Even then, the odds are not good. Getting buyers in Asia or anywhere else to buy 3 billion cubic feet of gas per day for the long term is a daunting challenge when the prospect of cheaper alternatives creates a desire by buyers for deals that don’t lock them in for decades.
His summary of the Arctic oil and gas fiscal systems in the report purchased by the Legislature says the state could improve the economics of a gas line by lowering the government take on a gas project.
Under current law the combined state and federal take would be in the 63 percent range, which is more than double the rate from the proposed Yamal LNG project in Russia and far higher than Australia and from the potential shale bed methane resources in China.
Federal taxes of 35 percent are the largest part of the government take. Van Meurs notes that opposition to a project without significant cash for the state would be considerable and reducing state taxes would simply mean an increase in federal taxes because they are deductible.
There is a contradiction in his report, it seems to me. On the one hand he says that the current system in which the development of natural gas actually leads to a negative return because it lowers the overall take, is not tenable over the long run for political reasons. The negative return to the state may be favorable for the industry, but the state is unlikely to stick with such a costly arrangement.
On the other hand, Van Meurs says North Slope natural gas cannot be developed unless the government take is lowered.
I think he is looking at these as independent items, but there is a conflict between these points of view that the administration and the Legislature should explore.
The collapse of the gas market in the Lower 48 has changed the market dynamics in recent years, one reason why the Alaska project faces such trouble.
He said a 20-year holiday on royalties and other incentives, such as a limit on taxes and 20 percent tax credits, would improve the economics for an Alaska gas line. A 20-year state tax holiday, with royalties paid to the state, would be another alternative.
Fiscal stability might get the oil industry to look at the Alaska project seriously, but even then it is unlikely to pan out because the buyers in Asia would be reluctant to make long-term deals when short-term deals are available elsewhere around the world.
If there is a dramatic way to improve the economics of North Slope gas, it may be to export it without a pipeline, he writes.
Use icebreakers to get to the North Slope and ship LNG by tanker to a place like Dutch Harbor, where it would be transferred to regular tankers. A project along those terms could start in 2018 and make the gas economical enough to compete with the Yamal project in Russia.
Van Meurs also notes, however, that he is not an expert on icebreakers or North Slope ice conditions, but he thinks that with the thinning of the summer ice, there will some a time when this could work.
The Russians are planning to use icebreakers to get natural gas from Yamal to Asian markets, having to cut through six feet of ice much of the year. He said it is interesting that while ConocoPhillips and Exxon wanted to be considered for that project, and were ultimately turned down by the Russians, they have been less enthusiastic about the Alaska project.
Van Meurs concludes that if the state wants to export large quantities of natural gas, it should pursue the options the North Slope oil companies think make the most sense, whether it is a pipeline to Canada, Valdez or the icebreaker option.
And the state should approve a constitutional amendment, if needed, to allow the governor to be able to lock in terms for the industry and provide fiscal stability over the long run.
Dermot Cole can be reached at cole@newsminer.com or 459-7530.
So here my bizarre alternative: build a fleet of airships that can transport the gas to anyplace on the planet. NO pipeline, no Icebreakers, no trucks, just a fleet of dirigibles like those they used from WWI through WWII.
What could go wrong!