Planning for Mega-Project Success

1. Planning for Mega-Project Success Challenges and Opportunities of the Alaska Gas Pipeline

2. Development of Alaska Natural Gas—40 years and counting • 1960’s Discovery of North Slope Oil • 30 trillion cubic feet of natural gas • 1970’s Canada-US Treaty, Presidential Selection • 1980’s De-regulation of US natural gas, pre-build of gas lines from Canada to US • 1990’s Canada movement toward a market approach; depletion of giant fields; supply and price concerns • 2000’s Serious efforts toward project approval by North Slope producers

3. The Project • 4000 mile high-pressure buried natural gas pipeline from Arctic Ocean at Prudhoe Bay, Alaska to Chicago, Illinois • World’s largest natural gas treatment plant, bordering the Arctic Ocean • Potential intermediate Natural Gas Liquids plant in Canada or US

4. The Gas • Prudhoe Bay, Point Thomson, other fields leased by BP, ExxonMobil, ConocoPhillips • Oil produced at Prudhoe, produced gas is re-injected • Point Thomson not yet on-line • Total gas 30+ trillion cu ft • Around 6% of US annual demand, 30+ years

5. US Demand for Natural Gas • Increasing year by year • Clean Air Act, electric power plants • Combined cycle plants • Less seasonally driven • Nationwide gas transmission lines, delivery infrastructure • Often the preferred energy source

6. Supply • Depletion of giant fields • Disappointing conventional discoveries • Barriers to entry • Emergence of coal-bed methane • Tight sands technologies • LNG terminal projects • Rising costs

7. Price per mcf • Since 2000, $2.00 - $14.00 and higher • $7.00 or so today • Even at $7.00, projects being delayed or canceled (high costs) • Just during 2001 Producer pipeline study, price moved from $10.00 back down to $2.00 What will be the price between 2020 and 2050?

8. Fun with numbers (and people) • 48-52 inch steel pipe, buried 4000 miles from Arctic to Chicago, high pressure (2000-2500 psi) • World’s largest natural gas treatment plant on the Arctic Ocean • Hundreds of miles in permafrost • Most seismically active zone in North America • All pipeline steel produced for 2 years, worldwide • 7 Alaska tribal regions, 15-25 First Nations, State lands • $40 billion? • 12 year project?

9. Environmental Challenge • Salmon-spawning streams • Animal migration • Historic preservation • Culturally-significant sites • Native lifestyles • Transportation, other human land uses • 800 mile trench across Alaska • Permafrost  “Breakup”  SOIL EROSION

10. Safety • 50 million man-hours • In harsh environment • In winter • In dark • Along Alaska Highway • High pressure pipeline • Local hire and training mandates

11. Risks & Barriers to Project Success • Taxes and royalties • Price of steel • Price of labor • Engineering challenges • Stakeholder interests • Political leadership Stable business environment largely influenced by governments

12. Project Planning 2001ff • 150 people, $125 million • Technical, environmental, land issues • Costs and schedule • 80% ready for FERC application • Support of major Alaska Native communities and significant support of First Nations • Right-of-way through State lands • Draft fiscal agreement

13. Status • State rejected fiscal agreement • State doubled “government take” • New State law set up process to pick one preferred pipeline project and company • State picked TransCanada, promising $500 million to plan, permit a project • BP and ConocoPhillips pursuing “Denali Pipeline” project independent of TCPL • Viability of any project remains uncertain

14. Success or Failure? • Producers spent millions • State raised taxes • Huge increases in costs • State added barriers to success • Project sanction legislation • Point Thomson lease revocation • Disappointed stakeholders • Sunk costs, no returns • But…with all that…

15. What if companies had proceeded in 2001…? • Unforeseen steel demand/price • Unresolved First Nation issues • Unanticipated market/supply issues • Faster depletion of Prudhoe oil resource • Even worse-case State tax and royalty regime? • Financial system crisis • Yes, but…

16. The State’s action has been fatal • Canada Good Will • Large First Nation Support • Native Alaskan Sanction • Congressional Approval The government with the most to gain has thus far thrown up the greatest roadblocks

17. What next? • While planning for this project, local political opposition killed two other energy projects in Maine and California, and many others • Despite the Supremacy Clause and Eminent Domain, the Federal Government has no solution to state and local stonewalling on energy project permits and public/community landowner issues • While we focus on the price of gasoline, and dream of alternative energy, we continue to tolerate locally politicized barriers to execution of even the most environmentally friendly energy projects of the future

18. An essential consensusA new way to move forward • We need a new focus on state and local barriers to essential energy projects • The emphasis should be on things important to national energy and economic security • It must be collaborative, not authoritarian • It must recognize the needs of the entire community, the nation as a whole, and our obligations to each other, our global friends, and future generations • Without significant changes, the promise of developing the environmentally friendly energy of the future and delivering it efficiently cannot be achieved

19. What…? (Surely not…!) A National Energy Policy…?