sound decision-making on an Alaska Natural Gas Transportation System (ANGTS). The statute

provided for congressional and presidential participation in the pipeline planning process and

sought to expedite pipeline construction. The three main policy steps in the process were all

completed by the end of 1977. First, the Federal Power Commission recommended (equally) two

potential gas transportation options, both overland pipeline proposals along different routes

through Alaska and Canada to the lower-48 states.9 (A third, rejected, option was an overland

pipeline across Alaska combined with an LNG export terminal in the port of Valdez.) President

Carter then selected the route running along the Alaska Highway in preference to the northern

route through the Mackenzie Delta, as shown in Figure 1. Congress approved the president’s

decision through a joint resolution on November 8, 1977.10 This may have been the last time the

project proceeded according to the original plan. A timeline including passage of ANGTS and

other key events in the development of the Alaska gas pipeline project is presented in the

Appendix.

Stalled Development

In the winter of 1977-1978, the United States experienced serious shortages of interstate natural

gas supplies due to wellhead gas price controls imposed under a 1954 Supreme Court decision.11

In response to these delivery problems, Congress passed the Natural Gas Policy Act of 1978

(NGPA), which effectively reversed the court’s decision. Congress also passed the Powerplant

and Industrial Fuel Use Act of 1978 (PIFUA), which restricted the construction of gas-fired

power plants and the use of natural gas in large industrial boilers.12 In the wake of these statutes

David W. Houseknecht, U.S. Geological Survey, Conventional Natural Gas Resource Potential, Alaska North Slope,

Open File Report 2004-1440, December 13, 2004; U.S. Energy Information Administration, Annual Energy Outlook

2011, DOE/EIA-0383(2011), April 2011, p. 141.

U.S. Geological Survey, USGS Arctic Oil and Gas Report, Fact Sheet, July 2008.

U.S. Geological Survey, Gas Hydrate Resource Assessment: North Slope, Alaska, Fact Sheet, October 2008

The Federal Power Commission (FPC) was the predecessor of the Federal Energy Regulatory Commission (FERC).

H.R. J. Res. 621, P.L. 95-158, 91 Stat. 1268, 95th Cong., 1st Sess., 1977.

Phillips Petroleum Co. v. Wisconsin, 347 U.S. 672

P.L. 95-62 and P.L. 95-620.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

and related policies, a natural gas oversupply developed, causing natural gas prices to fall sharply

and persistently. At the same time, in an often repeated pattern for major U.S. energy supply

projects, cost estimates for the Alaska gas pipeline increased. As a result of these factors, the

desirability of the Alaska natural gas transportation system declined. 13 Commercial attention to

the Alaska gas pipeline initiative essentially disappeared by the mid-1980s.

Figure 1. Alaska Oil and Natural Gas Pipelines 2011

Source: Adapted from CRS Report RL31278, Arctic National Wildlife Refuge: Background and Issues, Figure 6,

based on Energy Department maps.

Although the full Alaska gas pipeline system made little progress, the southernmost parts of the

project did get developed during this period to transport growing natural gas supplies from the

Western Canadian sedimentary basin. Producers from Alberta, along with Canadian authorities

and U.S. and Canadian pipeline companies, cooperated to pre-build the downstream legs of the

ANGTS. The western leg of the ANGTS, paralleling the Pacific Gas Transmission pipeline,

began service from Alberta to California in 1981. The eastern leg, the Northern Border Pipeline,

went into service from Alberta to the Midwest in 1982 (Figure 1).

Marine Transport Options

In the 1980s, reacting to the lack of progress on the land-based pipeline system, the U.S.

Maritime Administration authorized a study of marine options for transporting Alaskan natural

gas as LNG aboard specialized tankers to determine whether they might offer U.S. shipbuilding

opportunities. Such tankers had been transporting LNG to Japan from natural gas fields in south

central Alaska (Cook Inlet) since 1969. The results of the study indicated roughly comparable

economics for pipeline and LNG transport to the U.S. west coast. LNG sales to the Pacific Rim

See discussion in D. Fried and W. Hederman, “The Benefits of an Alaska Natural Gas Pipeline,” The Energy

Journal, Vol. 2, No. 1, January 1981, p. 22.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

generally had greater economic potential, but were viewed as politically untenable because they

would increase U.S. energy exports rather than increase domestic supplies.14

Renewed Interest in the Pipeline

Serious reconsideration of the construction of a natural gas pipeline from the Alaska North Slope

began around 2000. This reconsideration was prompted, in large part, by tightening gas supplies

to the lower-48 states and corresponding increases in natural gas prices and price volatility as

shown in Figure 2.

Figure 2. Growth and Volatility in Monthly U.S. Natural Gas Prices

Source: U.S. Energy Information Administration, “U.S. Natural Gas Wellhead Price,” Internet database, May 31,

2011, http://www.eia.gov/dnav/ng/hist/n9190us3m.htm. Prices are in nominal dollars.

One important sign of renewed interest in an Alaska pipeline was the recommendation in the

2001 National Energy Policy report that the administration “expedite the construction of a

pipeline to deliver natural gas to the lower 48 states.”15 Nearly concurrent with the release of this

report, President George W. Bush issued Executive Order 13212, which set forth the

administration’s policy that executive departments and other federal agencies act to expedite

projects that would increase the production, transmission, or conservation of energy.16 To this end

a federal interagency task force was established in 2001, co-chaired by the Departments of

Energy and State, to identify any impediment to processing an Alaska gas pipeline permit

application and to recommend ways to streamline the process.17

In 2004, Congress passed the Alaska Natural Gas Pipeline Act (P.L. 108-324, Div. C), a key step

in advancing the pipeline project. This act originated in broader national energy legislation that

W. F. Hederman, “A Review of Marine Systems Use in Developing Alaska Natural Gas,” SPE 11294, SPE

Hydrocarbon Economics and Evaluation Symposium, March 2, 1983, Dallas, TX.

National Energy Policy Development Group, National Energy Policy, Office of the Vice President, May 16, 2001, p.

7-18.

E.O. 13212, “Actions to Expedite Energy-Related Projects,” 66 F.R. 28357, signed by President Bush on May 18,

2001.

