Palin's Pipeline: Clean Energy for the Lower 48 or Power for the Tar Sands?
by Abby Schultz - Jun 29th, 2009
Where the natural gas from the Alaska Natural Gas Pipeline will end up is a murky question tied up in a 30-year-old treaty, expansion of Canadian tar sands operations, and trends in natural gas supplies both in the United States and in Canada.
Environmentalists fear at least half of the relatively clean-burning Alaskan North Slope gas will end up fueling tar sands operations in Alberta, where the pipeline will end, instead of coming to the lower 48 states to replace carbon-intensive coal in power plants. The tar sands operations already consume about 20 percent of Canada’s natural gas, and they are expected to need as much as twice that by 2035.
Michael Brune of the Rainforest Action Network calls the pipeline "a stealth dirty oil mega-project … conceived by Big Oil.”
“Under Plan Palin, ExxonMobil and TransCanada would construct a 1700-mile natural gas pipeline from the Arctic, heading south,” Brune writes. “About half of it is likely to be siphoned to help produce the dirtiest oil on earth.”
It might not be that simple, though.
Where the natural gas ends up may depend on a 1977 treaty between the U.S. and Canada that would require gas equal to the amount produced in Alaska be exported to the Lower 48.
The 1,700-mile pipeline, which appears to be moving forward more than 40 years after 100 trillion cubic feet of natural gas was discovered in the Alaskan North Slope, is viewed by policy makers as a way to boost domestic production of a relatively clean fuel at a time the U.S. is trying to move to a cleaner energy economy and to wean itself off foreign sources of oil.
In February, President Obama told the Anchorage Daily News that the pipeline was “promising” as a national energy source.
But nongovernmental organizations, including the Rainforest Action Network and Corporate Ethics International, expect at least half the natural gas flowing through the pipeline will remain Alberta, where the pipeline ends, rather shifting to other pipelines bound for the Lower 48. That’s because Alberta is home to most of Canada’s tar sands operations, which rely heavily on natural gas to mine, process and upgrade sticky, thick bitumen into synthetic crude oil.
Converting tar sands, a mixture of clay, sand and bitumen, into oil creates 5% to 15% more greenhouse gas emissions than the average crude oil, according to IHS Cambridge Energy Research Associates (IHS-CERA).
Tar sands production is also associated with a host of environmental problems, including the mining of pristine Boreal forests and the creation of huge “tailings ponds” filled with toxic materials. Environmentalists call tar sands a “dirty” fuel, and note the irony of using natural gas in its production.
“While natural gas is a little cleaner than oil, if it’s being used to produce dirty oil, it just doesn’t make sense,” says Kenny Bruno, campaign coordinator at Corporate Ethics.
U.S.-Canada Treaties
One factor in whether the gas makes it to the Lower 48 may depend on interpretation of a 1977 treaty between the U.S. and Canada that was a precursor to the Northern Pipelines Act. The treaty guarantees “whatever volume of gas comes from Alaska must result in an equal volume being exported,” says Joseph Balash, intergovernmental coordinator to Alaska Gov. Sarah Palin.
The principles of the treaty, however, may not apply given that the treaty was written more than 30 years ago and a different pipeline is now under consideration. The U.S. State Department will make that determination.
“It may be that the treaty needs to be slightly amended, completely revised, or thrown out altogether. Its a matter of whether or not they want to make the existing agreement work or not,” Balash says.
Mark Myers, coordinator of the Alaska Gasline Inducement Act (AGIA) for the state of Alaska, doesn’t believe the treaty in the end will have much of an impact, and that even if consumption by the tar sands industry increases and gas supplies decline, there will be plenty of gas to export the 4.5 billion cubic feet a day to the lower-48 states the Alaska gas pipeline is expected to deliver. The AGIA was passed by the Alaska legislature in 2007 to spur construction of the pipeline.
“I still believe 15 to 20 years from now there will be a significant amount of export to the U.S.,” Myers says. “It may not be as much as today, but it will be more than 4.5 billion cubic feet.”
The Influence of Federal Financing
Financing for the pipeline may rest on how much Alaska gas reaches the Lower 48.
The Natural Gas Pipeline Act of 2004 provides about $18 billion in loan guarantees for pipeline construction, in addition to tax incentives. These dollars won’t be insignificant for a project estimated to cost between $26 billion and $40 billion. A report written by the Congressional Research Service in September 2008 points out that the rationale for federal support of the pipeline was to increase the supply of natural gas to the lower-48 states. In other words, federal dollars could be in jeopardy if the pipeline doesn’t serve the U.S.
“There is a potential for misunderstanding if Canadian exports to the United States decrease as Alaska natural gas arrives,” the report says.
