Alaska’s Untapped Energy Potential Can Help America’s Economy

Posted September 19, 2003 at 10:26am

Alaska is America’s largest untapped energy storehouse. With natural gas still painfully high and gasoline at near-record prices, it is time that Congress turns the key to unlock the state’s true potential.

As conferees work out the details of comprehensive energy legislation, there are a half-dozen provisions under consideration that would help Alaska supply the nation with tens of trillions of cubic feet of natural gas; millions, if not billions, of barrels of petroleum; and potentially with fuel made from coal or other ingredients.

Everyone knows Alaska has the single largest uptapped energy potential in the nation. According to the U.S. Geological Survey, Alaska likely contains 325 trillion cubic feet of natural gas and 70 billion barrels of oil — the foremost area for both being under northern Alaska.

The state already has discovered 35 trillion cubic feet of gas at its Prudhoe Bay oil field just awaiting a transportation system to move it to market. In addition the surrounding lands, in both the Arctic National Wildlife Refuge’s coastal plain and in the National Petroleum Reserve-Alaska, are expected to contain another 100 trillion cubic feet of gas. Given that the nation is predicted to be facing up to a 20 billion cubic feet-a-day shortfall of natural gas during the next decade, it makes sense for America to lay the necessary groundwork to tap its own supplies.

Utilizing Alaska’s resources offers a host of advantages. First, it fuels jobs in America, not overseas. Constructing a gas line to bring Alaska’s gas to the lower 48 markets is predicted to produce 16,500 full-time jobs in America’s construction and steel industries, 80,000 indirect jobs throughout the United States, and another 300,000 indirect jobs as a result of economic expansion. Direct payroll for gas line workers alone could be up to $5 billion.

A gas line, besides funneling badly needed gas to America to heat our homes, cook our food, run our factories and fuel our plastics, petrochemical and fertilizer industries, also will provide $90 billion in taxes. And by meeting our energy needs domestically, it will both help protect our national security and economic security while reducing our trade deficit.

So far this year the United States is on track to spend $140 billion buying energy from overseas, making the nation’s $476 billion 2002 trade deficit even worse. The trade deficit will only be worsened by imports of liquefied natural gas in the future, if we don’t take steps now to find and transport American gas to Americans.

Getting Alaska’s gas to market is a challenge. The estimated cost for the pipeline is up to $20 billion. While that can be funded from the private sector at very high costs, it makes sense for the government to provide a financial safety net to reduce the financing costs of the largest private-sector project in our nation’s history to make the project more affordable.

The energy bill proposes several provisions to make a gas line easier to finance. The first is a loan guarantee, similar to those provided for other important industries. The second is accelerated tax depreciation and quicker capital recovery of related gas infrastructure, similar to what is available to pipelines elsewhere. Last is a production mechanism — a marginal well tax credit — that will help spread the risk in the unlikely event that gas markets collapse. This is the most important incentive to get an Alaska line built, and, best of all, government analysts predict it will cost taxpayers nothing.

The tax credit will not set a special price or “floor” for Alaska gas. Instead, it will allow producing companies to take tax credits of up to 52 cents against future income taxes in the event gas prices plunge unexpectedly. The delayed nature of the credit and its application to future income taxes means natural gas coming from Alaska will be priced based on market demand, not through artificial pricing mechanisms.

The energy bill also proposes a series of regulatory changes to help speed construction of the gas line, which has nearly universal support on environmental grounds.

Another more controversial proposal environmentally is to open 2,000 acres of the Arctic coastal plain to oil development. Over the years the facts surrounding Arctic oil development have been displaced in the public debate, largely by opinions masquerading as immutable truths, from all sides. Some argue that ANWR shouldn’t be opened since its likely oil production is insufficient to justify the impacts on the coastal plain, while others argue that more Arctic oil development will only harm Alaska’s caribou and other wildlife.

The truth is that the tiny portion of the coastal plain in dispute likely holds vast amounts of oil. At current prices, the U.S. Geological Survey predicts that America will gain between 4.5 billion and 13 billion barrels of oil from the refuge — production of about 1 million barrels a day for about 50 years being the most likely event. That would mean the area will be the second largest oil field in America’s history, finishing only behind the existing Prudhoe Bay field.

Environmentally, given the current status of Arctic oil technology and the wildlife protections built into the exploration proposal, the field would probably have little impact on the area’s caribou and cause no damage to the birds, polar bears and musk oxen that call the Arctic home. It certainly would not destroy Alaska’s wild character given that nearly 200 million acres are already protected in wilderness, parks, refuges and wildlife habitat.

Production in Alaska is also beneficial to the global environment. That is because America has the most stringent environmental regulations in the world and uses the most advanced technology. That allows America to produce oil more safely, more cleanly and far better than done anywhere else in the world.

The oil that would be produced certainly would help America. According to the Energy Information Agency the area likely will produce between $125 billion and $350 billion of oil — petroleum that America won’t have to buy from overseas. It would produce tens of billions of dollars in tax revenues and generate tens of thousands of jobs.

Additionally, Alaska could produce still more energy to help the nation if other proposals in the energy bill are adopted. The bill proposes an expansion of tax credits for exotic, hard-to-produce fuels like “heavy” oil, coal-bed methane gas and synthetic fuels produced from coal. Alaska has up to 25 billion barrels of known deposits of heavy oil — oil that is so viscous that it is hard to get out of the ground.

The tax credits should increase production of such oil by at least 200 million barrels over the next decade. The credits could also help the state increase natural gas production and possibly even convert its massive world-leading coal deposits into synthetic fuels.

Without harm to the environment, Alaska can provide substantially more energy to keep America moving, but only if Congress in the energy bill moves to give the state the keys to unlock its resources and get them to market in a responsible way. To ignore Alaska’s energy potential is to deny America a chance at reducing our dependence on foreign energy.

Sen. Lisa Murkowski (R-Alaska) is a member of the Energy and Natural Resources and Environment and Public Works committees.