U.S. Department of Energy, National Energy Technology Laboratory, Delivering Alaskan North Slop Gas To

Market, June 2004, p. 8, http://www.netl.doe.gov/publications/factsheets/policy/Policy003.pdf. Other task force

members included the Department of the Interior (Bureau of Land Management and Minerals Management Service),

the Department of Transportation (Office of Pipeline Safety), and the Federal Energy Regulatory Commission.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

was introduced in 2001, but advanced only slowly through Congress during 2002 and 2003. The

Alaska provisions were eventually removed from the broader bill and enacted separately.18

Among its key provisions, P.L. 108-324:

•

clarified that, despite the passage of time since the earlier legislation, the Federal

Energy Regulatory Commission (FERC) could still accept, review, and act upon

applications for a new pipeline project under the Natural Gas Act or the Alaska

Natural Gas Transportation Act;

•

created an Office of the Federal Coordinator (OFC) for the issuance by other

federal agencies of necessary pipeline permits;

•

provided for a pipeline development loan guarantee of as much as $18 billion;

•

established guidance for FERC to regulate the pipeline’s capacity bidding process

so that it would be available to parties beyond the three major North Slope

producers—thereby promoting competition in Alaska North Slope natural gas

development.19

The American Jobs Creation Act of 2004 (P.L. 108-357 § 706) provided a 7-year cost-ofinvestment recovery period for tax purposes (instead of the previously allowed 15-year period)

and a designated economic life (class life) of 22 years for the Alaska natural gas pipeline. These

provisions were intended by Congress to reduce the cost of capital for the project.20 The act also

provided a tax credit for a North Slope natural gas treatment plant required for the pipeline’s

operation. Broader, national energy legislation, which passed in 2005 (Energy Policy Act of 2005,

P.L. 109-58), also addressed the Alaska natural gas pipeline. P.L. 109-58 required FERC to submit

to Congress on a semi-annual basis progress reports about licensing and building the pipeline (§

1810).21 In June 2006, consistent with P.L. 108-324 and in accordance with E.O. 3212, fifteen

federal agencies with regulatory and other responsibilities related to an Alaska natural gas

pipeline signed a memorandum of understanding “to use best efforts to achieve early coordination

and compliance with deadlines and procedures established by relevant agencies” in support of the

pipeline’s development. 22

Alaska Gasline Inducement Act (AGIA)

In 2007, Alaska passed the Alaska Gasline Inducement Act (AGIA), seeking to encourage

expedited construction of a natural gas pipeline from Alaska’s North Slope to gas markets in

Alaska and the lower-48 states.23 AGIA requires a pipeline developer to meet certain requirements

advancing the project in exchange for a license providing up to $500 million in matching funds,

thereby reducing the developer’s financial risks. Among other provisions, the statute requires a

State of Alaska, Department of Revenue, The Alaska Natural Gas Pipeline Act of 2004, undated, p. 1,

http://www.revenue.state.ak.us/gasline/Annex%201.pdf

The FERC issued a final rule on the open season matter on February 9, 2005 (FERC Order No. 2005).

U.S. Congress, Joint Committee on Taxation, General Explanation Of Tax Legislation Enacted In The 108th

Congress, Joint committee print, JCS-5-05, May 2005, p. 330.

P.L. 109-58, 119 Stat. 594(2005), 42 U.S.C. Section 15801 et seq.

U.S. Dept. of Agriculture, et al. ,Memorandum of Understanding Related to an Alaska Natural Gas Transportation

Project, June 2006, p. 3, http://www.usace.army.mil/CECW/Documents/cecwo/reg/mou/Alaska_MOU.PDF.

AS 43.90 et seq.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

developer’s commitment to: apply by a specific date for key regulatory approvals, to hold an open

season for soliciting bids from North Slope gas producers for future shipments on the pipeline,

and to expand the pipeline on rate and tariff terms that would allow gas producers to fully

develop Alaska’s North Slope natural gas resources.24 The AGIA also establishes a competitive,

public process for the evaluation and selection of pipeline proposals under specific criteria.

Alaska Gas Pipeline Proposals

Developers have proposed seven major pipeline projects to develop North Slope natural gas

reserves since 2007. Five of these proposals were filed under the AGIA process. Two have been

proposed outside that process.

AGIA Proposals

In July 2007, the State of Alaska issued a Request for Applications (RFA) seeking proposals from

any interested developer willing to meet the AGIA requirements. The state received competing

applications from five developers:

•

TransCanada Pipelines Ltd. (TransCanada) and Foothills Pipe Lines, Ltd.,

proposed a pipeline along a route similar to the ANGTS route for the originally

approved project. The pipeline would connect with the existing TransCanada

Alberta network at the Alberta hub. TransCanada would not construct a North

Slope gas treatment plant to process wellhead gas for pipeline transport, although

the company stated a willingness to develop such a plant if necessary. The

original capacity of this pipeline would be between 4.5 to 5.0 billion cubic feet

per day (Bcf/d). According to FERC staff, it would be expandable to 5.9 Bcf/d

through the use of greater compression only, and, therefore, at relatively low

added cost. 25 ExxonMobil, one of the three major Prudhoe Bay natural gas

producers, joined with TransCanada to develop this project in June 2009.26 The

project anticipates an in-service date of 2018.

•

Alaska Gasline Port Authority (AGPA), a municipal entity (including the City

of Valdez, Fairbanks North Star Borough, and North Slope Borough), proposed a

pipeline from the North Slope to Valdez, where the gas could be liquefied and

shipped as LNG to Asia, the West Coast of the United States, Mexico, or Hawaii.

The “All Alaska Gasline/LNG Project” would be constructed and operated by

private contractors but publicly financed.

•

Alaska Natural Gasline Development Authority (ANGDA) proposed a smaller

capacity lateral pipeline to link from whatever major North Slope pipeline was

State of Alaska, “Frequently Asked Questions Regarding the Alaska Gasline Inducement Act (“AGIA”) and the

AGIA Process,” November 8, 2008, p. 1, http://www.gov.state.ak.us/agia/agia_faqs_11808.pdf.

Federal Energy Regulatory Commission, Sixth Report to Congress on Progress Made in Licensing and Constructing

the Alaska Gas Pipeline, August 29, 2008, p. 8.

TransCanada Corp., “TransCanada and ExxonMobil to Work Together on Alaska Pipeline Project,” Press release,

June 11, 2009.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

selected to South Central Alaska (Anchorage and other locations), making up for

declining production there.

•

A China Petroleum and Chemical Corporation (Sinopec) subsidiary and Little

Susitna Construction Company proposed a pipeline from the North Slope to

Valdez in the south where the gas would be liquefied and exported to the Pacific

Rim as LNG.

