Report 

Submitted to the 

United States Congress 

by the Federal Energy Regulatory Commission 

Second Report to Congress on Progress Made in Licensing 

and Constructing the Alaska Natural Gas Pipeline 

July 10, 2006
Second Report to Congress on Progress Made in Licensing 

and Constructing the Alaska Natural Gas Pipeline 

I. Executive Summary 

This report by the Federal Energy Regulatory Commission (Commission) is 

submitted pursuant to section 1810 of the Energy Policy Act of 2005 (EPAct 2005). 1

Section 1810 of EPAct 2005 provides that within 180 days of the date of enactment, and 

every 180 days thereafter until the Alaska natural gas pipeline commences operation, the 

Commission shall submit to Congress a report describing the progress made in licensing 

and constructing the Alaska natural gas pipeline and any impediments thereto. 

 During the period covered by this report, the following events have occurred: an 

agreement on components of a draft contract between the State of Alaska and the 

Producer Group; the execution of the Federal Agency Memorandum of Understanding 

among 15 federal departments and agencies, which establishes a cooperative project 

management framework for the approval of an Alaska natural gas pipeline; and the 

nomination of a Federal Coordinator for Alaska Natural Gas Transportation Projects.

The United States energy market is moving forward to make arrangements to 

obtain adequate natural gas supplies to satisfy future demand. Significant progress has 

been made in developing infrastructure to support liquefied natural gas (LNG) projects 

that would satisfy this need. Many nations, in partnership with commercial entities, are 

quickly bringing LNG supply projects on-line. In the next two to three years, this 

worldwide capacity to supply LNG to the market will greatly increase. 

This report describes the events and the progress that have transpired since the 

Commission’s First Report on February 1, 2006. The report also explains the urgency of 

completing the next steps toward approval of an Alaskan gas pipeline so that Alaskan gas 

supplies also can be part of the solution to the nation’s growing need for gas. 

II. Status Report 

A. Status of Three Potential Projects 

The three potential projects described in the Commission’s First Report are still 

being pursued by the project sponsors. One of these potential projects is the Alaska 

Natural Gas Transportation System (ANGTS) which is supported by the TransCanada 

Corporation. This project is proposed pursuant to the Alaska Natural Gas Transportation 

Act of 1976 (ANGTA), Canada’s Northern Pipeline Act (1978), and a 1977 Agreement 

 

1

 P.L. 109-58, 119 Stat. 594 (2005), 42 U.S.C §16,523. 

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on Principles between the United States and Canada. A second potential project is the 

Trans-Alaska Gas System (TAGS), an LNG export project which is being promoted by 

the Alaska Gas Port Authority. The third potential project involves an entirely new 

pipeline to transport gas from the North Slope of Alaska to the Canadian border, which 

would seek authorization pursuant to the provisions of section 103 of the Alaska Natural 

Gas Pipeline Act (ANGPA) 2 and section 7 of the Natural Gas Act (NGA).3

 The sponsor 

of this project is the Producer Group, which is composed of BP, ConocoPhillips, and 

ExxonMobil.

B. Progress on Alaska Stranded Gas Development Act Agreement Negotiations 

 and Related Legislation 

1. Draft fiscal contract issued

As stated in the Commission’s First Report, the Producer Group has indicated that 

it will only begin to develop an application once it has successfully negotiated a contract 

establishing fiscal certainty in Alaska. On February 21, 2006, Governor Frank H. 

Murkowski announced that the State of Alaska and the Producer Group had reached 

agreement on the major components of an Alaska Stranded Gas Development Act fiscal 

contract. This agreement represents significant progress towards development of an 

Alaskan natural gas pipeline. 

Under the terms of the draft agreement between the state and the Producer Group, 

the State of Alaska would own 20 percent of the primary project elements – the gas 

treatment plant, the mainline in Alaska, and the Alaska-to-Alberta pipeline. The state 

would own other elements of the project in proportion to its share of the expected 

throughput in those elements. The state also would receive its royalty gas in kind and 

receive gas, not cash, in payment of the producers’ production tax obligations. In return 

for the state’s participation in and financial support of the project, the producers would 

receive fiscal stability on their oil and gas obligations in Alaska for decades, as spelled 

out in the contract. 

