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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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Alaska: Gas Rich, but No Longer Relevant

The natural gas boom in the US has rendered Alaska’s otherwise bountiful reserves less relevant. Never fear, Japan may turn out to be an alternative market for Alaskan gas.

Of course, all of this depends on whether the US decides to go ahead with natural gas exports, an increasingly controversial issue.

This week, Alaska Senator Lisa Murkowski will broach the subject in Japan, as her state reels from its new market irrelevance in the US.

On the surface, it’s simple: Alaska’s state economy needs a new market for its gas; Japan’s nuclear reactors are offline and it is desperate for cheap gas.

Below the surface, it’s not so simple.

•    US energy policy is still evolving and there is no decision on export volumes yet
•    There is insufficient infrastructure to pump large volumes of Alaskan gas to Japan (though small amounts already go through)
•    The cost of transport would eat away at the profit margin

Related Article: What Stands in the Way of Natural Gas Replacing Gasoline in the US?

Alaska’s bane is that while it is a massive gas producer, it is too far from markets.

For now, it would seem that the costs are prohibitive:

•    $200 million PER vessel to ship liquid natural gas (LNG)
•    $65 billion for a necessary 800-mile pipeline to a refinery
•    $10 billion to revamp existing terminals to deal with gas exports OR $20 billion for a new terminal

This all requires some massive investment and Alaska’s tax environment isn’t attractive enough to lure this kind of interest. So the short answer is: The necessary infrastructure won’t move forward until the tax situation is addressed.

But there has been some pipeline progress, nonetheless. Back in August, In August, officials starting courting a new natural gas pipeline to the state’s western ports where gas could be processing into LNG for export to Asian markets. Earlier this month, the state got the Senate’s nod to go ahead with this pipeline, which would traverse a national park. Now it has to pass the House of Representatives, controlled by Republicans.

Related Article: The Real Reason the Natural Gas Industry Hates Matt Damon's New Movie

Alaska would also have to compete for the Asian market with other US states, and with Canada’s giant pipeline operator, TransCanada, which is gaming for a pipeline that could also export LNG to Japan from western Canada. And this is bound to get off the ground well before Alaska’s does. 

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Beyond this, there is federal policy to deal with. For now, export licenses are considered separately by the Department of Energy, which determines on a case-by-case basis whether it is in the country’s interest.

Opponents of US natural gas exports argue that unrestricted exports would be an economic disaster as it would result in significant price hikes for consumers and manufacturers. It is the current high supply that is keeping prices down. This camp say such a move would only promote big bucks for big oil and would not be in the country’s interest.

Proponents argue that production—at its current rates—could keep up with demand (and surpass) it even with large export volumes. This camp would rather see states have more say in whether they can export; and more right to follow a state’s economic interest as opposed to a national interest.

By. Charles Kennedy of Oilprice.com


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