The natural gas and the oil have been separated during processing and the gas has subsequently been re-injected into the ground in the Alaskan fields in an effort to keep the crude flowing. Now it's just waiting to be tapped and used by electric generators, but the transportation costs to get it to the Lower 48 are high.

To bring the pipeline to fruition, federal lawmakers have offered loan guarantees and other incentives. Earlier offers by Alaska officials, however, were considered generous to major producers that own the leasing rights: BP, ConocoPhillips and ExxonMobil. That prior proposal, offered by the former Gov. Frank Murkowski who lost a bid for re-election, never got voted on by the state legislature.

Now, Gov. Palin, who signed legislation in May to provide $500 million in matching funds to the winner of the license, has opened the application process and producers have until Oct. 1, 2007 to respond. Their applications must detail the pipeline's route, the markets it will serve and how the project would get built on time and on budget. The package also provides other incentives that include tax exemptions for those producers who physically ship their product to market.

While the oil giants that are the North Slope's lease holders are non-committal, other producers such as El Paso Corp. have expressed interest. Still, no one is predicting just how many applications will arrive by the October deadline. "We are trying to remove as many risks to the builders as possible, and create stability and predictability," says Marty Rutherford, Alaska's deputy commissioner of the Department of Natural Resources. If all goes well, the administration there says that construction could begin next May.

Despite the aversion by BP, ConocoPhillips and ExxonMobil, Gov. Palin says that each will still be a part of the policymaking process. Those companies may choose to refrain from ownership positions. But she says that they will certainly want to supply natural gas to the Lower 48 and will therefore have a direct interest in ensuring the line gets built. Indeed, at least BP and ConocoPhillips have said publicly they will stay involved and, in fact, have not given up on ownership rights. ExxonMobil, however, has been the most resistant and has said that Alaska repeatedly changes the rules in the middle of the game.

"The company agrees that development of Alaska's North Slope gas resources is important to the state and the nation, and we're trying to find a best path forward to make it happen," says ConocoPhillips' VP of Alaska North Slope Gas Development Brian Wenzel.

Long Road

The pipeline was originally authorized by the Federal Energy Regulatory Commission under the Alaska Natural Gas Transportation Act that went into effect July 1, 1979. Construction began soon after but stopped in the early 1980s, largely because of the availability of low-cost Canadian gas. Developers have spent more than $125 million studying the project.

Now, conditions are ripe. For starters, the price of natural gas has remained relatively high -- above the $3.25 floor that producers have said they would need to offset the risks associated with the 10-year project. And Alaska, which would be making a hefty initial investment, would do well too. It would reap millions of dollars in new tax revenues associated with the effort and hundreds of new jobs for state residents.

Congress has said it wants to promote the development of natural gas resources in Alaska. It had previously authorized loan guarantees that would require the government to pick up 80 percent of the first $18 billion if the project should not be completed. Furthermore, state and federal agencies have put the project on the "fast track." FERC, in fact, has 20 months to review the deal once it gets the paperwork. "We are under mandate to streamline the processes," says Robert Cupina, a deputy director at FERC.

While the major oil companies have found the current governor's proposal to be unattractive commercially, reaction from those in Alaska natural gas circles appears to be favorable. The overriding theme is that it is probably a good thing if the same parties who would supply the natural gas pipelines do not own them as well. Stakeholders there want competing bids, although they admit to being nervous about the number of applications they will receive.

"This stands in mark contrast to the effort that preceded this, in that this is open," says Jim Whitaker, chairman of the Alaska Gasline Port Authority, in a prior news story. "It's understandable. The rules are straightforward. There are incentives. A number of rationales that will lead to a pipeline being built and all participants all would be competitors, have an opportunity to compete. That's the way it should be."

The proposed Alaska natural gas pipeline has been on a long roller coaster ride. Hopes shot up a couple years ago as generous incentives were offered. But they ultimately sank. Now, that same optimism is pervasive with a new set of inducements that are less favorable to Big Oil but more appealing to other producers. State leaders will find out soon enough whether this tack pays off. Under any circumstance, the ultimate goal of any future pipeline is to quench America's thirst for natural gas.

More information is available from Energy Central:

Natural Gas: America's Untapped Resource, EnergyBiz, March/April 2006