•

AEnergia LLC, a startup company formed by persons with large project

engineering experience, proposed a North Slope-to-Alberta pipeline jointly

owned by the producers (74%), the State of Alaska (25%), and AEnergia (1%).27

Of these applications, former Alaska Governor Sarah Palin determined that only TransCanada’s

met the AGIA requirements and was complete enough to be evaluated. In May 2008, the governor

recommended the TransCanada proposal to the state legislature. The legislature accepted this

recommendation and voted to award TransCanada the AGIA license in August 2008.28 The

Sinopec and AEnergia proposals subsequently were not pursued; the other three proposals are still

active.

Other Proposals

In addition to the proposals filed under Alaska’s AGIA process, developers made two alternative

proposals to construct North Slope gas pipelines or otherwise bring North Slope natural gas to

market.

•

BP and Conoco Philips (Denali), two of the three major Prudhoe Bay natural

gas producers, jointly proposed a 4.0 Bcf/d pipeline project outside the AGIA

process (and, thus, ineligible for the $500 million in state funds). The BP-Conoco

Philips “Denali” Pipeline would follow a route similar to that of the TransCanada

project to the Alberta hub. The Denali project, however, would include a gas

treatment facility and would consider the option of new pipelines through Alberta

and to the lower-48 states if deemed necessary. 29 The project schedule proposed

initial pipeline service in 2018.30

•

Enstar Natural Gas Company proposed a 690-mile smaller capacity (0.5 Bcf/d)

“bullet” pipeline from the North Slope to South-central Alaska as an alternative

to the ANGDA lateral pipeline proposal. The Enstar pipeline would not depend

upon the construction of a larger Alaska natural gas pipeline (either

TransCanada’s or Denali) to supply natural gas to in-state markets.31

•

Alaska Natural Resources To Liquids, LLC was one of several “gas-toliquids” (GTL) proposals that would convert North Slope natural gas to liquid

hydrocarbon fuels (e.g., diesel and gasoline) and then transport them via a new

Federal Energy Regulatory Commission, Fifth Report to Congress on Progress Made in Licensing and Constructing

the Alaska Gas Pipeline, February 19, 2008, pp. 2-3.

Alaska HB 3001, August 1, 2008.

BP and ConocoPhillips, “BP and ConocoPhillips Join on the Alaska Gas Pipeline,” Joint press release, April 8, 2008.

BP and ConocoPhillips, “Denali - The Alaska Gas Pipeline Project,” Web page, October 15, 2009,

http://www.denalipipeline.com/overview.php.

Fairbanks Economic Development Corp., In-State Gas Pipeline Supply Options Study, February 5, 2009, p. 39.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

pipeline or through the existing Trans Alaska Pipeline System (Figure 1) to

Valdez for marine shipment out of state.32 While not intended to deliver natural

gas to the lower-48 states, such a project would develop Alaska’s North Slope gas

reserves as an alternative to a natural gas pipeline.

According to trade press accounts, despite the support of some in Congress, there are currently no

active GTL project proposals for the North Slope, and the economic and technical challenges

make such a project unlikely.33 Of the other Alaska natural gas pipeline projects, only the

TransCanada, Denali, and AGPA proposals would transport natural gas out of Alaska. The

ANGDA and Enstar proposals involve smaller projects focused exclusively on natural gas

supplies to markets within Alaska. Because the latter two proposals are of more state interest than

national interest, they are not discussed further in this report.

Project Economics

An Alaska gas pipeline or pipeline/LNG terminal combination transporting natural gas from the

North Slope to the lower-48 states would be, by some measures, the largest civilian construction

project in the history of North America. When initially announced, the TransCanada and Denali

pipeline developers estimated total project costs of $27 billion34 and $30 billion,35 respectively.

The Energy Information Administration has assumed total capital costs for a TransCanada or

Denali-type pipeline of approximately $28.8 billion and capital costs for a pipeline/LNG project

of approximately $35.4 billion.36 In light of these enormous capital requirements, policy makers

and investors alike have paid close attention to key factors affecting the economic viability of the

proposed projects, as well as their potential impact on regional and national economic

development.

Natural Gas Price Expectations

Future prices of natural gas will have the greatest influence, by far, on the cost effectiveness of an

Alaska natural gas pipeline. According to a 2008 study prepared for the Alaska legislature, the net

present value of the TransCanada pipeline would be positive with long-term real natural gas

prices above $5.00 per thousand cubic feet (Mcf) and potentially at lower prices. 37 A federal tax

credit for the pipeline proposed in 2002 under H.R. 4 implied economic viability of the project at

Alaska Natural Resources To Liquids, LLC, “A Legacy Decision for Alaska,” Presentation to the Alaska State

Legislature, Joint Legislative Budget and Audit Committee, June 20, 2008; Tim Bradner, “Natural Gas: Exxon, BP,

Independent All Planning Gas-To-Liquids Projects,” Alaska Journal of Commerce, April 16, 2000.

“Senator Calls for GTL Plant to Prop Up TAPS Pipeline Volumes,” BMI Americas Oil and Gas Insights, April 1,

2011.

TransCanada Corp., Application for License: Alaska Gasline Inducement Act, November 30, 2007, p. 2.5-2. 2007

dollars.

Wesley Loy, “BP, Conoco Join Forces to Pursue Gas Pipeline,” Anchorage Daily News, April 9, 2008. 2008 dollars.

U.S. Energy Information Administration, March 2009, p. 39. Costs are adjusted to 2009 dollars. A gas-to-liquids

option is assumed to have capital costs of approximately $60 billion.

Black & Veatch, Net Present Value (NPV) Analysis, Presentation to the Alaska State Legislature, Joint Legislative

Budget and Audit Committee, June 18, 2008, p. 18, http://lba.legis.state.ak.us/proposals/doclog/2008-0618black_veatch_npv_spec_sess_jnt_comm.pdf.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

a gas price of approximately $4.00/Mcf (in 2011 dollars).38 By comparison, the EIA’s most recent

analysis projects lower-48 wellhead natural gas prices to rise from $4.09/Mcf in 2011 to

$5.81/Mcf in 2030.39 Based on such projections, assuming adequate gas production from North

Slope fields, TransCanada’s project would be marginally cost-effective. Assuming similar

economics, the Denali project would also likely be marginally cost-effective.

