Alaska Pipeline Sponsors Push for US Loan Guarantees

The consortium of oil companies proposing to build Alaska's extensive natural gas pipeline is urging the Bush administration to provide conditional loan guarantees to make project financing easier to obtain.

According to a media report, congress authorized the federal government to guarantee repayment of up $18 billion in commercial loans for the pipeline, as long as the guaranteed debt does not exceed 80 percent of the project's total capital costs. However, the guarantees would not take effect until the oil companies had obtained an operating permit from the Federal Energy Regulatory Commission (FERC), and the conditional guarantees sought would help the companies obtain financing.

The pipeline, estimated to involve direct costs of $6.3 billion, would be one of the largest private construction projects ever undertaken and take 10 years to build. The overall project is dependent upon local, state, federal and Canadian regulatory approvals.

Advocates of the overall concept to construct the 3,500-mile pipeline, stress that it would help ensure adequate and affordable gas supplies to a US market in which gas supplies are dramatically declining, while demand is steadily increasing. Apart from its substantial use in US homes, gas now also supplies 40% of US industrial energy needs and is the most popular energy source for new and existing electricity generation plants.

A key company involved in constructing and selling Alaska's Natural Gas by building the natural gas pipeline is the Alaska Gasline Port Authority. This is an agency led by Valdez and the Fairbanks North Star Borough, wanting a pipeline built from Prudhoe Bay to Valdez, where natural gas would be chilled into a liquid for export to the West Coast. The Authority is apparently using money from partner, Sempra Energy, a San Diego-based natural gas distributor and power company, to run an advertising campaign conveying that its plan is the best pipeline project for Alaska, with more jobs and more public revenue. It has submitted proposal to North Slope producers to buy their natural gas production, and believes it could finish its project by 2012.

Critics of the Authority's proposal say the project is an impossible dream, that would require an act of Congress in order to obtain affordable tankers. The critics contend too that if carried out, the project would glut the West Coast with gas, and that the Authority could not borrow 100% of the money to build the project as it claims.

Other major players include Conoco Phillips, BP and Exxon, the North Slope's largest natural gas producers, who believe Alaska would offer greater value if the natural gas were piped through Canada into the Lower 48. Along with the Gasline Port Authority and TransCanada, these producers are negotiating with the Murkowski administration over how the state would tax its project. Critics of this project state their pipeline would take longer to build, would create fewer Alaska construction jobs and would not guarantee in-state supplies of gas.

Alaska's North Slope has more than 35 trillion cubic feet of proven natural gas reserves and more than 100 trillion cubic feet of potential reserves. However, Alaska natural gas development has been hampered by the difficulty and expense of transporting gas from remote North Slope wells to major Outside markets – a problem it is expected the pipeline will help alleviate.

The plan is for the proposed Alaska Gas pipeline to follow the 745-mile 'Alaska Highway' route, approved by Congress in the Alaska Natural Gas Transportation Act of 1976. The pipeline would initially be designed to carry 4.5 Bcf/d of natural gas at an operating pressure of 2,500 psig.

Covering the Alaska pipeline proposal and other energy issues relevant to Alaska will be EyeforEnergy's Alaska Oil & Gas Conference, to be held on 15 and 16 November this year in Houston, Texas. This Conference will in particular dispel the negative myths of doing business in Alaska and focus on the major opportunities for growth in the oil and gas sector.

For further information on the Conference, please contact:

Saad Tayara of EyeforEnergy, a division of First Conferences, on (t) +44 (0) 20 7375 7545, (f) +44 (0) 20 7375 7576, or (e)

This article provided courtesy of EyeForEnergy