05/18/2011 04:51 pm ET Updated Jul 18, 2011

Alaska Gasline Failure Disappointing, but No Surprise

ANCHORAGE, Alaska -- Backers of Alaska's Denali natural gas pipeline project had barely thrown in the economic towel, when some state lawmakers began calling for TransCanada and the administration of Gov. Sean Parnell to prove the controversial state-sanctioned gas line project is economically viable.

At stake with the Alaska Gasline Inducement Act is several hundred million dollars in public money the Legislature agreed to give the project as well as the state's ability to move forward with a larger-sized, in-state gas pipeline.

And the announcement Tuesday morning by the Denali project's backers that they were giving up on building a $35 billion, 1,700-mile pipeline from the North Slope to Alberta, Canada, was also immediately viewed as yet another sign that a decades-long major economic dream for Alaska is once again slipping away.

Disappointment, but not surprise was the phrase most used by people who have been following the gas line debate on all sides.

It's not unexpected news," said Larry Persily, the federal coordinator for Alaska gas line projects. "Clearly given today's market it's going to be hard. If you were Denali how many more millions are you going to spend when you're not seeing success close at hand. It's all their money. Maybe when you're spending someone else's money you can keep going a little longer."

TIMELINE: Alaska's gas line pipe dreams

In an indictment on the economics of the natural gas business in Alaska, Denali President Bud Fackrell said in a press release that the company was unable to secure customers and wasn't going to spend billions more dollars on a futile effort. This after BP and ConocoPhilips, the companies behind Denali, had spent about $165 million on the project.

Natural gas prices have fallen considerably since 2007 when the Legislature led by former Gov. Sarah Palin passed AGIA and agreed to support it with as much as $500 million of state money. The state signed an exclusive license agreement with TransCanada which then brought Exxon Mobil on as a partner.

The Denali project was started as a parallel effort and has not had the benefit of state subsidies, a fact some AGIA supporters point to as one big difference between the two proposals and perhaps the reason TransCanada can succeed where Denali failed.

But House GOP leaders who have long been critical of AGIA are seizing the demise of Denali as an I-told-you-so moment. In the just-ended legislative session, they pushed for -- but then dropped -- an effort to force TransCanada and Gov. Sean Parnell to prove whether the project is economically viable before giving it even more state cash.

"Why is TransCanada afraid to answer the same question that Denali just answered openly and honestly and in the public eye?" Rep. Mike Hawker, an Anchorage Republican and one of AGIA's biggest critics, said Tuesday. "What do they have that makes theirs different? They're looking at exactly the same marketplace and the same customer base."

Alaska Speaker of the House Mike Chenault, another Republican opponent of Palin's AGIA law, has begun moving toward an in-state gas line that would run from the North Slope through Fairbanks and down to Anchorage. The House, over the Senate's objections, included $200 million in the capital budget in a dedicated fund that would kickstart an in-state gas line if approved. The budget also reduced by $100 million the amount of money Parnell had requested for AGIA.

But the bullet line has come under fire, too, for its huge cost -- as much as $12 billion -- and high tariffs that would mean a dramatic rise in the cost of gas to Southcentral consumers.

The only way around that would be if the state subsidized the project with billions of dollars.

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