Statement of
Robert S. Kripowicz
Acting Assistant Secretary for Fossil Energy
U.S. Department of Energy
to the
Committee on Energy and Natural Resources
United States Senate
October 2, 2001

Mr. Chairman and Members of the Committee:

One of the largest known reserves of natural gas in the United States is found in the Arctic, associated with the development of oil at Alaska's Prudhoe Bay. These proven gas reserves, likely totaling more than 35 trillion cubic feet, could make a significant long-term contribution to the Nation's energy supplies if delivered to the lower 48 states. There may also be an additional 100 trillion cubic feet of natural gas resources on the North Slope that, although currently more speculative, could potentially be a source of new energy supplies in the future.

Recently, as demand for natural gas has increased, interest has been renewed in tapping into Alaska's natural gas supplies. During the past year, producers on the North Slope have begun reexamining market and technical factors to determine whether transporting this gas is likely to be economically feasible in the near future.

Recognizing the resurgent interest in moving Alaskan natural gas to lower-48 markets, the President's National Energy Policy calls for a coordinated federal/state/private sector effort to expedite construction of the necessary pipelines. Specifically, the National Energy Policy recommended that:

...the President direct the Secretaries of Energy and State, coordinating with the Secretary of the Interior and the Federal Energy Regulatory Commission, to work closely with Canada, the State of Alaska, and all other interested parties to expedite the construction of a pipeline to deliver natural gas to the lower 48 states. This should include proposing to Congress any changes or waivers of law pursuant to the Alaska Natural Gas Transportation Act of 1976 that may be required.

Following release of the National Energy Policy in May, the Administration has responded to the President's direction. A multi-agency federal task force has been established to identify impediments to the expedited construction of an Alaskan natural gas pipeline and to advise the Federal Government on how best to respond to such impediments.

The Need for North Slope Natural Gas

The prospect for increasing demand for natural gas in the United States has been the primary reason for the resurgence of interest in transporting Alaskan North Slope gas to market. Natural gas is an especially attractive energy resource due to its environmentally clean characteristics.

Currently it represents 24 percent of the energy consumed and 27 percent of the energy produced in the United States. In 2000, U.S. natural gas consumption totaled 22.8 trillion cubic feet. According to projections by the Department's Energy Information Administration (EIA), natural gas consumption is expected to grow by 2.3 percent annually, reaching 34.7 trillion cubic feet by 2020.

Spurred mainly by dramatic increases in the use of natural gas to generate electricity, the demand growth rate is faster than any other major fuel source consumed in the United States. More than half of the projected increase in consumption is expected in the electricity generation sector.

Between now and 2020, domestic natural gas demand is expected to increase more rapidly than supply. Much of the difference between U.S. gas consumption and lower 48 production will be made up by imports, primarily from Canada. Today, net natural gas imports account for 16 percent of total U.S. natural gas consumption, or about 3.5 trillion cubic feet. By 2020, the United States will likely be importing about 5.8 trillion cubic feet of natural gas, or about 17 percent of its projected consumption. However, these EIA projections do not include gas from the North Slope which, if made available to the lower 48 States, would probably reduce gas imports.

Natural gas prices will likely have an effect on private sector investments necessary to bring Alaskan natural gas to market. In the short-term, EIA projects that the average wellhead price of natural gas will be around $2.65 per Mcf in 2002, while longer-term projections for the average wellhead price are around $3.13 per Mcf in 2020. Like any commodity, however, the actual price of natural gas oscillates frequently. Also, technological progress in pipeline construction practices and equipment, in pipe materials, in welding, and in telecommunications are reducing pipeline construction and operating costs. This, along with the normal business cycles in the natural gas industry, may support prospects for new pipeline construction linking the North Slope to lower-48 markets.

Pipeline Projects Currently Envisioned

The private sector is currently examining three general approaches for transporting North Slope gas to markets: (1) new gas pipelines linking to connection points in Canada, (2) liquefied natural gas, and (3) gas-to-liquids conversion that could utilize the existing Trans-Alaskan oil pipeline.