Figure 3. Annual Average U.S. Wellhead Natural Gas Prices

(Nominal dollars per thousand cubic feet)

$9.00

$8.00

$7.00

$6.00

$5.00

$4.00

$3.00

$2.00

$1.00

$0.00

2004

2005

2006

2007

2008

2009

2010

2011*

Source: U.S. Energy Information Administration, “U.S. Natural Gas Wellhead Price,” Internet

database, October 20, 2009, http://tonto.eia.doe.gov/dnav/ng/hist/n9190us3M.htm.

*2011 value is January-March average.

Although the EIA’s forecast of natural gas prices could potentially support the construction of an

Alaska gas pipeline, such forecasts are dynamic and can change unexpectedly due to structural

changes in natural gas markets, changes in regulation, and general economic conditions. For

example, when Congress passed the Alaska Natural Gas Pipeline Act of 2004, the average annual

price for U.S. wellhead natural gas was $5.46/Mcf and rising (Figure 3). Four years later, in

2008, the average annual gas price increased to $8.07/Mcf. This high price level, however,

spurred unexpected growth in the production of “unconventional” natural gas from shale deposits

in the lower 48-states.40 The combination of new shale gas supplies and reduced growth in gas

demand due to the recent U.S. economic downturn subsequently caused natural gas prices to

plummet. For the first three months of 2011, wellhead natural gas prices averaged $4.07/Mcf.

While demand for natural gas will likely rebound as the U.S. economy resumes its growth,

independent gas producers assure strong lower-48 domestic natural gas supplies for the

foreseeable future. The EIS projects U.S. shale gas production will nearly triple from 2009 to

H.R. 4, Energy Policy Act of 2002, Engrossed Amendment as Agreed to by Senate, Section 2503. The provision was

not enacted.

U.S. Energy Information Administration, Annual Energy Outlook 2011, DOE/EIA-0383(2011), Reference case

tables, “Natural Gas Supply, Disposition, and Prices, Reference case,” April 26, 2011, p. 44, http://www.eia.gov/oiaf/

aeo/tablebrowser/#release=AEO2011&subject=0-AEO2011&table=13-AEO2011&region=0-0&cases=ref2011d020911a. Prices are in 2009 dollars.

U.S. Energy Information Administration, Is U.S. Natural Gas Production Increasing?, Energy Brief, June 11, 2008,

http://tonto.eia.doe.gov/energy_in_brief/natural_gas_production.cfm.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

2035, continuing to put downward pressure on gas prices.41 In such a price environment, there are

ongoing concerns as to the cost-effectiveness of an Alaska gas pipeline, with long-term pipeline

economics a constantly moving target. Nonetheless, Alaska state officials reportedly stated in

2009 that, notwithstanding unprecedented shale gas development across North America, the

outlook for the pipeline was “extremely healthy from an economic standpoint.”42 The state’s

Alaska Pipeline Project Report, released in October 2009, likewise stated that “the temporary

weakness of North American natural gas demand is not a determining factor in establishing the

economic viability of an Alaska natural gas pipeline.”43

Construction Costs and Cost Uncertainties

TransCanada and Denali estimated similar costs for their proposed projects—between $28 billion

and $30 billion. Some analysts, however, have suggested that these estimates are conservative

and that project costs could reach $40 billion. 44 Infrastructure analysts point to numerous

examples of cost overruns for other recent multi-billion dollar, decade-long transportation

projects, such as Boston’s “Big Dig” Central Artery/Tunnel Project, the English Channel Tunnel,

and the Oresund Bridge from Denmark to Sweden. 45 They conclude that “large construction cost

escalations in transport infrastructure projects are common and exist across different project

types, different continents, and different historical periods.”46 While the TransCanada and Denali

pipeline developers have claimed extensive experience managing the construction of major

pipeline projects within budget, the scale of an Alaska gas pipeline would be unprecedented, and

the risk of cost overruns might be significant. Projected costs for a similar but smaller Arctic

natural gas pipeline proposal, the Mackenzie Valley Pipeline (further discussed below), which is

also still in development, reportedly doubled between 2005 and 2007.47

Economic Development

The Alaska natural gas pipeline project has important implications for Alaska’s economy. By one

estimate commissioned by the state in 2006, the net present value of state and local government

earnings from the project, including associated North Slope natural gas production, could exceed

$29 billion over its lifetime. 48 New natural gas royalty revenue could offset future declines in

ongoing oil royalties from mature North Slope oil fields, which have accounted for 85% of the

state’s unrestricted general fund, on average, since the Trans Alaska Pipeline System began

U.S. Energy Information Administration, Annual Energy Outlook 2011, April 26, 2011, p. 37.

Rena Delbridge, “State Sticks by Pipeline Deal,” Alaska Dispatch, October 26, 2009.

Alaska Dept. of Revenue and Dept. of Natural Resource, Alaska Pipeline Project Report: Licensed under the Alaska

Gasline Inducement Act (AGIA), October 31, 2009. p. 21.

Tim Bradner, “Wobbly Market May Crimp Gas Line,” Alaska Journal of Commerce, February 2, 2009.

A. E. Barinov, “Systemic and Political Factors Affecting Cost Overrun in the World Economy’s Large Investment

Projects,” Studies on Russian Economic Development, Vol. 18, No. 6, 2007, pp. 650–658.

Bent Flyvbjerg, Mette K. Skamris Holm And Søren L. Buhl, “What Causes Cost Overrun in Transport Infrastructure

Projects?,” Transport Reviews, Vol. 24, No. 1, January 2004, p. 16.

“Former Canadian Official: State Gas Line Faces Numerous Hurdles,” Associated Press, April 15, 2008.

Information Insights, Inc., Economic, Fiscal and Workforce Impacts of Alaska Natural Gas Projects, Prepared for

Alaska Department of Revenue, May 10, 2006, p. 8. Adjusted to 2009 dollars.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

operation. 49 Although state oil revenues set a record in FY2009 due to high global oil prices, oil

production in Alaska has actually declined 63% from its peak in 1988.50

Development of an Alaska natural gas pipeline to the lower-48 states would also create many new

jobs. The Alaska-commissioned analysis concluded in 2006 that the pipeline

increases the state’s labor force needs by an average of 18,000 direct, indirect and induced

workers per year during construction. The project also creates a sustained impact of about

26,000 jobs per year after construction from both pipeline operations and jobs generated by

state and local spending of project-related oil and gas revenue.51

Throughout the nation, numerous additional jobs would be created in support of, or resulting

from, the pipeline’s construction. According to one estimate cited in 2004 by Senator Lisa

Murkowski, up to 1.1 million jobs nationwide could be created—directly and indirectly—by the

pipeline, although details of this analysis are not publicly available. 52 A different analysis of

public infrastructure spending reported that 21,888 total jobs are created for every $1 billion in

new investment in natural gas projects.53 Based on this ratio, a $28 billion Alaska gas pipeline

would create approximately 600,000 new jobs, including jobs in Canada. These jobs include

those directly involved in constructing the new project, supplying the project (e.g., line pipe,

construction equipment), and induced by the general spending of new pipeline-related employees.

