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The Alaska government has a variety of options - from direct subsidies to granting use of state property - if it wants to further help make a North Slope natural gas pipeline a reality, panelists said at a forum Tuesday on potential state assistance.

Governments around the globe commonly provide direct or indirect assistance to help push forward massive construction projects, said William Garner, a Houston, Texas-based attorney with Dewey & LeBoeuf who has worked on mega-projects worldwide.

Garner was one of three panelists who discussed approaches the state of Alaska might take to help ensure construction of a multibillion-dollar gas pipeline project from the North Slope that serves both U.S. and in-state consumers.

The forum at the University of Alaska Anchorage was moderated by Larry Persily, head of the Office of the Federal Coordinator for Alaska Natural Gas Transportation Projects.

"A pipeline is just too big, with too much risk, too much market and construction uncertainty and too much competition for private investment dollars to go it alone," Persily said in opening remarks. "If Alaskans want it, they have to get more aggressive about going after it. Alaskans and Alaska by far have the most to gain anyway, so participating in the project makes sense."

His federal agency is involved in the proposed $32 billion to $41 billion pipeline project that would move North Slope natural gas to Lower 48 markets. But he also said that pairing this project with a separate spur pipeline that serves consumers in the Interior and Southcentral Alaska regions would be the package that produces the highest public revenue and most jobs, while providing gas for Alaskans and stimulating more North Slope oil and gas exploration.

"We're here essentially to put some ideas on a blank piece of paper for Alaskans to consider if they truly want a large-volume gas pipeline and an in-state spur line for the decades ahead," Persily said.

Besides Garner, the other panelists were:

• Joe Dubler, chief financial officer for the Alaska Gasline Development Corp., who discussed his research into how state financial assistance could help a smaller-scale North Slope pipeline.
• Gregg Erickson, a Juneau economist, who discussed the wisdom of investing state oil revenue in properly vetted infrastructure investments, some of the hidden costs of doing so, and challenges he sees for the big Alaska gas pipeline project.

Garner: A broad portfolio of help

Garner spoke about "the elements of really successful government incentives to develop major energy projects."

He divided the types of incentives into four categories: direct and indirect financial help to the project, direct non-financial help and indirect policy assistance.

Direct project financial assistance. "Obviously, governments can give money, grants, subsidies of whole projects, pieces of projects," Garner said. "It's not unusual for governments to make equity investments in companies or equity investments in projects. They could be complete ownership, they could be partial ownership. It could be partial ownership with governmental operating, or it could be just an investment to make sure the project happens."

The $500 million Alaska is spending to help fund design and permitting expenses of the North Slope gas pipeline project is a common approach, he said.

Governments also provide loans to help finance construction, he said.

Indirect financial assistance. These include loan guarantees, income tax incentives, tax credits, waivers or cuts in property or other taxes, and reducing the government's royalty take from production.

It's also in common in the United States for state and local governments to use their lower-interest-rate industrial revenue bonding authority to help projects get built, Garner said.

Direct project assistance. "This is something other than money, or the appearance of money," Garner said. An example would be a government committing to ship its share of gas production through a proposed gas pipeline.

"To the extent a project needs a firm dedication of whatever resources a government controls or has, that can be very helpful if it's a direct grant and that project knows it can rely upon those resources being made (available) for the benefit of the project," he said.

Governments also can step forward as a buyer of whatever the project produces, speed up permitting, allow the project to use or be built on state property for free or for a fee, or use its condemnation power to remove land-use barriers to the project, he said.

Indirect policy assistance. "There are a million of these," Garner said.

Such help includes light-handed permitting, training a labor force for the project, and setting standards or incentives that boost demand for what the project produces. "To the extent that any state, any nation, can enhance the use of whatever energy is being produced, that's a great incentive to the project. That's how you get things built."

Dubler: State financial assistance lowers costs

Dubler of the state-owned gasline development corporation said his team looked at how state financial involvement in a smaller-scale gas pipeline from the North Slope to Southcentral Alaska could lower project costs, and said the same benefit would apply to the big pipeline or other projects.

The state could become the pipeline owner, issuing low-interest debt to cover all of the development cost at a substantial savings over private ownership, Dubler said. He estimated state ownership in this scenario would lower the pipeline shipping fee, or tariff, by $2 per million Btu, a roughly 25 percent savings. That could benefit consumers as well as gas producers.

His team looked at a variety of other ownership arrangements, including a public-private partnership, and state debt-financed ownership always lowered project costs. The same was true if the state issued loans or loan guarantees for the project, he said.

Dubler noted that decisions about state financial involvement might pit the project against other ideas vying for finite state resources. And state financial involvement won't guarantee the project will be successful.

"Just because the state throws money at something doesn't mean the thing is going to work," he said. "You know the Healy clean-coal (plant), the fish processing (plant in Anchorage), there's been a lot of examples of that (poor investments) over the years. You still need to have customers, you still need a viable project when the day's done."

Erickson: Favors smart infrastructure investments

Erickson said an economic principle called Hartwick's Rule explains the wisdom of governments investing their oil revenue in infrastructure and other assets.

The rule tries to explain why developing countries don't always get a boon from developing their oil and other resources. Resource revenue that gets wasted or spent on current services becomes unavailable to prop up the economy when the resource is depleted.

Hartwick's Rule concludes that governments should invest every cent of nonrenewable resource revenue into productive assets so that it has enough revenue when the resource is gone to maintain society's standard of living into the future.

Erickson said Alaska has spent, on government services, 38 percent of the $103.5 billion in petroleum revenue received since 1977. Alaska invested the rest in income-producing savings, infrastructure and education.

"Alaska has done pretty well," Erickson said. "If we look at Hartwick's Rule, it sort of suggests that maybe a kind of investment like the big pipeline might not be a bad idea."

But there are hidden costs to state leaders making large investments that benefit only part of Alaska. Before supporting those investments, leaders from other parts of the state will want their own projects. Erickson cited how former Gov. Bill Egan in the 1960s won support for starting a Southeast Alaska ferry system: he made sure Southcentral coastal towns got a modest ferry system, and Anchorage and Fairbanks got funding to build four-lane highways.

"That's an extra cost," Erickson said. Any request for state financial assistance to help a North Slope gas pipeline will have to bear such an extra cost, he predicted.

Erickson noted that the $500 million in start-up funding for the big gas pipeline got the project going, but many Alaskans think low gas prices in the Lower 48 have stalled the project. "I don't think the state of Alaska, or the citizens of Alaska, are going to be particularly interested in putting much more money into the project unless they can be assured they're going to get a gas line," he said.

"If the state wants help the big line, and there's a lot of really good reasons why that would be better than the bullet line, ... you're going to have to find some way that the assistance can be given only after other financing is available that makes it pretty sure that the line is going to be built."

Watch or listen to the public forum >

Presentations

• William Garner
• Joe Dubler
• Gregg Erickson

Supplemental Information

• State fiscal options to help move Alaska gas
• A guide to Alaska natural gas projects
• Federal loan guarantee helps pipeline finances
• Alaska natural gas pipeline project chart and route map
• Correspondence with state Sen. Lesil McGuire

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