Some of the most widely-discussed natural gas pipeline proposals include:

• The Alaska Natural Gas Transportation System (ANGTS) - In September 1977, President Carter designated a specific transportation system known as the Alaska Natural Gas Transportation System, or ANGTS, for streamlined certification under the authorities of the 1976 Alaska Natural Gas Transportation Act (ANGTA). The proposal, selected by the President from three different projects then competing before the Federal Power Commission for certification, envisions a nearly 5,000-mile joint U.S.-Canadian overland pipeline following the Alcan Highway, capable of delivering up to 2.5 billion cubic feet of gas per day to markets in the lower 48 states. President Carter's decision was approved by a joint resolution of Congress.

  Although only portions of ANGTS have been constructed - the "prebuild" segments extend 2675 miles along two legs from Alberta, Canada into the lower-48 states - its legal framework still exists.

• Northern Gas Pipeline Project - Arctic Resources Co.'s Northern Gas Pipeline Project would run eastward from Prudhoe Bay and come ashore in the Mackenzie Delta area in northern Canada, then follow the Mackenzie River south through the Northwest Territories to interconnect with pipelines in Alberta, Canada, providing access to lower-48 markets.

• Producers' Alternatives - The three producers that own nearly all of the North Slope gas currently are assessing the feasibility of different pipeline routes, including a northern route similar to the Arctic Resources proposal and a southern route that would either be the same as or similar to the ANGTS route.

The Federal Role in Expediting Alaskan Natural Gas Pipeline Projects

Our National Energy Policy strongly supports the environmentally responsible development of Alaskan North Slope natural gas and the actions to expedite the delivery of that important energy resource to the lower 48 states. The Administration remains neutral regarding the specific project(s) the private sector might undertake to accomplish this task. The marketplace should determine when, how, and by whom the North Slope gas resource is developed and transported.

The Administration is also committed to an expedited, coordinated effort in permitting whichever commercial pipeline project or projects emerge as a viable candidate. As one of the implementations of the National Energy Policy, the Administration has created a task force involving various government agencies including the Departments of Energy, State, Interior, Agriculture, and Transportation, and the Federal Energy Regulatory Commission. These are the government agencies that have responsibilities related to a project to transport Alaskan North Slope gas to lower 48 markets.

The Task Force has been meeting regularly since July 2001, to establish a communication network within the various agencies, to disseminate information and ideas through this network, and to address issues related to permitting and pipeline construction.

Current and Future Legal Authorities

The Administration could be faced with new or revised proposals to transport Alaska North Slope gas, filed under ANGTA or the Natural Gas Act (NGA). The Department of Energy has certain authorities under both legal frameworks.

In 1977 the Department of Energy Organization Act transferred authority from the former Federal Power Commission to the Secretary of Energy to regulate natural gas imports and exports under the NGA, including section 3. Section 3 requires persons seeking to import or export natural gas, including liquefied natural gas, to first secure an order from DOE authorizing the import or export. In reviewing the application, DOE must determine if the public interest standard in section 3 of the NGA, as amended by the Energy Policy Act of 1992 (EPACT), is met. In addition, authorization must be granted if the import or export is with a nation with which the United States has a free trade agreement, such as with Canada, requiring national treatment for trade in natural gas.

The Department of Energy also has ANGTA-related authorities. EPACT abolished the Office of the Federal Inspector (OFI) for the ANGTS and transferred its functions and authorities to the Secretary. The primary function of the OFI, which was created by President Carter through Reorganization Plan No. 1 of 1979, was to enforce terms and conditions relevant to the pre-construction, construction, and initial operations of ANGTS.

Regardless of whether an application is filed under the NGA or the ANGTA, we, in consultation with the Congress and in coordination with the Department of State and other relevant agencies, will work closely with the Government of Canada to review existing bilateral agreements and to determine if additional government-to-government agreements might be warranted.

Conclusion

In short, Mr. Chairman, as our National Energy Policy states: "America needs the energy that Alaska's North Slope natural gas can provide."

Natural gas will play an increasingly important role in providing secure, reliable, and environmentally clean energy to American consumers. We must recognize that the attractiveness of natural gas requires that we look seriously at all potentially viable gas supply sources while not creating an over-reliance on any one energy resource.

The vast natural gas resources on Alaska's North Slope are one of the largest, most promising and most secure domestic energy supplies that could become available to America's consumers. We are committed to working with the private sector and with Canada to ensure that any commercially viable proposal to bring this natural gas to market is processed as expeditiously as possible.

This completes my prepared statement.