Issues Facing the Future Use of Alaskan North Slope Natural Gas

Pursuant to a congressional request, GAO reviewed the marketing and financing obstacles encountered by sponsors of the Alaska Natural Gas Transportation System (ANGTS) and alternatives for transporting and using the abundant natural gas reserves of the Alaskan Arctic.

Before ANGTS completion can be assured, its participants, a consortium of gas pipeline companies and three gas producers, must secure a gas market and develop a financial plan. The system's participants have been unable to guarantee a market for the gas largely because its delivered price is estimated to be considerably more than alternative gas supplies. None of the proposed options to expedite the system would provide an immediate remedy for the project's problems. GAO also examined a number of alternatives to use or transport the Alaskan gas. Many have disadvantages, largely because of: (1) the expense and size of any project to move the gas more than 800 miles over difficult terrain; and (2) marketing problems. GAO concluded that any major project to move the Alaskan gas should meet the following conditions to be both viable and acceptable to the financial community: (1) the product should have a firm, long-term market and a price that minimizes the use of subsidies or assistance to maintain its competitiveness without distorting the market; and (2) the economics of the project must be attractive, and its financial backers must be strong enough to attract necessary funding. Specifically, an adequate return to lenders should be assured throughout the project's life and the sponsors should provide guarantees for completion of the project's construction.