TransCanada, which received a license under AGIA last August to build the pipeline, and Balash in Gov. Palin’s office both note that Canada has shipped surplus gas to the U.S. for years and that there’s no reason to expect that will change. Once the pipeline is operational in 10 years, TransCanada says it will increase the available gas in the market without a consequential change in Canadian demand.
“Therefore we would expect that the entire Alaskan volumes will ultimately be consumed in the lower 48 since Canada will continue to have surplus gas,” says Terry Cunha, a TransCanada spokesman.
But the picture for natural gas supplies in Alberta isn’t that clear.
There are two big factors at work. First, increased demands from the energy-intensive oil sands industry. Second, tighter future supplies of natural gas in the region.
The pace of growth in the oil sands industry will be affected by oil prices, oil supplies, the health of the economy and greenhouse gas regulation. Estimates range for oil sands production to increase from about 1.2 million barrels a day in 2006 to as high as 4.3 million barrels a day by 2030, according to the U.S. Energy Information Administration’s latest Annual Energy Outlook.
Conventional supplies of natural gas in Alberta peaked in about 2001, and have been on the decline since, Bob Dunbar of Strategy West, an consulting firm in Calgary, Alberta, focused on the oil sands industry.
Another factor in the bleaker future for conventional Canadian natural gas supplies reaching the tar sands is a proposed pipeline called Mackenzie Valley, which would bring gas from the Canadian Arctic to Alberta, but is stalled in regulatory limbo.
The Congressional Research Service also notes it’s unclear whether “there is adequate, large diameter pipe reduction capacity in the entire world to serve both Alaska and Mackenzie Valley projects at the same time,” and that supporters of the Mackenzie project fear the economics of the pipeline won’t work if the Alaska project is finished first.
The Pipeline Route
The 1,700-mile pipeline proposed by TransCanada will begin in Prudhoe Bay in the North Slope of Alaska and will parallel the existing trans-Alaska oil pipeline to Delta Junction, south of Fairbanks, where it will then follow the Alaska Highway, continuing through northern British Columbia to link with the Alberta Hub on TransCanada’s pipeline grid in northwestern Alberta.
It is expected initially to carry an average of 4.5 billion cubic feet of natural gas a day, or 1,600 billion cubic feet a year.
“Once gas is into that system, the molecules of gas aren’t segregated in any way,” Dunbar says. “It becomes part of the overall North American Gas Transmission Network.”
To direct natural gas only to the U.S., a separate pipeline would be needed, Dunbar says.
Another, $30 billion, 2,000-mile long project to bring Alaska North Slope gas to the Lower 48 called Denali-The Alaska Gas Pipeline is planned by BP and ConocoPhillips, but it too would go through Alberta. Both projects are holding a so-called open season in 2010 where producers bid to provide gas to the pipeline. If the open season is successful for Denali, the project will file with the Federal Energy Regulatory Commission in the U.S. and the National Energy Board in Canada to build the pipeline.
Canada's Own Natural Gas Reserves
Tar sands operations consume 20 percent of Canada’s natural gas, according IHS-CERA. By 2035, it says, tar sands operations could consume 25 percent to 40 percent of Canada’s natural gas.
In a June report on Alberta’s energy reserves, the Alberta Energy Research Conservation Board said 360 billion cubic feet of natural gas were purchased for the oil sands operations in 2008. Those purchases are expected to climb to about 830 billion cubic feet by 2018, the Alberta ERCB said. That’s half the 1,600 billion cubic feet a day that would flow through the pipeline beginning about 2018.
In the same time period, Alberta expects to continue exporting natural gas, but the estimated amount available for export will decline from about 3 trillion cubic feet in 2008 to 1.37 trillion cubic feet in 2018, according to the ERCB.
While supplies of Canadian natural gas may be plateauing or on the decline, the oil sands industry expects greater efficiencies in production, as well as new sources of fuel, could reduce the industry’s demand on purchased natural gas.
However, the new sources of fuel include gasification of petroleum coke and asphaltenes, which are the bottom-of-the-barrel deposits of the bitumen left after processing it into synthetic crude. These technologies are more carbon intensive than natural gas, and the industry is already under pressure to reduce its carbon footprint, according to Dan Woynillowicz of the Pembina Institute.
“Switching to any of those fuels, will make producing a barrel of oil sands even dirtier,” Woynillowicz says.
Dunbar notes that it’s easier to capture the carbon dioxide emitted from gasification rather than burning natural gas, but Woynillowicz points out the carbon capture and storage remains an untested, expensive technology.
While demand is increasing, and supplies of Canadian gas may be dwindling, there are a couple more factors at work. One is that gas supplies in the U.S. are likely to expand from unconventional sources of natural gas, mainly from shale, which would reduce demand in the lower-48 states for Alaskan natural gas. Like tar sands, however, unconventional sources of gas from shale and coal bed methane are more carbon intensive to produce, and have other environmental consequences, such as heavy water use in the case of shale extraction.
