The Significance of Whitaker's Letter to Ogan

[Update: this post was written very early this morning before today's ADN was printed.]

Generally speaking, both the ADN and KTUU compare quite favorably to similar media outlets in similarly-sized markets. It is thus surprising that these esteemed sources have, at least to date, failed to grasp the significance of former state legislator and current Fairbanks-North Star Borough Mayor Jim Whitaker's blistering open letter attacking recent actions by state Sen. Scott Ogan. Perhaps they consider the letter to be nothing more than a personal spat. If so, they are in error.

Assuming that a gasline is built to ship North Slope gas to Midwest markets, Whitaker would like a spur line built through Fairbanks to Valdez. Alaskan gas could then be exported as LNG to Asia and California. (Such an LNG project may or may not be viable given the amount of gas at tidewater in some of the Persian Gulf states.) Under current law, however, a producer-owned gasline consortium could simply refuse to transport gas through their gasline to Valdez if the gas were destined for export. An independently owned LNG facility in Valdez could be effectively barred from competing in export markets against companies with an interest in the gasline.

At a minimum, Whitaker would like a spur line to provide gas to the Fairbanks area. Of course, the profit margin for gas sold into a Fairbanks market might not be as high as the margin for gas sold Outside. The same logic applies to selling North Slope gas into the Anchorage/South Central market through a $500 million spur line from Tok.

Given the likelihood that producers may very likely have a strong incentive to export all of Alaska's gas to the lower-48, Whitaker, quite correctly, wants Ogan and the rest of the legislature to require that some North Slope gas be marketed in Alaska with as few cost-enhancing barriers as possible.

According to Whitaker, however, current law bizarrely:

puts an overwhelming burden on local utilities and communities to commit to purchase, for firm transportation, a definitive amount of natural gas without knowing what their future demands will be, without knowing what the tariff rate will be, or the methodology for gas valuation will be, or from whom they will purchase gas or even if it will be available.

Yet Ogan, who claims to be so concerned about a possible shortage of Cook Inlet gas that he sold out his own constituents to the coalbed methane industry, seems, in light of Whitaker's letter, to be utterly opposed to the idea of requiring Alaskan gas to be marketed to Alaskans without the risk-increasing demands of current statute. In fact, the idea so scares Ogan, that he would not even let Whitaker testify before his Natural Resources Committee.

So who benefits from keeping North Slope gas out of Alaska's markets? While the major producers might experience a relatively minor marginal gain by selling less gas in-state and more out-of-state, Ogan's former client, Evergreen Resources, could have a relatively major gain. Cheap, plentiful North Slope gas would pull the rug right out from under Evergreen's Mat-Su efforts to supply Anchorage with coalbed methane.

Yet another reason to recall Ogan.

[Update, continued: This morning's ADN has a very good editorial on Whitaker's letter and what it teaches us about Ogan.]