 On May 10, 2006, Governor Murkowski provided the draft fiscal contract to the 

Alaska legislature for its review and to the public for comment and called the legislature 

into a special session. The special session was called to consider six subjects, all related 

to the natural gas pipeline. After the public comment period is completed, the governor’s 

 

2

 P.L. 108-324, 118 Stat. 1220 (2004), 15 U.S.C § 719. 

3

 15 U.S.C. § 717f. 

- 2 -
staff will finalize the contract and formally submit it to the state legislature for its 

approval.4

 

The release of the proposed contract was followed by a series of statewide public 

hearings and a special session of the state legislature. The first special session that 

considered the new petroleum production tax changes (see details below) adjourned on 

June 8, 2006 without the legislature acting on the tax and credit rates. A series of 

amendments to the Stranded Gas Development Act that are necessary to make that Act 

conform to provisions of the draft fiscal contract with the producers were not voted on 

during the first special session and, therefore, will have to be reintroduced in the next 

special session for the legislature’s consideration and vote. On June 23, 2006, the 

governor announced a second special session of the state legislature to begin on July 12, 

2006 to consider the Petroleum Production Tax (PPT) and amendments to the Stranded 

Gas Development Act. 

2. Oil tax revision

On May 24, 2006, Governor Murkowski announced that state and industry 

negotiators had reached agreement on the oil fiscal certainty portion of the gas pipeline 

contract.5

 The governor introduced oil tax-reform/modernization legislation designed to 

link taxes to the oil companies' Alaska profits. The governor announced that state and 

industry negotiators had reached initial agreement on the PPT including a 20 percent tax 

rate with a 20 percent tradable tax credit to strike a balance between exploration and 

development incentives and a tax rate. He said that this tax revision was designed to 

encourage investment – which leads to more exploration, which leads to more barrels of 

oil, which leads to more state tax revenue than a higher tax might bring. 

 The new PPT would change the existing oil taxation system in Alaska. The current 

production tax on oil is based on a percentage of the gross value of production. The 

proposed new tax structure would be based on a percentage of the net profit. The current 

production tax rate is driven by the Economic Limit Factor, or ELF. The governor has 

said that the ELF-based system is no longer working for Alaska. The Alaska legislature 

adjourned both its regular session and the special session without completing action on 

the PPT. As noted above, the governor called another special session to begin on July 12, 

2006. 

 

4

 The governor extended the public comment period an additional 45 days, until July 23, 

2006. 

5

 An amendment (to be addressed in the next special session of the Alaska Legislature) to 

the Stranded Gas Production Act would allow the governor to negotiate existing oil and 

gas tax agreements as part of the gas contract. Current law prohibits significantly altering 

tax and royalty rates on existing oil and gas production. 

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C. Federal Interagency Memorandum of Understanding 

In June 2006, the Federal Interagency Memorandum of Understanding for the 

Alaska Natural Gas Transportation Project (MOU) was fully signed and executed by 

senior executives and heads from 15 federal departments and agencies. 6

 The signing of 

an MOU by this large number of agencies demonstrates that the federal agencies are 

prepared to work together to expedite the permitting and construction of an Alaska 

natural gas pipeline project. 

The MOU establishes a project management framework for cooperation among 

participating federal agencies with responsibilities related to the approval of an Alaska 

natural gas transportation project. In particular, the MOU provides for early agency 

coordination in order to streamline regulatory reviews of applications for permits needed 

to construct and operate the project. Coordination among these agencies on issues such 

as project review and implementation schedules, data requirements, and mitigation 

measures is critical to enable agencies to discharge their responsibilities expeditiously. A 

coordinated project management approach will facilitate and expedite completion of an 

Alaska natural gas transportation project. Because federal loan guarantees are 

authorized, the federal government may bear a significant portion of the financial risk 

associated with this project. Therefore, it is of critical importance that the project be 

completed on time and within budget, and the MOU will help the federal government 

achieve that goal. 

