Proposed Alaska Natural Gas Pipelines: Potential Impacts on the Steel Industry

Publication Date: February 2004

Publisher: Library of Congress. Congressional Research Service

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Natural gas finds associated with oil production on the Alaska North Slope are a large national resource, whose use is restricted because of the very high cost of delivering this gas to markets. Congress authorized construction of a pipeline in 1976 and President Carter selected a route to follow the existing Alaska oil pipeline and the Alaska Highway. So far, the Alaska pipeline has not been considered commercially feasible, although two separate consortia have recently filed project applications with the state of Alaska. Meanwhile, plans are moving ahead to build a pipeline via a Canadian route, to bring gas from the Mackenzie River delta to the major North American markets.

Both Houses of Congress approved legislation in 2002, and again in 2003, to encourage development of a pipeline. An $18 billion loan guarantee for constructing the Alaska natural gas pipeline was initially included on the Senate side, and adopted as part of the conference report on H.R. 6, the Energy Policy Act of 2003 (H.Rept. 108-375). The conference report was approved on November 18, 2003, in the House, but the Senate failed to close debate on the bill during the first session. Congress did pass, and the President signed, the FY 2004 comprehensive appropriations bill, (P.L. 108-199), which contains a provision that could extend the loan guarantee to construction of facilities to liquefy Alaska natural gas, including ships to transport this product to the U.S. West Coast, if the loan guarantee provision itself becomes law.

The 2002 Senate-approved bill included a price support mechanism, to insure a "price floor" for Alaskan gas in the U.S. market. This same bill was re-approved in the Senate in 2003, but the House has never voted for the price-support mechanism, and it is not in the H.R. 6 conference report. The Bush Administration opposes the price floor provision. The Canadian government has also expressed its opposition to any policy of government intervention that would disfavor Canadian natural gas in the U.S. market.

If a pipeline were to be built, it would provide a significant boost to demand for steel in North America, as the American Iron and Steel Institute (AISI) estimates that 3 to 5 million tons of steel could be required, depending on the route and design of the pipeline, and that up to 14,000 "work years" could be generated in the steel and pipe industry. AISI believes that sufficient capacity exists or can be readily developed in North America for manufacturing the necessary steel pipe. H.R. 6 contains a "sense of Congress" resolution that North American steel should be used in the project. ExxonMobil Corporation, one of the three developers of Alaska North Slope oil and gas, has announced an agreement with two Japanese companies to commercialize a new type of steel that could reduce Alaska pipeline costs.

This report explores the economic and industry tradeoffs inherent in current efforts to commercialize Alaska North Slope natural gas, and the impact on the steel industry. The report will be updated as warranted.