Marketplace Report: Alaska Gas Pipeline

Alaska has reached a deal to build a natural gas pipeline from the Arctic Circle to Canada. If the deal goes through, Exxon Mobil, BP and Conoco Phillips have agreed to pay a 20-percent tax on their revenues. Janet Babin of Marketplace talks about the gas companies' agreement.

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ALEX CHADWICK, host:

Back now with DAY TO DAY. Alaska has reached an agreement with that state's three largest oil companies to build a natural gas pipeline. The proposed route stretches from north of the Arctic Circle down to a terminal in Canada. Gas and oil were discovered on Alaska's north slope in 1967, but they still haven't gotten natural gas out of there yet. Marketplace's Janet Babin, is here with more. Janet, what companies are involved in this proposed agreement and what are the terms?

JANET BABIN (Marketplace): Well, Alex, it's Exxon Mobil, BP and Conoco Phillips, and they would build this pipeline, and as part of the deal, the companies would have to pay a 20 percent tax on oil and gas profits in the state, but the companies would be protected from future tax increases. This new pipeline is estimated to cost at least $20 billion, and that money would be privately funded from the companies, although Congress has authorized financial support for the project up to $18 billion in loan guarantees.

CHADWICK: So it is still just a proposal though, right?

BABIN: It is, that's right. The Alaska legislature has to approve that 20 percent tax figure, and there's likely to be a lot of discussion around that number. Some say that the state's cut of the profit should be even higher than that. Also, a large chunk of this pipeline does flow through Canada, another country. Barbara Shook is with the Energy Intelligence Group, a publications and research firm, and she says that some Canadian companies have original claims to the construction and operation of the pipeline.

She compares this proposed deal to a game of three-dimensional chess among the oil companies, the various government entities involved, and the Canadian pipeline companies that also want to be a part of the project.

Ms. BARBARA SHOOK (Energy Intelligence Group): Trans-Canada has claims that go back to the original 1978 treaty between the United States and Canada that authorized the construction of the project. Because it passes through two different sovereign entities, you have to have a treaty agreement that authorizes the construction and operation of the facility.

BABIN: Trans-Canada and another Canadian pipeline company, Enbridge, want to be part of this deal, and the oil companies want Enbridge and Trans-Canada to be involved as well. They believe that a second company, Enbridge, would ensure competition up there.

CHADWICK: Well, it does sound as though it's going to be complicated to make this work, but the proposal's been around for a long time, so why is it just coming together now?

BABIN: Right. Apparently, natural gas prices, Alex, have never been high enough for a long enough period of time to spark interest. Also, you know, it's amazing the stuff that's made of natural gas, fertilizer, plastic bags you get from the dry cleaners and synthetic sweaters, and with the price of natural gas going up, the Bush administration has been getting pressure from lawmakers and from these industries to build this pipeline in hopes that it would lower natural gas prices, but it's expected to be at least ten years before any natural gas from the north slope arrives here in the U.S.

Coming up later today on Marketplace, choosing between your healthcare and your homeowner's insurance after Katrina.

CHADWICK: Thank you, Janet Babin of Marketplace, produced by American Public Media.

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