Palin No Pushover on Pipeline Project

The Alaska governor and McCain running mate championed a natural gas pipeline deal that replaced a proposal she had called a giveaway to Big Oil

Sarah Palin
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To most Americans, Senator John McCain's (R-Ariz.) choice of running mate, Alaska Governor Sarah Palin, is a new face. To Alaskans, however, she's the woman who got a giant natural gas pipeline project off the ground, in part by telling big oil companies they'd get no sweetheart deals. Despite the national debate about drilling in the Arctic National Wildlife Refuge (ANWR), Alaskans largely favor development of their natural resources, a huge source of revenue for the state. For years, Alaskan officials have been dickering with the state's largest producers, ExxonMobil (XOM), BP (BP), and ConocoPhillips (COP), over construction of a pipeline that would bring the nation's largest untapped natural gas reserves to consumers in the Lower 48 states. The producers wanted long-term commitments from the state on what their tax obligations would be for producing the gas.

In 2006, then-Governor Frank Murkowski championed legislation that would have gotten a new pipeline going. Independent consultants hired by the state, however, concluded that the royalty and lease incentives in his proposal were worth some $10 billion to the oil companies. The deal would have also hampered the state's ability to raise taxes on the producers for decades. "Governor Murkowski had proposed a truly abysmal deal," says state Representative Beth Kerrtula, the Democratic Party's minority leader. Palin criticized the Murkowski bill as one negotiated in backroom dealings and as a giveaway to the big three producers. In August 2006, she beat Murkowski in a Republican Party primary.

After winning the general election in November 2006, Palin pushed for a gas deal of her own. Rather than negotiate with the big three producers, Alaska legislators passed a bill offering inducements to pipeline operators. Initial expenses of up to $500 million would be reimbursed by the state. Late last year, five companies submitted proposals. Palin championed one from TransCanada (TRP), a Calgary-based company that is North America's largest pipeline operator. State legislators officially awarded TransCanada the license on Aug. 1, and Palin formally signed the bill on Aug. 20.

Big Oil Falls into Line

But a funny thing happened on the way to the independent pipeline award. In April, BP and ConocoPhillips announced plans to construct their own giant pipeline, called Denali. The $30 billion project would be North America's largest construction project. It would supply 4 billion cubic feet of gas per day—about 7% of U.S. demand—through a 2,000-mile line snaking from Alaska's North Slope to the border of Canadian province Alberta. It was exactly what Alaskan officials wanted from the producers. "One time they were talking about locking up taxes for 25 years," says Kurt Gibson, deputy commissioner of Alaska's Oil & Gas Div. "Now the story they're telling is 'We'll figure out the taxes later.' That's a pretty stark departure."

In Alaska, where energy companies wield power as in few other places, Palin's independence was seen by many as radical—and caused abundant consternation among many in her own party. "She is not in bed with them, she's not adversarial with them," Gibson says of the governor's relationship to Big Oil. "She's acting as any responsible chief executive would in managing an asset in your portfolio. Under Murkowski we were beholden to the major energy company interests."

ConocoPhillips spokesman Charlie Rowton said in an Aug. 29 e-mail that the Houston company had, with BP and ExxonMobil, spent more than $125 million to date studying the project and that "Denali represented the next stage in advancing a gas pipeline."

In the end, no one expects two pipelines to get built. Most likely TransCanada and the big producers will join forces in some manner. Presently both the Denali partners and TransCanada are performing the initial fieldwork on their projects. They plan on soliciting customers by 2010. At the earliest, says Tony Palmer, who heads TransCanada's pipeline operation, the new line could open by 2018. That effort would be expedited, he says, if the Republican ticket wins. But he notes that Democratic candidate Barack Obama also supports a gas pipeline.

"Barracuda" with Backbone

Marty Rutherford, deputy commissioner of the state's Natural Resources Dept., headed a team that developed the pipeline inducement program. She says the state's major goal was to keep the pipeline open to all producers. A pipeline owned solely by the big three operators might make it difficult for other companies to gain access. She says a number of independent producers including Anadarko Petroleum (APC), BG Group (BG.L), and Pioneer Natural Resources (PXD) hope to exploit Alaska's natural gas reserves.

Palin, 44, came to prominence in the state as ethics commissioner of the Alaska Oil & Gas Conservation Commission, where she raised concerns about ethics violations on the part of two prominent local officials, the state's Republican Party chairman and Attorney General, both of whom later resigned. She faces ethics charges of her own involving alleged pressure by a member of her staff to fire her former brother-in-law, a state trooper who is involved in a child custody battle with Palin's sister. Still her approval rating is a sky-high 76%, according to a recent poll by Anchorage's Dittman Research, although that's off from the 86% rating she got in February. Palin's husband, Todd, is a union member who works for BP at oil fields in the North Slope. She is a former mayor of her hometown of Wassila, Alaska, where she earned the nickname "Sarah Barracuda" for her aggressive play on the basketball court.

Deputy Commissioner Rutherford says Palin has been under constant pressure from the big oil companies to alter her pipeline plans. "It took a lot of backbone to make the deal that she did," Rutherford says. "The governor has that in spades."

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