Politics & Government

Q&A: Drue Pearce says Obama administration backs gas pipeline

WASHINGTON — Beyond its $30 billion cost, there are thousands of steps on the path to the proposed pipeline that will take North Slope natural gas 1,700 miles through Alaska and Canada.

There are market forces, state and national politics and a host of environmental and regulatory hurdles — some 22 federal agencies in the United States alone must sign off on an environmental impact statement before the project can move forward.

One small federal agency, the Office of the Federal Coordinator, is overseeing the effort. The office, headed by Drue Pearce, an Alaskan who is based in Washington, D.C., has nine employees.

Pearce, a former Alaska Senate president, served from 2001 to 2006 as the senior adviser to the Secretary of the Interior for Alaska Affairs until she was appointed as federal coordinator.

The pipeline, considered a national priority by both Congress and the Obama administration, picked up momentum this month when Exxon Mobil Corp. announced it would join TransCanada Corp. to compete with the Denali gas line project proposed by BP and Conoco Phillips. TransCanada has the backing of Alaska Gov. Sarah Palin's administration, which pushed through the Alaska Gasline Inducement Act in 2007 that made the company eligible to receive up to $500 million from the state for up-front costs.

Next year, the two competing projects will hold open seasons, where they will lay out their shipping rates and seek gas producers to commit to using their pipe. The two companies would need those commitments during the open season to land approval from regulators and the money needed for construction.

Pearce and her deputy, Thomas Barrett, sat down last week to talk about what they're doing and what comes next:

Q. What's the scope of your office?

A. Our primary mission for the Office of the Federal Coordinator is to expedite construction of the gas pipeline that will commercialize North Slope gas and bring it to the Lower 48 domestic markets. That's our charge from Congress.

Underneath that we have a number of different directive things to do. We're the first line of communication with Congress about the project; we oversee the other federal agencies, make sure they stay on their timelines; we will work with the Federal Energy Regulatory Commission to make sure that they can meet their 18-month deadline that's laid out in law for their environmental impact statement, by ensuring the other agencies provide information that they need to feed into that EIS in a timely manner. It's to expedite making the project happen.

Q. How does it complicate it, having two separate proposals?

A. It's not so much at this point that it complicates it. It means that FERC will have additional work to do as they deal with not one but two separate environmental impact statements. At some point, there will be duplicative work that will cost the applicants a lot of money, and there will be duplicative processing that the agencies will have to do, and that's inefficient. It's doing twice the amount of work, frankly.

Q. There seems to be some momentum gathering. What are you doing to capitalize on that -- is there something you can do or is it something that's just going to take its own course?

A. We're all marching in some ways to the timelines of the two applicants. Having said that, however, there's a lot going on behind the scenes as they put together their cost estimates that will be the basis for their tariff proposals in the open seasons. And both entities plan to go to open season in 2010. So there's a huge amount of design and cost-estimating work that's going on, and a lot of interaction with the different agencies -- and with us -- as they move forward toward those open seasons. At the same time, both applicants are planning to begin their open houses, the first meetings where they'll go out to the public and describe the project in great detail to stakeholders.

Q. Who are the stakeholders?

A. The environmental community, all of Alaskans are stakeholders, the government-to-government responsibility we have with the tribes in Alaska. The municipalities up and down the route that will be affected.

Q. You went to Ottawa recently. What kind of talks did you have with the Canadian government, and how difficult is that part of it?

A. It's been easy to work with Canadians. Certainly they know pipelines, they know northern pipelines. They have processes that are laid out and well understood by the applicant companies, so they will proceed apace. They've said publicly that they will strive to meet the deadlines that are laid out in our legislation by Congress, so that permitting on the Canadian side will not hold up the ability to get a pipeline built.

Having said all of that, the official position of Canada is that they'd like to see the Mackenzie line (a Canadian competitor) go first. And we understand that, accept that and believe that there's room for both pipelines.

Q. What are you seeing in Washington in terms of political will for this project?

A. There's a lot of support for the project both in the administration, as well as in Congress, both the House and the Senate and, frankly, both Republicans and Democrats. It's a project that clearly had a lot of support in 2004 when the enabling legislation was passed, and in 2006 when I was nominated and confirmed. And the project itself has a great deal of interest. We get calls often from legislative offices saying, "Is there something we can do to help?" In the Senate energy bill, there are sections about the pipeline. Frankly, the ideas for those all came from members on the Hill; they weren't things that we put forward. We're gratified that there's bipartisan support.

Q. Is the support in the administration talk, or is it actual support?

A. Oh, no, I think it's strong support. I'll give you an example. Interior Secretary Ken Salazar, after his confirmation, the pipeline was one of the first things he asked to be briefed about. And we've seen that in a number of agencies. People want to get to work on this project. Everybody supports it; it's a great project, it's huge, lots of opportunities for lots of people to be involved.

You see analysts saying, "The money's not there, the prices aren't in the right place for a project of this magnitude, there are shale deposits looking very promising in the Lower 48."

The beauty of commercializing our gas is it's going to tie into a system of pipelines that's already in place. Conventional natural gas production in western Canada is declining. The pipes are already there. Our gas will replace the gas that's in decline, coming into upper Midwestern markets that neither the shale gas nor LNG, frankly, are coming to on a massive scale. So we have almost a ready-made market. People are dependent on there being gas coming through those lines and nobody envisions that they will be taken out of service. Both companies have said, looking at the early modeling they've done, they believe they can deliver gas into market at an economic tariff.

Q. What does it do to have a company like Exxon, which has a lot of cash, come to the table?

A. It never hurts to bring cash to the table. I understand that the deal that they struck with TransCanada includes some additional funding into the project, which is great. They bring a great reputation for their technical capabilities, and they certainly know how to deliver massive projects on time and on budget, around the world in some extreme conditions. But the best part about Exxon coming into the project is that we now have all of the major North Slope producers actually party to one or the other of the two projects, as opposed to just being on the sidelines, watching. That tells us that there is a real momentum, that this is the window, this is the time to make this project happen.

Q. What is the timeline?

A. First gas in 2018 is the most optimistic. Both Denali and TransCanada's timelines right now show first gas in 2018, if they stay on schedule and if nothing went south. It is optimistic. But we build pipelines in North America all the time. The technical side is not what will stop this project.

Q. What would? Politics?

A. The cost. The Legislature, the state politics could stop the project. Canadian politics could stop the project. And frankly, national politics could. But I don't see, at this point, those things happening, because there is support at every level and I think people are going to step up to the plate at every level. And it's going to take a lift at the state and Canada and here. We have to seek the problems and try to solve them ahead of time.