 The MOU includes agreement by the Participating Agencies to participate and 

work within the pre-filing time frame set by the Commission to identify and seek to 

resolve issues at the earliest stages of project development. The Commission’s pre-filing 

process, which is initiated by a request of the project sponsor, serves as a mechanism to 

meet requirements of the National Environmental Policy Act of 1969 (NEPA) while 

optimizing scheduling. The Commission agreed to consult with the Federal Coordinator 

and relevant Participating Agencies as it establishes a schedule for the project review 

process. The schedule established by the Commission will be as expeditious as possible 

while consistent with any statutory permit review periods. To the extent practicable and 

 

6

 Department of Agriculture, Department of Commerce, Department of Defense, 

Department of Energy, Department of Homeland Security, Department of the Interior 

(Bureau of Indian Affairs, Bureau of Land Management, Fish and Wildlife Service, and 

National Park Service), Department of Labor, Department of State, Department of 

Transportation (Pipeline and Hazardous Materials Safety Administration and Federal 

Highway Administration), Department of the Treasury, Advisory Council on Historic 

Preservation, Council on Environmental Quality, Environmental Protection Agency, 

Federal Coordinator for Alaska Natural Gas Transportation Projects (acting), and the 

Federal Energy Regulatory Commission.

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permitted by law, the relevant Participating Agencies agree to implement, with the 

assistance of the Federal Coordinator, their related agency review and permitting 

processes on a concurrent rather than sequential basis to enable completion of the 

environmental impact statement (EIS) within the time limits required by ANGPA . 

D. Nomination of Federal Coordinator 

On June 12, 2006, President George W. Bush nominated Drue Pearce, of Alaska, 

to be Federal Coordinator for Alaska Natural Gas Transportation Projects, for a term 

ending one year following the completion of the Alaska Natural Gas Transportation 

Project. Under section 106 of ANGPA, the Federal Coordinator will head the Office of 

the Federal Coordinator for Alaska Natural Gas Transportation Projects. The advice and 

consent of the United States Senate is required before Ms. Pearce can begin her service as 

the Federal Coordinator. Until the nominee’s confirmation, ANGPA temporarily vests 

the Federal Coordinator authority in the Secretary of Energy. 

The Federal Coordinator shall be responsible for: (1) coordinating the expeditious 

actions of all Federal agencies with respect to an Alaska natural gas transportation 

project; and (2) ensuring the compliance of Federal agencies with the provisions and 

deadlines of ANGPA. 

E. U.S. Department of Energy Activities 

1. In-state Demand/Needs Study

 a. Purpose of Study 

In June 2006 the U.S. Department of Energy (DOE) released a report, "Alaska 

Natural Gas Needs and Market Assessment" (Needs Study), which estimates the potential 

demand for natural gas in South Central and other areas of Alaska directly associated 

with a potential spur pipeline connecting the proposed Alaska North Slope gas pipeline to 

the Cook Inlet pipeline infrastructure. The Needs Study is a conceptual engineering and 

socio-economic analysis intended to provide an independent estimate of in-state natural 

gas demand and supply options for the years 2015 through 2035. The study could be 

used to satisfy the Commission’s Order No. 2005 requirement that applicants desiring to 

build an Alaskan natural gas pipeline conduct a study to determine in-state natural gas 

needs prior to holding an open season.7

 The applicants could adopt this study to design 

their proposed in-state service which would be bid upon in the open season. 

 7

 Order No. 2005 110 FERC ¶ 61,095 (Feb. 9, 2005),; 70 Fed. Reg. 8,269 (Feb. 18, 

2005); rehearing, Order No. 2005-A 111 FERC ¶ 61,332 (June 1, 2005), 70 Fed. 

Reg. 35,011(June 16, 2005).