Projections of new jobs are highly uncertain, however, particularly for a project as unique as an

Alaska gas pipeline, so the actual number of jobs to be created remains somewhat speculative.

In addition to job creation, the presence of a major interstate pipeline from the North Slope to the

lower-48 could change the economics of many local energy markets within Alaska. For example,

both TransCanada and Denali agreed to provide up to five natural gas delivery points within

Alaska, which could allow local communities near the pipeline right-of-way to provide new

natural gas service. Delivery to Anchorage and other South-central Alaska markets could also

offset declining natural gas supplies from gas fields at Cook Inlet. New or sustained supplies of

natural gas to these communities would be an important factor in their economic health.

Current Project Status

Because the pipeline/LNG proposals for transporting natural gas out of Alaska would involve

interstate commerce, they are subject to federal siting approval by FERC under the Natural Gas

Act of 1938.54 Additional state and local approvals for aspects of the project would be required, as

Resource Development Council for Alaska, Inc., “Alaska’s Oil and Gas Industry,” Web page, June 2, 2011,

http://www.akrdc.org/issues/oilgas/overview.html#Anchor-Facts-51540.

Ibid.

Information Insights, Inc., May 10, 2006, p. 82.

U.S. Congress, House Committee on Energy and Commerce, Subcommittee on Energy and Air Quality, May 6,

2004, p. 10.

Political Economy Research Institute, How Infrastructure Investments Support the U.S. Economy: Employment,

Productivity and Growth, January, 2009, p. 25.

Section 7 of the Natural Gas Act authorizes FERC to issue certificates of “public convenience and necessity” for “the

construction or extension of any facilities ... for the transportation in interstate commerce of natural gas” (15 U.S.C. §

717f).

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

well as approvals from Canadian federal, territorial, provincial, and First Nation agencies for the

sections of the project running through Canada.

Through 2010, the Denali and TransCanada pipelines (only one of which could be constructed)

were proceeding along similar tracks. Both had initiated FERC’s pre-filing process, whereby

prospective pipeline developers engage with stakeholders—including state, local, and other

federal agencies—before filing an application for a Natural Gas Act 7(c) pipeline certificate.

Although Denali began the pre-filing process in June 2008, and TransCanada in April 2009, both

projects conducted open seasons in 2010 soliciting commitments for future gas shipments. If the

open seasons yielded sufficient interest from gas shippers, either the Denali or TransCanada

project could file pipeline siting applications with FERC, Canada’s National Energy Board, and

other agencies. However, in May 2011, Denali’s developers announced the discontinuation of

their pipeline project “because of a lack of customer support.”55 TransCanada officials reportedly

maintain that their project “has made good progress on commercial negotiations with customers”

and is on pace to seek a pipeline certificate from FERC in 2012.56 Despite these assurances, some

industry analysts are skeptical that the TransCanada pipeline could ultimately prove viable when

the Denali pipeline did not.57 Based on TransCanada’s original development schedule, its pipeline

project, if it proceeds, could be in service by approximately 2020.58 EIA’s most recent scenarios

in which the pipeline is constructed project in-service dates between 2026 and 2030.59

The TransCanada and Denali pipeline projects had been competing and mutually exclusive

proposals, each backed by different North Slope producers. To reduce project costs and improve

the likelihood of success, some key policy makers had been encouraging the various developers

to come together on a single pipeline project. For example, Alaska Governor Sean Parnell stated

in 2009, “Four major, international companies all working on an Alaska gas line. To me, that’s

good news. Now the challenge is to get them working on the same project.”60 Given that the

Denali project has been terminated, producer cooperation on TransCanada’s pipeline may now be

a greater possibility. Whether BP and Conoco Philips, having discontinued their Denali project,

would seek to join Exxon in the TransCanada project, is an open question.

The LNG Option

The AGPA proposal to build a pipeline from the North Slope to Valdez, and then ship out natural

gas on LNG tankers, has not advanced to the detailed planning and project development stage.

However, TransCanada committed to including the option of transporting natural gas for the

AGPA’s proposed LNG project within its open season for its mainline pipeline from the North

Slope to Alberta.61 According to remarks to Alaska legislators in June 2009, TransCanada saw

“serious interest” among potential shippers for an LNG alternative to its all-land pipeline

Denali—The Alaska Gas Pipeline, LLC., “Denali Discontinues Gas Pipeline Project,” Press release, May 17, 2011.

Bill McAllister, “TransCanada Responds to Denali Project Folding,” KTVA CBS 11 News, Alaska, May 19, 2011.

Cassandra Sweet, “TransCanada Sticks to Alaska Gas Pipeline Project Even as Rival Bows Out,” Wall Street

Journal, May 17, 2011; Andrew Halcro, “Denali’s Demise Doesn't Bode Well For State-Backed Gas Pipeline,” Alaska

Dispatch, May 18, 2011.

U.S. Energy Information Administration, March 2009, p. 77.

U.S. Energy Information Administration, April 26, 2011, p. 40.

Stefan Milkowski, “Parnell Chamber Talk Focuses on Energy,” Petroleum News, Vol. 14, No. 40, October 4, 2009.

Federal Energy Regulatory Commission, Eighth Report to Congress on Progress Made in Licensing and

Constructing the Alaska Gas Pipeline, August 26, 2009, p. 6.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

proposal.62 Interest in advancing the LNG project further increased after September 2009, when

the AGPA’s general counsel, Bill Walker, declared his candidacy for the Alaska governorship with

the AGPA gas pipeline/LNG project as the primary issue in his campaign.63 Concerns about the

economic viability of the TransCanada pipeline also cast doubt on the viability an LNG

alternative project, however, so the likelihood of such a project remains unclear.

