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Cooking With Gas

Alaska Pushes To Deliver Natural Gas

There is probably nothing that Americans want more than to be independent of foreign energy sources. Unfortunately, with oil, we can forget about it. There is just no way.

But with natural gas, the environmentally friendly fossil fuel, we are nearly independent.

In fact, 99 percent of what we use is produced right here in North America. The bad news is, that's about to end.

As demand - and prices - continue to skyrocket, we're on the verge, for the first time, of needing to bring natural gas into the U.S. from overseas.

So what would you say if we told you that there's an immense reserve of natural gas right here in the United States - but none of it ever makes it to market? Correspondent Lesley Stahl reports.

Natural gas already accounts for a quarter of all our energy use. We cook with it, we heat more than half our homes with it, and because it causes so much less pollution than coal or oil, we're using it more and more to make electricity. Nearly every new power plant is gas-fired.

Can we find enough gas in this country to satisfy that ever-rising demand?

Alaska Gov. Frank Murkowski says we already have found enough to go a long way toward keeping us self-sufficient: "We found 37 trillion cubic feet of gas while developing the Prudhoe Bay oil fields."

Back in 1968, when Prudhoe Bay became the largest oil discovery ever in North America, all the gas that came rushing up the wells with the oil was considered more a nuisance than a resource.

"They used to say if the geologists went out and proposed a well and it turned out to be gas, you'd hardly get a cold beer, because they were looking for oil. Well, they found a lot of gas as well," says Murkowski.

More gas than has ever been found anywhere else in North America, and perhaps another three times as much still to be discovered. But there's no way to get it out of there. Since gas and oil can't be shipped together, the Trans-Alaska Oil Pipeline is of no use, and a separate pipeline for gas has never been built.

"You can't take it down in a bucket," says Murkowski.

For decades, all of the natural gas coming up as a by-product of oil production has been sent to a processing facility in Prudhoe Bay, where turbines the size of 747 engines pressurize it and push it back out into the oil fields.

How much gas comes through this facility every day? "Somewhere between seven and eight billion cubic feet," says Murkowski. "That's more than all of California consumes in a day. All of it, all over the entire state."

But instead of using it, it goes right back into the ground.

Now, with gas prices way up - and projected to stay up for years - it finally makes economic sense to build a pipeline to send all this natural gas to market instead of pumping it back into the ground. But Alaska says the federal government, and that means American taxpayers, need to pitch in to help get it built.

Alaska wants a gas line that would run parallel to the oil pipeline from Prudhoe Bay down as far as Fairbanks, and then follow the Alaska Highway, carving through the mountains and into Canada - eventually stretching all the way to Chicago and beyond.

"That's about a 3,000-mile pipeline. And that would be the largest," says Murkowski. "The cost is estimated somewhere between $17 to $20 billion, which would make it the largest construction project ever undertaken in North America."

However, Murkowski says cost overruns are inevitable.

Forrest Hoglund was a top executive at Exxon and then Enron. He left years before that company bellied up. Now, he heads a new firm called Arctic Resources, created specifically to build a natural gas pipeline that he claims would be much less expensive than the one Murkowski wants.

"If you have a product a long way from the market, you build the cheapest transportation system. That's the only way it works. That's not what the Alaskans think," says Hoglund. "They're trying to get you, as a taxpayer, to pay the extra cost of what they're trying to do."

Alaska is asking the Federal Government to subsidize the project. And Congress is going along, passing tax breaks and loan guarantees for the oil companies that own the gas and would build the pipeline. And the Senate even voted to give the companies a price guarantee.

"They feel that there has to be some kind of a commodity price support associated with this project because of the difficulty of financing," says Murkowski.

In other words, if the price fell, the government – or American taxpayers - would make up the difference.

"But you have to measure that risk. The government will only pay if the price drops below a certain level," says Murkowski.

So why doesn't the State of Alaska do it? "Well, we're going to get the royalties, but we're not in the business of developing and building a $20 billion natural gas line," says Murkowski.

"They want their route to be built. They're playing hardball. They've played hardball from day one on it," says Hoglund. "They want the pipeline to come right down through the middle of the state. They want the jobs. They made a tremendous amount of money when the oil pipeline was built. And so it's just a mantra in Alaska."

And Alaska is getting its way, because even though it has one of the smallest populations, the state has inordinate clout in Congress. Its senator, Ted Stevens, chairs the Appropriations Committee, which controls the Federal purse strings. And Don Young, its only representative, runs the House Transportation Committee.

"I think if you're really interested in having some highways in your state, you're not going to buck the chairman," says Hoglund.

In fact, the chairman's power is so great that the Republican Congress is even defying President Bush, who has publicly opposed the tax breaks and the price guarantee.

"Here we are, we are taking the most important energy project in North America, and we're letting Alaska drive it all the way," says Hoglund, who thinks he has a better idea.

His idea? A pipeline that would not only be shorter and cheaper, but wouldn't need a dime of subsidies. He calls it the "over-the-top" route, and it would bypass Alaska entirely.

"We start at Prudhoe Bay. We go offshore. We bury … in the water. But it's ice. We're in wintertime construction," says Hoglund. "We trench through the ice. We trench down into the seabed. The pipe is buried. You don't see it again. And we can go clear from Prudhoe Bay over to the Mackenzie Delta."

That's in Canada, 300 miles to the East, where there are also big gas reserves. There, Hoglund says he would hook up with a pipeline the Canadians are already planning to build to bring their gas down the Mackenzie River Valley to Alberta, where it would tie into existing pipelines that run into the U.S.

The plan that the Alaskan delegation wants will end up basically with two pipelines: one through Alaska, the other through Canada. But Hoglund says two pipelines would be twice as long and cost twice as much as the one in his plan. Plus, there are no subsidies with the plan and no need for a price guarantee.

But Murkowski disagrees.

"I don't believe that's the case," he says. "Who does Forrest Hoglund really represent? He's not associated with the three owners of the gas. He's not associated with the State of Alaska. He's promoting this northern route for whom? On behalf of whom?"

On behalf of himself and the other investors in his company, says Hoglund, who's under no illusion about what he's up against. Even the environmentalists, who want to get a pipeline built, understand the power of the Alaskans and are supporting their proposal.

"The only people we're fighting are Alaska, the U.S. House, the U.S. Senate, the major oil companies," says Hoglund. "And the environmentalists."

Just in case Hoglund's pipeline, and its pricetag, begin to look too logical, Alaska's politicians have managed to force one more provision into the energy bill: An outright ban on the Hoglund route.

"Our route is one-half the distance and one-half the cost. Now, how do you fight that? You pass a mandate to say that you can't look at it, you can't work on it," says Hoglund. "And that's what Alaska's pushing through the U.S. Congress right now."

So why ban it in legislation? "Well, because obviously that is the authority of the Congress to take an action if they want to. They could have chosen not to," says Murkowski, who pushed for it. "I'm proud of it. And because it's in the best interests of my constituents."

But shouldn't Murkowski, who considers himself a free marketer, let the market decide? "You gotta look at the alternative. His idea has no credibility from the standpoint of what he represents," he says.

"We have said that if Alaska gas is going to be utilized, it's going to go through the southern route so Alaskans can benefit to some extent. As far as Alaska's concerned, it's simply not negotiable."

Congressional leaders are hammering out final details of the energy bill. By all accounts, it will include some, if not all, of the gas pipeline provisions that Alaska wants. And even though President Bush opposes the subsidies, he also badly wants an energy bill to sign - and isn't likely to veto it over this.