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 b. Study Results

The Needs Study looked at future South Central Alaska yearly-average natural gas 

demand use for residential/commercial consumption and electric power generation 

estimated for 2015, 2025, and 2035, the relevant 20-year period that could be the initial 

years of Alaska pipeline operation. The study found a modest predicted natural gas 

demand ranging from 280 million cubic feet (MMcf) per day in 2015 increasing to over 

500 MMcf per day by 2035. 

While this study examined opportunities presented by a spur line that would start 

at a take-off point from the North Slope pipeline near Fairbanks or other Central Alaska 

locations near the pipeline route, it does not dismiss the assumption that South Central 

Alaska demand can potentially be met by increasing natural gas reserves from the Cook 

Inlet basin through exploration and development. There are both positive and negative 

assessments of the success expected for the exploration and development of Cook Inlet 

natural gas resources. The remaining option for South Central Alaska is importing LNG 

to meet basic demand. 

The Needs Study also examined alternative cases of including additional natural 

gas markets for LNG, gas-to-liquids, petrochemicals and propane, and lower prices. If 

these alternative cases prove valid, a much larger spur pipeline would be needed; one 

with a capacity of 700 MMcf per day to 1,300 MMcf per day. The Needs Study notes 

that such a large local market withdrawal of petrochemical and propane from a natural 

gas pipeline from the North Slope could require design changes in the pipeline and cause 

significant economic and political hurdles for that project. 

c. Commission Staff’s Role

One element of the Needs Study involves an estimate of the transportation tariff 

rate for the Alaskan pipeline and any potential spur pipeline for use in the natural gas 

market modeling programs. The Commission staff was asked to review the appendix to 

the Needs Study which supports the transportation tariff rate calculations. The 

Commission staff advised DOE that there is insufficient detail in the Appendix to do 

anything other than say that the underlying bases of the analysis are generally consistent 

with the approach the Commission uses to develop gas transportation rates for interstate 

pipelines, e.g., the calculations reflect the net book value of the pipeline and related 

facilities, a 30-year, straight-line depreciation, federal and state taxes, and fuel and nonfuel costs. The approach used could yield ballpark estimates of per unit transportation 

charges.8

 8

 There are many issues raised by the calculations that cannot be adequately 

analyzed or addressed absent a specific proposal, including: the appropriate capital 

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The Commission staff noted that the study correctly takes into account the very 

high pressure design of an Alaskan gas pipeline that will make treatment and economics 

of natural gas liquids an important factor of the overall assessment. Another adequate 

assumption of the Appendix is the use of the Panhandle Eastern equation for the 

evaluation required for the examination of a range of potential off-take volumes that the 

spur line would receive.9

2. Alternative Means of Construction Study 

 DOE has undertaken a pre-scoping study to evaluate options, risks, and resources 

needed for further study. Section 109 of ANGPA states that if no application for the 

issuance of a certificate or amended certificate of public convenience and necessity 

authorizing the construction and operation of an Alaska natural gas transportation project 

has been filed with the Commission by the date that is 18 months after the October 13, 

2004 date of enactment, the DOE shall conduct a study of alternative approaches to the 

construction and operation of such an Alaska natural gas transportation project. On April 

13, 2006, the DOE commenced an Alternative Means of Construction Study as required 

by section 109 of ANGPA. 

In conducting the actual alternatives study, the Act requires DOE to consult with 

the Secretary of the Treasury and the Secretary of the Army (acting through the Chief of 

Engineers) and include in the scope of the study consideration of the feasibility of 

establishing a Federal Government corporation to construct an Alaska natural gas 

transportation project. The study must also take into consideration the feasibility of 

securing alternative means of providing federal financing and ownership (including 

alternative combinations of Government and private corporate ownership) of the Alaska 

natural gas transportation project. Upon completion of the study, DOE must submit a 

report to Congress that describes the results of the study and any recommendations 

(including proposals for legislation to implement such recommendations). 

3. Federal Loan Guarantee 

 The DOE program for the federal loan guarantee for the Alaskan natural gas 

transportation project is monitoring the progress of the commercial negotiations with the 

State of Alaska and the bills before the Alaska state legislature. When the commercial 

project emerges, DOE will proceed with structuring the loan guarantee. 