Policy Issues for Congress

Congress’s last major action to promote an Alaska gas pipeline was passing the Alaska Natural

Gas Pipeline Act in 2004. Under that federal statutory framework, as well as provisions in Alaska

state law, the TransCanada pipeline project is said to be proceeding on schedule. Since 2004,

Congress has been monitoring progress on pipeline development, with only a few legislative

proposals directly addressing these projects (further discussed below). As Congress continues to

oversee Alaska gas pipeline activities, several policy issues may attract particular attention. The

most important of these is continued uncertainty about whether an Alaska gas pipeline will

ultimately be constructed—and, if not, the broader implications for U.S. energy supplies and

energy prices. Other important issues are Canada’s development of a Mackenzie Valley Pipeline,

the federal loan guarantee for the Alaskan pipeline’s construction, the environmental impact of

the project, and its physical vulnerability to acts of terrorism.

Alaska Gas Pipeline Development Uncertainty

Many policy makers and developers have had high expectations for the contribution of an Alaska

natural gas pipeline to U.S. energy supplies. But given the scale, investment requirements, and

10-year time frame required to construct such a pipeline, there continues to be uncertainty

regarding its completion. As discussed above, the project faces specific risks deriving from gas

prices and pipeline construction costs—but it also faces significant risks involving natural gas

production costs, environmental impacts, interest rates, tax policies, and regulatory uncertainty.

If, through some combination of these factors, the pipeline’s development stalls (again), it may

have a ripple effect on the U.S. energy sector and the broader economy. For example, a large

quantity of Alaskan natural gas could help to moderate growth and volatility of natural gas prices

in the lower-48 states. Without such supplies, the U.S. market could be more exposed to

unanticipated disruptions in shale gas supplies or, in some regions, imported LNG—which has a

history of price volatility in the international market. Not having Alaskan natural gas supplies

might also make it more difficult or costly to reach U.S. carbon reduction targets by substituting

cleaner natural gas for other fossil fuels in power generation or motor vehicles.64

Canada’s Mackenzie Valley Pipeline

Because large sections of a proposed Alaska natural gas pipeline to the lower-48 states would

pass through Canada, the involvement of Canadian agencies is essential for the pipeline’s success.

Tony Palmer, Vice President, TransCanada Corp., Testimony before the Alaska House Resources Committee, June

23, 2009.

Bill Walker, All-Alaska Governor, Web page, October 15, 2009, http://www.billwalkerforgovernor.com.

For further discussion and analysis of U.S. greenhouse gas policy, see CRS Report RL34513, Climate Change:

Current Issues and Policy Tools, by Jane A. Leggett.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

Canada has cooperated with the United States for decades on a variety of general matters related

to the development of an Alaska natural gas pipeline (e.g., the pre-build segments in the early

1980s). However, Canada has been pursuing its own Arctic natural gas projects as well. The

Canadian project of greatest importance, which could affect an Alaska natural gas pipeline

project, is the development of a Mackenzie Valley pipeline.

The Mackenzie River Delta region in the Canadian Arctic contains an estimated 40 Tcf of natural

gas.65 The Canadian government has been interested in developing a pipeline to transport this

natural gas to North American markets since it was first discovered in the 1970s in a process that

has, in many ways, paralleled the Alaska gas pipeline’s development. The main proposal has been

a new pipeline from the delta through the Mackenzie River Valley to the existing natural gas

pipeline network in Alberta, as illustrated earlier in Figure 1. Initially, developers also proposed

transporting North Slope gas through a spur pipeline connecting to the proposed Mackenzie

pipeline, but the Alaskan connection was rejected by a Canadian government inquiry report in

1974, three years before President Carter also rejected this option. 66 The current configuration of

a stand-alone pipeline to Alberta is similar in design to the Alaska gas pipeline proposals, albeit

smaller in capacity (1.2 Bcfd) and lower in cost ($15 billion) with a projected in-service date of

2016.67

Although there has been significant activity to advance the development of the Mackenzie Valley

Pipeline, the project has been controversial due to environmental impacts and escalating costs.68

According to press reports in October 2009, the Canadian government appeared to be

reconsidering the level of financial support it planned to provide the project due to “concerns

about the project’s price tag.”69 The pipeline’s developers maintained that it remained viable,

however, and the project continued to receive government support as they proceeded with project

groundwork and meeting regulatory requirements. 70 In March 2011, Canadian authorities

provisionally approved the Mackenzie pipeline project, although some analysts believe it may not

be constructed without new government subsidies for the same reasons the Denali project was

cancelled.71

Because the Mackenzie Valley pipeline would commercialize a major new source of North

American natural gas, and would draw on a limited pool of construction resources and materials

available for such a project, it has been viewed by some as a direct competitor to an Alaska gas

pipeline. 72 For example, the demand for steel and pipe for a Mackenzie Valley project would be

significant, and it is not clear that there is adequate, large diameter pipe production capacity in the

U.S. Geological Survey, “Assessment of Undiscovered Oil and Gas Resources of the Mackenzie Delta Province,

North America, 2004,” Fact Sheet 2006-3002, March, 2006.

Thomas R. Berger, Commissioner, Northern Frontier, Northern Homeland: The Report of the Mackenzie Valley

Pipeline Inquiry, Volume One, Ministry of Supply and Services Canada, April 15, 1977, p. xiii.

Federal Energy Regulatory Commission, Seventh Report to Congress on Progress Made in Licensing and

Constructing the Alaska Gas Pipeline, February 20, 2009, p. 6.

Claudia Cattaneo, “Little Hope in the Pipeline,” Financial Post, July 1, 2009.

John Ivison and Carrie Tait, “Pipeline Dream in Peril,” National Post, October 27, 2009.

Jeffrey Jones, “Imperial Oil CEO ‘Dismayed’ by Mackenzie Report,” Reuters, November 3, 2009.

National Energy Board (Canada), “National Energy Board Issues Certificate of Public Convenience and Necessity

for Mackenzie Valley Pipeline,” Press release, Calgary, AB, March 10, 2011; “Mackenzie Pipeline Needs Federal

Cash: Insiders,” CBC News, January 12, 2011.

See, for example: James Irwin, “Alaska Pipeline Advance Could Threaten Mackenzie Valley Pipeline,” Natural Gas

Week, March, 7, 2005.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

entire world to supply both Alaska and Mackenzie Valley projects at the same time. While the

future of natural gas prices and the availability of construction commodities is difficult to predict,

because of their physical similarities and links to the same infrastructure, the fates of the

Mackenzie and Alaska gas pipelines may remain intertwined.

