Pipeline Project Likely to Help Reelection Effort

Congress’ annual military construction spending bill ordinarily does nothing more than authorize the Defense Department to build military bases and barracks.

But a provision of the bill that Bush signed this week strays from national security into energy security -- and possibly political security for a Republican senator.

The federal loan guarantee for a natural gas pipeline across Alaska probably will give a boost to the election campaign of Sen. Lisa Murkowski of Alaska, who is trying to withstand a strong challenge from former Democratic Gov. Tony Knowles in a race that will help determine which party controls the Senate for the next two years.

“Alaska is on its way to seeing the tens of thousands of jobs that a gas project will bring and the billions of dollars of revenues that will benefit the state,” Murkowski said in a campaign press release headlined, “Best News for Alaska in Twenty Years.”

Murkowski has been a senator for two years -- she was appointed by her father, Republican Gov. Frank H. Murkowski, in 2002 to fill the remainder of his term -- but has a strong ally in fellow Alaska Republican Sen. Ted Stevens. As chairman of the Appropriations Committee, he writes the spending bills.

Both Knowles and Murkowski support construction of the pipeline because of the jobs it would bring. Knowles contends that Murkowski failed to deliver a tax credit for oil companies that some think is necessary to make the project economical for the private companies that build it. Murkowski disputes that the tax credit is necessary.

The project consists of a 3,600-mile, $20-billion pipeline that would carry natural gas from Alaska’s North Slope and across Canada to a terminus near Chicago. It would be even bigger than the 800-mile, $8-billion trans-Alaska oil pipeline, which when completed in 1977, was the most expensive privately financed construction project in history.

Expected to take about a decade to build, the proposed pipeline would carry 4 1/2 to 5 billion cubic feet of natural gas a day. The United States consumes an average of 60 billion cubic feet of natural gas per day.

Building the natural-gas pipeline has been a top priority for Alaska’s congressional delegation. Three major North Slope oil and gas producers -- BP, ConocoPhillips and Exxon Mobil -- now must pump natural gas, a byproduct of oil production, back into the ground because they have no way to deliver it to the lower 48 states.

The loan guarantee will cover 80% of the pipeline’s capital costs, as much as $18 billion, should the builders default on their loans. Dave MacDowell, a BP spokesman, said the loan guarantee would also help reduce the project’s cost.

“As you’re heading into the banker’s office saying, ‘We’d like to take out a loan,’ and they see Uncle Sam standing behind you, it makes it a little bit easier,” MacDowell said. “You might even get a little bit of an interest-rate savings.”

A corporate tax overhaul written by Murkowski’s Republican colleagues and approved by Congress last week also provided more than $700 million in tax breaks for the gas producers and pipeline owners.

Whether all this will be enough to get the project going is unclear.

Murkowski said the loan guarantee and other tax incentives approved by Congress “should be sufficient.”

Spokesmen for BP and Exxon Mobil said they had received everything they needed from Washington. But ConocoPhillips stopped short of saying the loan guarantee and other tax breaks were enough to make the project a go.

Don Duncan, Washington lobbyist for ConocoPhillips, said that once the company completed negotiations with the state on other measures to advance the project, it would assess the economics and decide whether to move ahead.

Previously, the company had said it needed a tax credit if natural gas prices fell below a certain level to guarantee that the project would be economical.

Congress refused to provide that tax credit, which was opposed by the Bush administration. The administration contended that the tax credit could distort gas markets and prove costly to the federal government.

Murkowski spokesman Chuck Kleeschulte said the tax credit was unnecessary because the price of gas was high.

Knowles has assailed Murkowski for failing to persuade fellow Republicans in Congress to provide the tax credit. Knowles spokesman Matt McKenna credited the loan guarantee to Stevens’ political skill and said Murkowski came in “at the end to share credit.”

The other oil and gas companies were more positive than ConocoPhillips.

“This effectively delivers what we need from the federal government,” said MacDowell, the BP spokesman.

Exxon Mobil did not ask for the same tax break as ConocoPhillips. “We didn’t seek it because we feel the project economically should be able to stand on its own,” said Exxon Mobil spokesman Bob Davis.

He noted that the project still must clear other hurdles, including arranging “regulatory certainty” from Canada, through which the gas pipeline would pass.