Gov. Sarah Palin of Alaska.
Can Alaska's Gov. Sarah Palin, the state's first woman governor, its youngest, and also its first born since statehood in 1959, advance a world-scale pipeline that would bring clean-burning natural gas to the Lower 48?
If she can, she will add to that impressive string of firsts and will bring a new boom to Alaska. That boom would be the first since the oil pipeline was completed 30 years ago. In the popular imagination, Alaska may still be the land of boom and bust. For the record, it is currently in its 20th consecutive year of steady if unspectacular employment and economic growth.
Republican Palin took office last year after defeating Frank Murkowski, whom Alaskans sent to the U.S. Senate three times but who proved extraordinarily unpopular as governor. Building a pipeline to tap North Slope natural gas reserves has been a dream of Alaskans for decades. Murkowski spent millions on consulting fees and the better part of two years negotiating in secret with the North Slope majors — BP, Exxon Mobil, and Conoco Phillips. The agreement he produced didn't fly with either voters or legislators. Critics said its provisions tied the hands of Alaska policy makers for years and gave away too much to Big Oil.
Advancing the gas line is becoming more urgent for Alaska for several reasons. For starters, the inevitable decline of oil production continues apace. Oil production has fallen by more than half from its peak nearly two decades ago. New oil fields are being discovered in Alaska, and newly discovered fields await development, but none can hold a candle to the North Slope's aging elephant, Prudhoe Bay.
Alaskans need a new source of revenue if they are continue to live in what has become a true tax haven. The state is in a period of temporary budget surplus because of high oil prices, but it has had to draw on reserves in most of the past dozen years to balance its general fund. And Alaskans aren't used to paying taxes. The state has no personal income tax or general sales tax, and it even enjoys a form of reverse taxation. Its $37 billion Permanent Fund, built up from saving a part of oil taxes and royalties over the years and amounting to more than $55,000 per person, pays every man, woman, and child in the state a dividend each fall.
Rather than rework the agreement Murkowski negotiated, Palin has proposed a fresh start on the gas pipeline. She wants legislation that would initiate an application process open to any project sponsor. Among other details, Alaskans would be assured of access to Alaska gas as well as preference in hiring for construction. The governor has asked the Legislature to act quickly so that a project sponsor can be chosen this year.
The governor, whose previous political experience was as a small-town mayor and city council member, seems to have hit a lot of right notes early in her administration. Notably, she put up for sale a $2.9 million jet that her predecessor had bought over legislator objections. Whether she can advance a project that has frustrated generations of Alaska politicians, including many with vastly more experience, remains very much an open question. All of the major players raised various objections during the first round of hearings on the governor's proposal in March.
The simple fact is that a 3,500-mile pipeline running from the North Slope to the American Midwest via Canada would be an enormously expensive and therefore risky undertaking under any circumstance. No one really knows the cost, since the usual estimate of about $20 billion is several years old and predates the run-up in the costs of construction materials the past few years because of the global economic boom.
Despite today's relatively high prices for hydrocarbons, producers in control of North Slope gas are "just not that gung-ho" about a gas pipeline, a well-posted source tells me. This indicates a "real serious question" whether potential returns justify the risk and helps explain why Alaska's offer of $500 million to jump start the process might make sense. Notes economist and veteran Alaska observer David Reaume: "Cost sharing at a time of uncertainty can make a difference." Wish Gov. Palin well, if you like, but don't bet the rent money yet on an Alaska gas line.