Federal Loan Guarantee

As mentioned above, to reduce the financial risks associated with the development of an Alaska

natural gas pipeline, the Alaska Natural Gas Pipeline Act of 2004 authorizes the Department of

Energy (DOE) to issue up to $18 billion of project loan guarantees for up to 80% of its capital

costs and a term of 30 years. The Consolidated Appropriations Act of 2005 (P.L. 108-447)

extended the availability of loan guarantees to developers of an LNG project, such as that

proposed by AGPA, that would transport natural gas from South-central Alaska to West Coast

States.73 DOE solicited comments and information from the public in 2005 in advance of a

possible rulemaking concerning the loan guarantee provisions, but has not issued such rules.74

Federal loan guarantees for an Alaska natural gas pipeline have been controversial because they

are viewed by some stakeholders, especially supporters of Mackenzie Pipeline development, as

an unfair form of subsidy.75 They also expose the federal government to a significant portion of

the financial risk associated with the project. The Congressional Budget Office estimated in 2003

that the loan guarantee under P.L. 108-324 would involve a 10% subsidy and cost $2 billion over

the 2010-2013 period, although the agency acknowledged that this estimate was “quite

uncertain.”76 Some in Congress have called for greater federal loan guarantees for an Alaska gas

pipeline. Responding to the recent fall in natural gas prices and tighter credit markets in the wake

of the U.S. banking crisis, Senators Bingaman and Murkowski included provisions in the

American Clean Energy Leadership Act of 2009 (S. 1462) that would have raised the limit from

$18 billion to $30 billion (§ 353), among other provisions. The bill was not enacted, however, and

there have been no similar legislative proposals to date in the 112th Congress.

Environmental Impacts

The addition of significant natural gas resources from Alaska’s North Slope to the lower-48

states’ fuel supplies would be considered by many policy makers to be environmentally beneficial

because natural gas produces much lower atmospheric emissions than other fossil fuels (although

still far more than renewables, nuclear power, and conservation). Nonetheless the immensity of

the roughly 1,750-mile construction project and associated development of North Slope natural

gas fields has caused concern about potential environmental effects on land and wildlife. These

concerns were heightened by the 2006 shutdown of North Slope oil fields following the discovery

of severe corrosion and a small spill from one of BP’s Prudhoe Bay oil pipelines.77 Broader

Title I, Division J § 114.

U.S. Department of Energy, “Alaska Natural Gas Pipeline Loan Guarantee,” 70 Federal Register 30707-30708, May

27, 2005.

Stephen Barlas, “Energy Bill Likely to Bless Alaska NG Pipeline,” Pipeline & Gas Journal, November 2002; “U.S.

Loan Guarantees for Alaska Pipeline Worry Mackenzie Line Supporters,” CBC News, May 27, 2009.

Congressional Budget Office, S. 14 Energy Policy Act of 2003, As Introduced on April 30, 2003, Cost Estimate, May

7, 2003, p. 7, http://www.cbo.gov/doc.cfm?index=4206&type=0.

For further background see archived CRS Report RL33629, BP Alaska North Slope Pipeline Shutdowns: Regulatory

(continued...)

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

environmental impacts from existing North Slope oil development and the associated TAPS

pipeline have been significant and are well-documented.78

Congress has addressed the direct environmental effects of Alaska gas pipeline development by

designating FERC as the lead federal agency in preparing an environmental impact statement

under the National Environmental Policy Act of 1969 (P.L. 91-190). Under this statute, pipeline

permit applicants must prepare certain environmental reports to aid FERC in its preparation of the

environmental impact statement (18 C.F.R. § 380.3). The Environmental Protection Agency, as a

supporting agency, often assists in the review of the environmental reports and the issuance of the

environmental impact statements. In some cases, however, FERC’s environmental reviews of

major natural gas projects have been challenged in the courts.79 Given the scale and uniqueness of

an Alaska gas pipeline project, future environmental controversies may arise.

One specific environmental issue that faces Alaska gas pipeline development is the potential use

of North Slope gas in Alberta’s oil (tar) sands industry. North Slope natural gas, if developed,

may be used to fuel oil sand operations in northern Alberta. These operations require large

quantities of steam to extract crude oil from regional bitumen deposits. Some stakeholders object

to the potential use of natural gas for crude oil production on the grounds that it, in their view,

consumes a “clean” fuel to produce a “dirty” one, and because oil sands projects can have

significant local environmental impacts.80 The debate over the environmental impacts and

potential energy security benefits of Canadian oil sands production is beyond the scope of this

report. Nonetheless, given that the primary rationale for federal support of an Alaska natural gas

pipeline is to increase lower-48 natural gas supplies, there is the potential for misunderstanding if

substantial volumes of North Slope gas are instead diverted to the Canadian oil sands industry as

Alaska natural gas begins flowing. This issue may require policy attention.

Terrorism Risks and Infrastructure Concentration

An Alaska natural gas pipeline would be integral to U.S. energy supply and have vital links to

other critical infrastructure, such as power plants, airports, and military bases. While an efficient

and fundamentally safe means of transport, such a pipeline would carry volatile material with the

potential to cause public injury and environmental damage—either accidentally or intentionally.

For these reasons, similar pipelines have been favored targets of terrorists in North America and

overseas. Since September 11, 2001, federal warnings about Al Qaeda have mentioned pipelines

specifically as potential terror targets in the United States. 81 Congress has responded with

(...continued)

Policy Issues, by Paul W. Parfomak.

National Research Council, Cumulative Environmental Effects of Oil and Gas Activities on Alaska’s North Slope,

Committee on the Cumulative Environmental Effects of Oil and Gas Activities on Alaska’s North Slope, National

Academies Press, Washington, DC, 2003.

For example, see Jim Springhetti, “State Asks Court to Toss Bradwood Site’s Approval,” The Oregonian, January

26, 2009.

IHS Cambridge Energy Research Associates, Growth in the Canadian Oil Sands: Finding the New Balance,

Cambridge, MA, 2009, pp. III-1-III-20; Andrew Nikiforuk, Dirty Oil: How the Tar Sands are Fueling the Global

Climate Crisis, Greenpeace, September 2009.

“Already Hard at Work on Security, Pipelines Told of Terrorist Threat,” Inside FERC, McGraw-Hill Companies,

January 3, 2002.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

substantial initiatives to protect U.S. pipelines from such attacks.82 Nonetheless, due to its great

length and passage through remote areas, an Alaska gas pipeline could still be vulnerable to

vandalism and terrorist attack.