 

structure, the return on equity level, the presumed debt cost, the lack of amounts for 

general and intangible plant, the lack of inclusion of certain taxes, and rate design. 

9 Handbook of Natural Gas Engineering, Katz, et al., p. 626 (1959). 

- 7 -
F. Commission’s Environmental Review - Update 

 As described in the First Report, the Commission has been active for the past 

several years in preparing to fulfill its NEPA and certificate application responsibilities. 

The First Report includes a list of the siting activities associated with an Alaska natural 

gas pipeline in which the Commission staff has participated. Since that time, the staffs of 

the Commission and the Department of the Interior have met to continue discussions of 

resources and training needs for the EIS and project permitting. In April 2006, 

representatives of the steel industry met with Commission staff to present their 

perspective about the design, testing, and manufacturing of the great amount of steel pipe 

that will be needed for the Alaskan pipeline project. As discussed above, the 

Commission staff participated in the completion of the Federal agency MOU. Finally, 

the Commission staff plans to tour the route of the northern segment of the pipeline in 

July 2006. 

With the release of the draft fiscal contract by Governor Murkowski in May 2006, 

the governor’s administration and the Producer Group have provided more details on a 

schedule for planning, permitting, and constructing the project. In summary, the 

Producer Group estimates a period of 10 years from the beginning of formal project 

planning activities to date of first gas deliveries. The project planning activities would 

commence within 90 days after the signing of the fiscal contract. Following the planning 

phase would be the Front-End Engineering Design, the open-season process, field data 

collection (the open season and field work could occur simultaneously), and preparation 

of an application for a FERC certificate of public convenience and necessity. 

In its conceptual schedule, the Producer Group estimates it could file permit 

applications at the end of 2008 if the commercial negotiations are completed with the 

State of Alaska in 2006. This timeline reflects the complexity of the project, which 

requires more than two years from initial planning to the filing of permit applications. 

The Commission staff and the participating federal agencies have committed to assisting 

in the development of the application through the Commission’s pre-filing process. The 

purpose of the pre-filing process is to encourage the early involvement of interested 

stakeholders, facilitate interagency cooperation, and identify and resolve issues before an 

application is filed with the Commission. Based on its consultations with the industry, 

the Commission staff had previously estimated that the development of the application, 

and the concurrent pre-filing process, could take as long as 18 months in order to 

complete the substantial field data collection and engineering design. This timeframe fits 

easily within the Producer Group’s estimated two years. 

The Commission’s First Report described some of the difficulties associated with 

the development of an application for an Alaska pipeline project. Specifically, it noted 

that two field seasons may be necessary to complete the required field studies and 

surveys due to the shortened field season in Alaska and that mobilization needs to begin 

- 8 -
early in the calendar year to get the personnel and equipment into the field the following 

summer. The First Report concluded that any realistic expectation for the development 

of an application in 2006 was dependent on the legislative approval of a fiscal contract 

with the State of Alaska under the Stranded Gas Development Act soon after issuance of 

the First Report in February. Because no agreement has been finalized at the time of this 

report, the opportunity for beginning meaningful development of an application in 2006 

has been missed. 

If a project sponsor is ready to begin developing its application and conducting 

field surveys in the spring of 2007, it is possible that an application would be filed at the 

Commission before the end of 2008. The ANGPA streamlines the time from the filing of 

a complete application to final certificate from the Commission, mandating that the EIS 

be completed within 18 months, and that the Commission must issue a final certificate 

order no more than 60 days after the EIS is final. The Commission staff stands ready to 

begin processing any complete application that is filed for an Alaska natural gas 

transportation project and to meet the processing timelines established by the ANGPA. 

Whether the project sponsor begins developing an application and conducting field 

surveys in the spring of 2007 depends largely on the Alaska state legislature acting this 

summer. If not, the Alaska gas pipeline will be further delayed. 

