WASHINGTON (AP) – A $25 billion pipeline carrying natural gas from Alaska to the lower 48 states would play an important role in satisfying the nation’s long-term supply needs, but experts say it will not reverse America’s rising dependence on imports or cause fuel prices to plunge.

Alaska moved the project to the front burner on Tuesday when it reached a tentative pact with three oil companies to build a pipeline to transport up to 4.5 billion cubic feet of natural gas a day – an amount equal to 7 percent of present U.S. demand.

Still, the project could be a decade or more away from completion. Even after an anticipated multiyear design phase, some knotty economic and political issues will need to be hashed out, starting with getting the necessary environmental, right-of-way and construction permits from U.S. and Canadian authorities.

The oil companies – Exxon Mobil Corp., BP PLC and ConocoPhillips – and their contractors also would need to recruit some 4,000 workers to build the pipeline and get steelmakers to roll out enough high-strength, 52-inch diameter pipe for the 3,600 mile-long project.

The pipeline’s cost was estimated in 2001at $20 billion. But BP spokesman Daren Beaudo said Wednesday the cost has escalated to between $25 billion and $30 billion because of “the cost of raw materials, particularly steel.”

Until recently, natural gas prices were too low to justify the massive investment needed to deliver the fuel from Alaska’s North Slope to the lower 48. But natural gas futures jumped to $9 per 1,000 cubic feet in 2005 – more than five times the price in 1995 – and now trade around $7.28 and not anticipated to fall below $4.50 for the forseeable future.

Currently, the industry reinjects into the ground the large amount of natural gas that comes to the surface when oil is being pumped from Alaska’s large-but-dwindling oil fields. Analysts said there is about 35 trillion cubic feet of proved natural-gas reserves in Alaska, but they expect that figure to rise in the future.

Rising demand and high prices already have spurred plans for a separate natural gas pipeline that will carry 1.2 billion cubic feet a day within five years from Canada’s Mackenzie Valley in the province of Alberta. And with consumption exploding globally for a fuel used to produce electricity, heat homes and power manufacturing plants, producers and energy companies are racing to raise billions of dollars to build the infrastructure needed to transport liquefied natural gas, or LNG, via ships to the United States and other consuming nations around the world.

The United States, for example, is expected to import some 16.4 billion cubic feet a day of LNG by 2010, by which time overall U.S. demand could rise to 68 billion cubic feet a day. Current LNG import capacity is about 3.3 billion cubic feet a day.

Assuming the Alaska and Canadian pipelines are built, analysts say the U.S. will still face long-term supply challenges because of dwindling natural-gas production in the lower 48 states and rising demand.

“It is part of the solution, it is not the solution,” said Gavin Law, head of the global LNG practice at consultant Wood Mackenzie in Houston.

After years of negotiations, the Alaska pipeline project cleared an important hurdle Tuesday when Gov. Frank Murkowski announced that Alaska had reached an accord with Exxon Mobil, BP and ConocoPhillips on a tax and royalties structure.

Murkowski last week planned to introduce a bill to tax 25 percent of the companies’ net profits, but delayed the plan after the companies requested a meeting on Monday. After that meeting, Murkowski modified his proposal by calling for a 20 percent tax of oil companies’ net profits in Alaska that would be offset by a 20 percent tax credit for reinvestment in the state.

The governor’s tax proposal would replace the state’s current production tax, which has been called outdated because it does not account for satellite oil fields and has allowed the nation’s second-largest field, Kuparuk, to escape production taxes.

BP, Exxon Mobil and ConocoPhillips are the largest oil producers in the state, but there are also several smaller explorers for whom the tax would apply, including Anadarko Petroleum Corp., Kerr-McGee Corp. and Marathon Oil Co. The oil tax proposal, with its tax credits, is meant to be an incentive for them to explore and develop smaller fields.

While politicians in Washington applauded the proposal and the energy companies involved said the governor’s bill fits their needs in order to move the gas-pipeline project forward, some Democrats in the Alaska Legislature said the tax rates proposed are too low.

Greg Stringham, vice president of the Canadian Association of Petroleum Producers, said demand for Canadian natural gas will remain strong even if the Alaska pipeline gets built. Canada currently provides about 15 percent of the natural gas consumed in the United States.

Bob Ineson, a Houston-based natural gas analyst for Cambridge Energy Research Associates, said expanded natural gas supplies toward the end of the decade could push prices below $5 per 1,000 cubic feet. However, by early next decade he and other analysts expect a lull in the construction of LNG import terminals if it looks like the Alaska natural-gas pipeline will be built. And that should cause prices to firm.

Over the long term, Ineson forecasts that the average price of natural gas will be around $4.50 per 1,000 cubic feet, with periodic moves higher and lower.



Associated Press Writers Matt Volz in Juneau, Alaska and Steve Quinn in Dallas contributed to this report.

AP-ES-02-22-06 1707EST



Only subscribers are eligible to post comments. Please subscribe or to participate in the conversation. Here’s why.

Use the form below to reset your password. When you've submitted your account email, we will send an email with a reset code.