Remarks by Mark Maddox
Principal Deputy Assistant Secretary for Fossil Energy
at the
Alaska Gas Pipeline Conference
Houston, Texas
December 2, 2004

Thank you and good morning.

It’s a pleasure to be here with you to begin building on the foundation we’ve laid over the last few years for the Alaska Gas Pipeline – a project of great significance to our energy future.

I know everyone in this room had been eagerly awaiting the federal enabling legislation, and with its passage this fall the time has finally arrived. 

I want to thank the Canadian Institute and the American Conference Institute for organizing this timely conference – and I especially want to thank Governor Murkowski for his enthusiastic support for the pipeline project. Governor, the Department looks forward to working with you and your staff in the future.

Our history of energy cooperation with the government of Canada and its provinces and territories has been long and productive. I want to thank Premier Fentie for joining us today and offering the support of the Yukon Territory to this project. I’m sure the governments of British Columbia and Alberta echo his sentiments.

To succeed at a project of this magnitude – the largest private construction project ever undertaken in North America – will require unprecedented levels of cooperation among all the project participants: natural gas producers and consumers, manufacturers, builders, service suppliers, lenders, and governments – American and Canadian, federal and state, provincial and territorial, as well as affected First Nations.

Each participant has a vital role to play. This morning I’d like to talk about the U.S. government’s role – and particularly the Department of Energy’s role – in the project, and highlight a few of the major components of the Pipeline Act.

But first I’d like to take a few minutes to survey the American natural gas scene to remind everyone how important the Alaska Gas Pipeline is to assuring our energy security.

Natural gas alone supplies about 25 percent of U.S. energy today and, while estimates of future demand vary somewhat, everyone agrees that it will increase substantially, perhaps by as much as 35 percent over the next 20 years.

To meet that impressive gas demand growth, we are relying, again, on diversity. The Energy Information Administration, with one of its more optimistic ideas, projects that lower-48 production will be relatively flat for the next 20 years, and production of unconventional domestic gas – coalbed methane, tight sands and shale gas – will rise to account for nearly half of all lower-48 production.

We once were able to rely on constantly increasing supplies of conventional lower-48 gas alone to meet demand. But that has changed.

Natural gas imported by pipeline from Canada accounts for more than 15 percent of our total gas supply today. However, the EIA projects that Canadian imports will decline over the next two decades to account for perhaps 10 percent of our supply. Gas from the Mackenzie Delta will help to mitigate the Canadian production decline, but some of that gas is targeted to the oil sands.

Liquefied natural gas has been a modest contributor to U.S. gas supply for more than 30 years, a situation that has changed in recent years and promises to change substantially in years to come. In 2002, the U.S imported 229 Bcf of natural gas in the form of LNG, about 6 percent of the gas import total. In 2003, the numbers doubled to more than 506 Bcf, and this year we’re on schedule for more than 600 Bcf of imported LNG, a 20 percent increase over ’03.

But that’s only the beginning. A global market in LNG is rapidly coming into existence. Today, there are over 40 proposals on the drawing boards for new LNG re-gasification terminals in North America.  The EIA forecasts LNG imports totaling more than 2 Tcf in 2010, and nearly 5 Tcf in 2025, about 15 percent of our total gas supply.

And that brings us to the reason for today’s conference – the Alaska Natural Gas Pipeline –and the secure natural gas it will bring to the United States when fully operational.

The National Petroleum Council projects that by 2015 the U.S will require eight new LNG regasification facilities in North America – assuming that the Alaska Gas Pipeline is delivering 4 Bcf a day of gas to the lower 48.  Without the pipeline, we will need an additional four or five LNG facilities to meet anticipated demand. Beyond siting concerns, that outcome would put a crimp in our vision of a secure gas supply from diversified sources.  It is clear, looking at the entire North American gas supply picture, that Alaska gas is a critical piece.   

But all of us here know that we will have an Alaska Gas Pipeline.  Leaving to the side for a moment the primary energy benefit of the pipeline project, the ancillary benefits to the U.S., to Alaska and to Canada are enormous.  We are setting out to use the latest technology and the most advanced materials to build an environmentally sound and secure pipeline more than 2,100 miles long – nearly three times the length of the Trans-Alaska Oil pipeline, which was considered one of the wonders of the world when the oil began flowing in 1977.

The project will create tens of thousands of construction jobs and hundreds of operational jobs in Alaska, the lower-48 and Canada; additional thousands of jobs in fabrication yards, and thousands more “induced” jobs that grow out of the project

The creation of this spectacular new addition to the gas transportation industry will deliver more than natural gas to communities that need it to grow and prosper. It will also deliver more than $100 billion in government revenues – and it will encourage further exploration for additional natural gas resources in the far north.

On the energy side, the pipeline will draw on 35 Tcf of proven gas – and ultimate recovery of as much as 100 Tcf – to deliver 4.5 Bcf a day of affordable, dependable gas to waiting markets. If circumstances warrant, the pipeline’s capacity can be expanded to 5.6 Bcf a day. That 1.6 to 2.0 Tcf of gas a year will complete the plan for natural gas diversification and provide the U.S. with the supply we need to meet the demands of a growing economy.

