Alaska's natural gas problem: dealing with project economics.

• Author: Persily, Larry
• Position: Special section: OIL & GAS

Natural gas burns the same pretty much the world over: about 1 million Btu per 1,000 cubic feet into your home. If the mixture is too rich, your stove will blow up. If it's too lean, your tofu won't brown as nicely.

No one really cares all that much where the gas comes from as long as it's there when they turn on the burner. Unlike salmon, where we can charge a premium price for our product, Alaska's natural gas smells and cooks the same as Russian gas, or Qatari gas, or Australian gas--or U.S. shale gas.

That leaves Alaska with a problem. We have gobs of a commodity the world is using more and more of every day. But our North Slope gas is far away from potential customers, and costs more to move to market than our competitors' gas. I'm talking total cost from the wellhead to the burner tip, not just the shipboard expense for delivering liquefied natural gas across the ocean to Japan or a pipeline to Canada.

That cost is what has kept Alaska's gas from leaving the North Slope for almost 40 years. We would have lost money on every molecule of gas we moved to the Lower 48 or overseas most years during the past decades. Market prices were too low to cover the costs--forget about any profit and taxes.

Our pipeline dream has hit the brick wall of economic reality for years. In fact, Alaskans have been waiting for a North Slope gas pipeline a decade longer than the average resident has been alive.

Actually, that's OK. The gas has been reinjected to pressure billions of extra barrels of the make-us-wealthy oil out of the ground. That repressurization has been extremely valuable to Alaskans-feeding rich public works spending, the Permanent Fund and state budget surpluses of the past decade.

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TIME TO GET SERIOUS

But now it's time to get serious about channeling some of that gas into a pipeline to ship to customers-somewhere, anywhere. The older North Slope fields are producing much more water and gas than oil as they age; the equipment to process and reinject all that gas is maxed out; and we'd be a more attractive investment opportunity for oil and gas companies if they could sell their gas with the oil.

The pluses of trillions of cubic feet of natural gas flowing to market will far outweigh the minuses from declining oil production in the decades ahead.

The attraction of a gas line is especially big for Shell. Spending perhaps tens of billions of dollars to develop offshore fields would look a lot better if the natural gas could someday turn a profit, too.

I assert it is time Alaska joined the global gas business.

According to a recent study by the University of Alaska Anchorage...