Concerns about the security of an Alaska gas pipeline are especially significant because of a

recent history of physical attacks on existing pipelines in Alaska and Canada. For example,

between October 2008 and July 2009, natural gas pipelines in British Columbia, Canada were

bombed six times by unknown perpetrators.83 In 1999, Vancouver police arrested a man planning

to blow up the Trans Alaska Pipeline System (TAPS) for personal profit in oil futures.84 In 2001, a

vandal’s attack on TAPS with a high-powered rifle forced a two-day shutdown and caused

extensive economic and ecological damage.85 In January 2006, federal authorities acknowledged

the discovery of a detailed posting on a website purportedly linked to Al Qaeda that reportedly

encouraged attacks on U.S. pipelines, especially TAPS, using weapons or hidden explosives. 86 In

November 2007 a U.S. citizen was convicted of trying to conspire with Al Qaeda to attack TAPS

and a major natural gas pipeline in the eastern United States.87 To date, there have been no known

Al Qaeda attacks on TAPS or other U.S. pipelines, but such attacks remain a possibility.

Construction of an Alaska gas pipeline directly alongside TAPS also raises concerns because it

increases the concentration of critical U.S. energy infrastructure in the same narrow geographic

corridor. When infrastructure is physically concentrated in such a limited geographic area it may

be particularly vulnerable to geographic hazards such as natural disasters and certain kinds of

terrorist attacks. Whereas a typical geographic disruption is often expected to affect infrastructure

in proportion to the size of an affected region, a disruption of concentrated infrastructure could

have greatly disproportionate—and national—effects. In 2005, Hurricanes Katrina and Rita

demonstrated this kind of geographic impact by disrupting a substantial part of the national U.S.

energy and chemical sectors, both heavily concentrated in the Gulf of Mexico. In 2008,

Hurricanes Gustav and Ike caused similar disruptions, renewing concerns about geographic

vulnerability. Adding 8.5% of U.S. natural gas supplies to a right-of-way that currently delivers

nearly 17% of the nation’s domestic oil production would be a significant increase in the physical

concentration of U.S. energy flows.88 As development of an Alaska natural gas pipeline continues,

physical threats and required security measures may be an important policy consideration.

For additional analysis of pipeline security issues, see CRS Report R41536, Keeping America’s Pipelines Safe and

Secure: Key Issues for Congress, by Paul W. Parfomak.

Elise Stolte, “EnCana Puts Record $1M on Bomber’s Head,” Edmonton Journal, July 31, 2009.

D. S. Cloud, “A Former Green Beret’s Plot to Make Millions Through Terrorism,” Ottawa Citizen, December 24,

1999, p. E15.

Y. Rosen, “Alaska Critics Take Potshots at Line Security,” Houston Chronicle, February 17, 2002.

W. Loy, “Web Post Urges Jihadists to Attack Alaska Pipeline,” Anchorage Daily News, January 19, 2006.

U.S. Attorney’s Office, Middle District of Pennsylvania, “Man Convicted of Attempting to Provide Material Support

to Al-Qaeda Sentenced to 30 Years’ Imprisonment,” Press release, November 6, 2007; A. Lubrano and J. Shiffman,

“Pa. Man Accused of Terrorist Plot,” Philadelphia Inquirer, February 12, 2006, p. A1.

Alyeska Pipeline Service Co., Internet page, Anchorage, AK, November 2, 2009, http://www.alyeska-pipe.com/

about.html.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

Conclusion

Constructing an Alaska natural gas pipeline from the North Slope to the lower-48 states has been

a government priority—on and off and on again—for more than four decades. Concerted efforts

by Congress, the State of Alaska, and other stakeholders in the early 2000s resulted in new

momentum to proceed with the project. Many potential obstacles remain at this time, especially

the project’s economics. The Denali pipeline proposal has already been abandoned on economic

grounds, but the TransCanada project appears to be proceeding. If a TransCanada pipeline begins

transporting Alaskan gas to lower-48 markets by 2020 as its developers anticipate, it could have

an impact on U.S. energy prices, energy security, and U.S. emissions of carbon dioxide. The

project would also create a significant number of jobs and support regional economic

development. Like other infrastructure projects in wilderness areas, however, an Alaska gas

pipeline would also involve significant environmental costs, many of which have yet to be

determined.

Ultimately, the regional effects of the pipeline’s development on the Alaskan/Canadian

environment must be weighed against its economic value, energy security value, and its global

benefits in reducing carbon emissions from fossil fuels. To date, the judgment of Congress has

favored the pipeline—but ensuring that its public benefits continue to outweigh its costs will

likely remain a key oversight challenge for the next decade. If the balance tips the other way—

either in the eyes of developers or the federal government—and the Alaska gas pipeline is not

constructed, Congress may need to redouble its support of other energy initiatives that could fill

the substantial expectations unmet by this project.

Congressional Research Service

The Alaska Natural Gas Pipeline: Background, Status, and Issues for Congress

Appendix. Key Events

Table A-1. Key Events in Alaska Natural Gas Pipeline Development

1968

Prudhoe Bay oil and gas discovered

1969

United States begins export of LNG to Japan from south central Alaska (Cook Inlet)

1976

Alaska Natural Gas Transportation Act (ANGTA) passed, P.L. 94-586

1977

Presidential Decision and FPC Report to Congress on ANGTS

1977

FERC (successor to FPC) issues conditional certificate for pipeline

1978

Trans-Alaskan Pipeline System (TAPS) oil pipeline into service

1981

“Western leg” of Alaska gas pipeline (Pacific Gas Transmission) into service

1982

“Eastern leg” (Northern Border Pipeline) into service

1983

Maritime Administration study of marine alternatives to ANGTS pipeline released

2001

Alaska Natural Gas Interagency Task Force established

2004

Alaska Natural Gas Pipeline Act passed, P.L. 108-324, Division C

2006

New governor announces Alaska Gasline Inducement Act (AGIA) initiative

2007

Five proposals submitted for AGIA consideration

2008

Governor determines one AGIA proposal meets AGIA criteria

2008

Conoco Phillips and BP announce the Denali Project as an alternative to an AGIA project

2008

Alaska legislature approves governor’s AGIA recommendation and it becomes law

2009

American Clean Energy Leadership Act of 2009 (S. 1462) proposed to raise loan guarantee

2010

TransCanada and Denali Projects hold open seasons soliciting shipper commitments

2011

Denali Project cancelled due to lack of customer commitments

Author Contact Information

Paul W. Parfomak

Specialist in Energy and Infrastructure Policy

pparfomak@crs.loc.gov, 7-0030

Congressional Research Service

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.