I’d like to turn now to the Pipeline Act itself, which includes several provisions designed to encourage the speedy filing of an application for the construction and operation of the new pipeline. Under the legislation, the Department of Energy will coordinate the activities of the Federal agencies as the pipeline plan unfolds.

Let’s begin with a couple of elements close to the hearts of project developers: time and money.

First, time. Under the Alaska Natural Gas Pipeline Act, Congress has created the new position of  “federal coordinator,” responsible for the “expeditious discharge” of all federal agencies’ activities for the Alaskan Gas Pipeline system, and for ensuing compliance with relevant law.

The Secretary of Energy, or his designee, will be the federal coordinator for at least the next 18 months.  In addition to coordinating federal agency activities, the Federal Coordinator has been given all the authorities of the ANGTA Federal Inspector, which were transferred to DOE in 1992.

If no Alaska gas pipeline certificate application is filed by April 2006, DOE must conduct a study of alternative approaches to construction and operation of the pipeline.  Among other things, the study would evaluate establishing a federal corporation to construct the pipeline and secure alternate federal financing and ownership. The study’s conclusions would then be submitted to Congress.

This provision is obviously designed to encourage fast action by the project’s participants.

Let me mention one last point concerning time. By February 6, 2005, FERC must issue open seasons on Alaska natural gas pipeline transportation projects, and let me assure you, FERC is committed to meeting its deadline.  FERC’s hearing in Anchorage tomorrow on its proposed regulations will be an important step forward in this process.  

Moving on to the subject of money, or financing, the new legislation also authorizes the Secretary of Energy to issue loan guarantees of up to $18 billion – or 80 percent of the project’s total cost – to one or more holders of  U.S. and Canadian certificates of convenience and public necessity. This authority expires two years after the issuance of the final certificates.

Congress is currently considering some further amendments to this loan guarantee authority. Obviously, the actual issuance of the loan guarantees will depend on Congress’ appropriation of necessary funds.

And finally, grants under the Alaska Pipeline Construction Training Program will be made only after the Secretary and the Governor or Alaska agree that construction will begin within two years, and on the status of permitting, financing and other relevant factors.

That sums up the considerable amount of work ahead for the Department of Energy. Now let’s talk about the work ahead for all the project’s participants.

Everyone with an interest in tapping the North Slope’s gas reserves has contributed in some way to passage of the new pipeline act. Now we can get going on meeting our energy security requirements by undertaking a vast construction project that will have far-reaching and beneficial consequences for two nations and their citizens.

We all have a great deal to do in a relatively short time, but we will be able to get the job done if we employ a single-minded, cooperative approach to resolving a number of outstanding issues.

Here are a few high-priority items to be addressed:

• One is establishing who is going to build the pipeline.
• The producers of North Slope natural gas – BP, Conoco/Phillips and ExxonMobil – are all supportive of the pipeline project but they have yet to reach needed agreement on their views about the timing and structure of a project.
• The State of Alaska, Native Corporations or other corporate entities can add value to a project. All interested entities should act expeditiously to reach necessary agreements and finalize arrangements among themselves.
• Project sponsors need to work with FERC, DOE and other appropriate agencies so that the sponsors can complete and file necessary certificate applications as soon as reasonably possible.
• As Governor Murkowski has already explained, the State of Alaska must also act early in 2005 to pass needed legislation concerning fiscal terms for the project.
• An application for filing must contain new environmental field work – work which must be done during the few months a year of Alaskan summer. Field work has not yet been announced for summer 2005; if that work is not scheduled, a full year will be lost.
• Healthy competition is always a spur to action, and the growth of the LNG industry is a consideration that should make participants want to be “first to the post” with new gas supply.
• Likewise, the Canadian National Energy Board, as well as the Canadian federal, provincial, territorial and First Nations governments, must agree on a clear and transparent process for regulatory clarity. Canada’s progress in clearing the way for development of the proposed MacKenzie Pipeline – particularly its experience in resolving issues related to First Nations Land Claims and the various levels of Canadian government – highlight some of the issues that need to be resolved in Canada before the Alaskan gas pipeline can begin its application.  Fortunately for the expeditious resolution of these issues, there appears to be no requirement for additional legislation in Canada.
• Finally, technical questions concerning pipe diameter, the type of steel to be used in fabricating the pipe, and the use of under-river pipeline technology still need to be answered.

This is a partial list. We all know the devil is in the details. We have waited a long time for North Slope gas. The opportunity is now within our grasp and I don’t think anyone wants to delay the initiation of this monumental project any further.

We have to act together and act fast. The stakes are high. The prize – a pipeline that will contribute greatly to national energy security, economic growth, and job creation for Alaska, Canada and the lower 48 – requires new levels of cooperation among all the players.

Our cooperative effort is also well underway within the federal government. Deputy Energy Secretary Kyle McSlarrow earlier this week convened the first interagency meeting to coordinate the U.S. Government’s pipeline efforts.  

You can be sure that the Department of Energy will do everything possible to help make the Alaska Gas Pipeline a reality, bringing needed energy to the American people and writing another chapter in Alaska’s amazing and continuing energy story.