G. Developments in Canada 

The Mackenzie Gas Project continues under consideration by the Government of 

Canada. The Mackenzie Gas Project includes development of natural gas fields, 

gathering lines, and processing facilities in the Mackenzie River Delta of Canada's 

Northwest Territories, and a transportation pipeline along the Mackenzie River Valley to 

deliver the natural gas to market. This major pipeline project consists of over 750 miles 

of 30-inch natural gas transmission pipeline that would transport 1.2 billion cubic feet 

(Bcf) per day of new Arctic gas to market. The capital cost of this project is estimated at 

over $7 billion, and it is planned to be in operation by 2011. However, it has been 

reported in the press that Imperial Oil Ltd., the lead partner proposing the project, will 

revise the project's cost estimate and construction schedule within the next six months. 

Although this project is neither a complement to nor competitor of an Alaska 

natural gas pipeline, its development presents certain problems and risks to an Alaskan 

project. First, industry reports indicate that there will not be enough pipeline grade steel 

available to construct both projects at the same time. Similarly, there could be a shortage 

of the skilled labor force required to build two technically-challenging Arctic projects of 

such magnitude at the same time.

 Sponsors of the Mackenzie Gas Project have been discussing royalty and fiscal 

issues concerning the project with the Government of Canada, but it is reported that these 

talks have paused pending the review of the project's cost estimate and construction 

- 9 -
schedule. However, the regulatory review process in Canada for the Mackenzie Gas 

Project is continuing as scheduled. The Joint Review Panel is examining issues and 

impacts in the areas of the natural and human environments associated with the proposed 

Mackenzie Gas Project to determine how the project could affect the land, environment 

and lives of people and communities in the project area.10 The National Energy Board 

(NEB) is reviewing the technical aspects, such as engineering, economic feasibility, tolls 

and tariffs, and lands issues associated with the proposed project. The NEB will consider 

the Joint Review Panel’s report in deciding whether the project is in the public interest. 

If at the end of the process the NEB Panel decides the project is in the public interest, the 

federal Cabinet must then decide whether to authorize the NEB to issue a certificate so 

that the project can proceed. If the NEB Panel decides that a project is not in the public 

interest, then no further approval of its decision is required. 

III. Need for Greater Progress 

A. Overview 

Government and industry in the United States are acting in various ways to obtain 

adequate natural gas supplies to satisfy future demand. There are projects being 

developed to access: imported LNG, deepwater Gulf of Mexico reserves, nonconventional sources – coal bed methane, tight sands and, shale – in the U.S. and 

Canada, Canadian Arctic reserves, as well as Alaskan natural gas. At best, it appears that 

the non-conventional sources of natural gas, along with production from the deepwater 

Gulf of Mexico, only will serve to replace declining conventional sources, albeit at higher 

cost. In addition, our major source of imports, pipeline gas from Canada, is expected to 

decline as Canadian domestic demand increases and gas production from its major 

production area, the Western Canadian Sedimentary Basin, declines over time. 

The U.S. natural gas market increasingly is turning to imported LNG to meet 

incremental growth. Many nations, in partnership with commercial entities, are quickly 

developing LNG supply projects. In the next two to three years, the worldwide capacity 

to supply LNG to the market will greatly increase. Alaskan North Slope gas can also be 

part of the solution to the nation’s natural gas needs in this generation. Alaskan gas is not 

the only option available to the Lower 48. Twenty years ago, Alaskan gas would have 

been in competition only with other North American gas production. Now, Alaskan 

natural gas production will also face competition from low-cost production in LNG 

exporting countries across the globe. Natural gas markets have changed significantly 

over the past 20 years, and are becoming increasingly international markets. 

 

10 The Joint Review Panel for the Mackenzie Gas Project is a seven-member, independent 

body that will evaluate the potential impacts of the project on the environment and lives 

of the people in the project area. 

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Prompt action by the project sponsors, Governor Murkowski and the Alaska 

legislature is necessary to enable Alaska to provide a reliable continental source of 

natural gas for the Lower 48 that will not only assist in the growth of the U.S. economy, 

but also contribute to the economic well being of the State of Alaska. Timely action on 

an Alaska natural gas project will allow North Slope gas to reach the Lower 48 states. 

