Bush, Energy Allies at Odds Over Pipeline Plan

After being trapped on the drawing board for more than 25 years, a proposed 3,600-mile pipeline that would carry natural gas from Alaska to the lower 48 states is showing signs of life.

Natural-gas prices have more than doubled in the last year, making the project more appealing to Wall Street. Democrats and Republicans in Congress have set aside their usual clashes over energy exploration and come together to back the $20-billion pipeline. Environmental groups have pledged not to stand in its way.

But a crucial element to turn the pipeline into reality is missing: support from President Bush. And that could thwart the momentum behind the project.

Proposed tax breaks that the pipeline’s proponents say are needed to make it economical have presented Bush with a dilemma. In general, he has pushed hard to increase domestic energy production. But he opposes providing tax breaks to spur the pipeline’s construction, arguing that they could distort gas markets and prove costly to the federal government.

Bush’s position has put the country’s best-known ex-oilman at odds with some of his usual allies in the energy industry.

Don Duncan, a lobbyist for ConocoPhillips, calls the tax break “risk insurance” for the pipeline’s builders. “When you’re talking about something this size, you’ve got to mitigate the risk” of gas prices falling, he said.

The White House budget office, in a position paper sent to Congress, said the administration supported building a “commercially viable” pipeline, but “market forces should select the route and timing of the project.”

The Senate, worried about the effect of rising natural-gas prices on the economy, is expected as early as this week to approve the tax breaks and other measures designed to speed the pipeline’s construction. The provisions are part of a broader, administration-backed bill that intends to increase domestic energy production, as well as conservation on several fronts.

The White House itself has touted the importance of the natural-gas pipeline: “America needs the energy that Alaska’s North Slope natural gas can provide,” according to the report by the energy task force established by Bush in 2001 during California’s electricity crisis.

Alaska’s North Slope is believed to hold one of the largest natural-gas reserves in the country -- perhaps as much as 100 trillion cubic feet. The country uses about 22.4 trillion cubic feet a year. And that could grow to about 35 trillion cubic feet by 2025 as more power plants convert from coal and oil to cleaner burning natural gas.

The pipeline is “the most meaningful thing” in the energy bill to address the nation’s demand for natural gas, said Sen. Jeff Bingaman of New Mexico, the top Democrat on the Senate energy committee.

The Alaskan gas, a byproduct of oil production, currently is pumped back into the ground because there is no way to deliver it to the lower 48 states.

Under the Senate legislation, companies seeking to build the pipeline would receive tax credits if gas prices fell below a certain level. Other incentives for the project include a federal loan guarantee and a streamlined permitting process.

The pipeline has emerged as a potential consolation of sorts for the energy industry and labor unions following Senate rejection earlier this year of opening the Arctic National Wildlife Refuge to oil drilling.

Many Democrats who cited environmental reasons for opposing the Arctic drilling support the gas pipeline, in part because of the jobs it would create.

Senate Minority Leader Tom Daschle (D-S.D.), in a letter to Bush, said that if the president prevailed in thwarting tax credits for the project, that would mean “no pipeline will be built, an outcome that risks higher natural-gas prices and the loss of American jobs.”

Projected to take about a decade to build, the gas pipeline would run from Prudhoe Bay, parallel to the Trans-Alaska oil pipeline, to near Fairbanks, then east along the Alaska Highway through Canada to the Midwest. Several environmental groups said they would not oppose the project if it follows the oil pipeline route and is subject to environmental review.

Although the project was authorized in the mid-1970s, it hasn’t been built because of the volatility of gas prices. “If you look at natural-gas prices, you see mountains and valleys,” said Duncan. “Just about the time you’d have a price that would support [building the pipeline], all of a sudden the gas price would fall.... The unpredictability kept it from being built.”

With gas prices up -- and expected to stay up -- the economic climate for the project has improved, Duncan said. Still, he said, the tax credits were needed in case the price of gas dropped unexpectedly.

Bush is not alone in opposing the tax credits.

The Canadian government, in a letter to Congress, said the provision amounts to a “price guarantee ... for gas which will flow into the Canadian market, where other gas is subject to market prices.”

Taxpayers for Common Sense, a Washington-based watchdog group, has projected that the tax credits could cost taxpayers $800 million a year.

Nor is the oil industry unified on the issue. “We don’t think that the taxpayers should be subsidizing a project with marginal economics,” said Tom Cirigliano, a spokesman for ExxonMobil. “When you get into a project, it ought to be able to stand on its own.”

Bush has not indicated that he will veto the energy legislation should it include the pipeline tax break. But he may never face that decision. Before a final bill reaches him, House and Senate negotiators must work out differences in their bills. The House energy bill, approved this year, would expedite permitting but does not include tax breaks for the pipeline.

Rep. Joe Barton (R-Texas), chairman of the House energy subcommittee, said: “We don’t need to be subsidizing the private sector when they are capable of handling projects themselves.” Still, tax-break supporters said there was a good chance it would make it into a final bill because of its support from key Republicans, including Sen. Pete V. Domenici of New Mexico, chairman of the Senate energy committee.

“We are fools if we don’t do it,” Domenici said of the pipeline’s construction.