B. Reserves: Alaska vis-a-vis the World

It is estimated that as of January 1, 2005 there are 6,044 trillion cubic feet (Tcf) of 

proved gas reserves in the world, 5,780 Tcf of which is located outside of North 

America.11 Of the North American total (264 Tcf), the North Slope of Alaska contains 

about 35 Tcf of proved reserves. To put this in perspective, while North Slope natural 

gas reserves represent approximately 13 percent of North American gas reserves, they are 

less than 1 percent of the world’s gas reserves. Consequently, potential importers and 

energy infrastructure developers are realizing that there is an opportunity to secure 

substantial new gas supplies for the U.S. by looking abroad. 

Of the top five countries with the most proved natural gas reserves, Russia has 28 

percent of the world total. The following chart displays the total world proved reserves 

and compares the top ten countries’ proved reserves along with those of the Lower 48 

and Alaska. 

Source: Based on data from EIA International Energy 2004, Table 8.1 World Crude Oil and Natural Gas Reserves (January 1, 2005). 

C. Alaska Gas’s Potential Market Share 

Gas supply from Alaska, estimated to flow at about 4.5 Bcf per day, will only 

partially fulfill the nation’s future natural gas needs. LNG also will be a major source of 

future U.S. gas supply and the necessary infrastructure is being developed. For Alaska to 

 

11 PennWell Corporation, Oil & Gas Journal, Vol. 102, No. 47 (December 20, 2004). 

- 11 -
be a meaningful part of the natural gas supply mix of the U.S. in the coming years, action 

needs to be taken now. At best, if the draft contract were approved under the Alaskan 

Stranded Gas Development Act, gas would not flow in significant quantities to the Lower 

48 prior to 2016. As U.S. energy markets make decisions regarding where future 

supplies will be obtained, they will carefully examine the likelihood that particular 

supplies will be available when needed. To the extent that Alaska gas is to play a role in 

meeting future needs, progress towards the construction of an Alaska gas pipeline is 

crucial. 

The following chart shows the role that Alaskan gas is expected to play in the 

future composition of U.S. natural gas supply. 

0

10

20

30

40

50

60

70

80

90

2005 2010 2015 2020 2025

NET PIPELINE IMPORTS

85% 64%

14% 7%

LNG IMPORTS 24%

1%

ALASKAN GAS

5%

LOWER 48 PRODUCTION

Billion Cubic Feet per Day (BCF/d)

Source: Lower 48 Production, Net Pipeline Imports, and LNG Imports: Energy Information Administration, Annual Energy Outlook 2006; 

Alaskan Gas: Assumed Flow Rate of 4.5 Bcf per day. 

D. The Closing Window for Alaska Gas Delivery

The Energy Information Administration (EIA) of DOE projects that demand for 

natural gas in the U.S. will grow by more than 23 percent between 2005 and 2025, while 

domestic production in the Lower 48 is expected to increase by close to 7 percent, further 

widening the existing gap between supply and demand.12 During this same time period, 

the EIA projects that net pipeline imports to the U.S. will decline by 55 percent. Even if 

the Mackenzie Gas Project in Canada goes into operation, it is doubtful that the U.S. will 

 

12 “Annual Energy Outlook 2006,” Energy Information Administration, Reference Case 

Tables 13, 14 (February 2006). 

- 12 -
see any of this gas due to the development of the Canadian oil sands in Alberta 

(necessitating natural gas for the mining operations), increased demand in Canada, and 

the decline in production from the Western Canadian Sedimentary Basin. In fact, the 

National Energy Board of Canada projects that by 2015, the oil sands will have a gas 

requirement of 2.1 Bcf per day; the oil sands gas requirement was about 0.5 Bcf per day 

in 2002.13

Therefore, the largest sources for growth in U.S. gas supply are Alaskan gas and 

LNG. As previously stated, gas flow from the Alaskan North Slope is expected to be 4.5 

Bcf per day, a not inconsiderable amount. However, this amount pales in comparison to 

recent LNG infrastructure activity at the Commission. Beginning with the approval of 

the Cameron (formerly, Hackberry) LNG terminal in September 2003, the Commission 

has approved eleven new LNG terminals in the Lower 48 that have a total redelivery 

capacity of 20.6 Bcf per day. In addition, the Commission has also approved an 

expansion of an existing LNG terminal and an expansion of an approved (but not yet in 

operation) LNG terminal, totaling an additional 2.2 Bcf per day of deliverability. When 

combined with the nation’s existing deliverability of 5.8 Bcf per day, there is the 

potential for 28.6 Bcf per day of deliverability from LNG. Further, there are ten new 

LNG sites that have been proposed to the Commission with a total delivery capacity of 

11.5 Bcf per day and pending expansions for about 4.6 Bcf per day at three LNG 

terminals (existing and approved). 

Given the large capital investment in LNG liquefaction facilities, LNG exporters 

will prefer to negotiate long-term arrangements to sell their LNG to provide the necessary 

cash flow to finance their facilities. While some LNG volumes are sold in the “spot” 

market, the execution of long-term arrangements will serve to make this supply a reliable 

source. Gas buyers in the Lower 48 are more likely to enter into long-term LNG 

contracts if there is no substantial progress on building an Alaska pipeline. And, the 

longer an Alaskan pipeline is delayed, the more strength is gained by the proponents of 

LNG. 

Currently, much work is being done to develop the supply “chain” (production, 

liquefaction, shipping and regasification) that will deliver LNG to the U.S. and other 

countries that do not have adequate domestic production to satisfy their gas needs. The 

International Energy Agency states that, through the year 2030, over $250 billion will be 

invested worldwide to develop LNG infrastructure. This large investment in LNG 

infrastructure necessarily requires commitments and establishes long-term relationships. 

 

13 “Canada’s Oil Sands, Opportunities and Challenges to 2015: An Update,” National 

Energy Board, p. 16 (June 2006). 

- 13 -
The chart below shows worldwide LNG investments for the three sectors of the 

LNG supply chain already made or underway for the period 2001-2010, expected 

expenditures for the next two decades, and then a column summing the entire period. 

$97

$69 $85

$251

LNG Facilities Investments

(Billion Dollars) 

Source: Based on data from “World Energy Investment Outlook 2003”. 

Also, the chart below shows that there has been a decline in investment required 

per unit of LNG produced, which is expected to continue as technology progresses. 

Liquefaction Shipping Regasification

dollars per metric ton of capacity

700

400

300

200

100

0

600

500

Mid-1990s 2002 2010 2030

Liquefaction Shipping Regasification

dollars per metric ton of capacity

700

400

300

200

100

0

600

500

Liquefaction Shipping Regasification

dollars per metric ton of capacity

700

400

300

200

100

0

600

500

700

400

300

200

100

0

600

500

Mid-1990s 2002 2010 2030

Per Unit LNG Costs 

Source: Based on International Energy Agency, The Global Outlook for LNG, 2004 

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At the time of ANGPA, an Alaskan pipeline generally following the ANGTS route 

had been estimated to cost $18-20 billion. Now, estimates are running as high as $25 

billion. Any further delays may serve to make the Alaska gas pipeline uneconomic in 

comparison to LNG imports. As demonstrated by the magnitude of monies being 

invested in LNG facilities and the falling costs per unit of LNG infrastructure, Alaska is 

at risk of being marginalized in the search for new natural gas supplies for U.S. 

consumption. 

IV. Conclusion 

The Federal Government has made great strides to prepare for the review of a final 

proposal to build a natural gas transportation project for Alaskan natural gas. Significant 

progress on an Alaska natural gas pipeline is needed for North Slope gas to become part 

of the supply mix which will satisfy the U.S. need for natural gas in this generation. 

Alaska offers a reliable continental source of natural gas for the Lower 48 States that will 

help the U.S. economy to grow and thrive, and also contribute to the economic well being 

of the State of Alaska. Whether the long-term arrangements needed to make delivery of 

Alaska gas a reality are put into place in the near future will determine Alaska’s role as a 

supplier as the dynamic global gas market moves forward to match supply with demand. 

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