The U.S. natural gas market is going to have to change dramatically for pipeline developers to salvage their plan to ship gas from Alaska to the Lower 48 states, a key federal official said today at the Platts Energy Podium.

“It is going to take a big turnaround in the market, no doubt about it,” Larry Persily, federal coordinator of Alaska Natural Gas Transportation Projects, said at the newsmaker event in Washington, D.C. TransCanada and ExxonMobil have been working with state and federal officials on plans to build a $40 billion, 48-inch-diameter pipeline from the North Slope to the Canadian border, where Canadian pipelines would carry gas to the Lower-48.

However, shale gas development has dampened U.S. demand for the gas, and North Slope producers BP, ConocoPhillips, and ExxonMobil met with the Alaska Governor, Sean Parnell, last week to discuss alternatives to the project, including a pipeline to a new liquefied natural gas export project.

After the meeting, BP CEO, Bob Dudley, and ConocoPhillips CEO, Jim Mulva, said the LNG project seemed to be a better way to get the gas to market, casting growing doubts on the viability of the pipeline. On Tuesday, Persily acknowledged that the pipeline’s future hinges on the producers. “It is going to take concurrence of the three producers.

They are the ones that control the vast majority of the leased acreage, the production coming out of there. They are the ones that are going to have to sign 20-year firm shipping commitments on the pipeline worth more than $100 billion.” Persily said he thought the project had a 50-50 chance of being constructed by 2020. “I haven’t given up on the project. … What it would take is the companies believing the market is there at a sufficient price.”

He also noted that there are key benefits to building the pipeline instead of the LNG project. The Alaska Natural Gas Pipeline Act provides federal loan guarantees for the pipeline, and $21 billion worth of guarantees are currently authorized, he said. The law also allows for accelerated depreciation for the pipeline and an enhanced oil recovery investment tax credit for the gas treatment plant, which together are worth more than $1 billion in tax savings, he added.

“All that applies if you build a pipeline to move gas to the Lower 48. If it is an exclusively export-only line, unless federal law is changed, you don’t get those benefits,” Persily said. Meanwhile, the United States Deputy Interior Secretary David Hayes, also speaking at the Podium event, said the U.S. is working to give Shell an answer on the company’s plans to drill several exploratory wells this summer in Alaska’s Beaufort and Chukchi Seas.

Hayes, who was appointed by President Obama to chair an interagency task force on Alaska energy development, said meetings at both a secretarial and staff level are being held regularly on Shell’s plans. ”We are committed to give them a timely up or down,” Hayes said.

The Interior Department has already given conditional approval to Shell’s exploration plans for the Beaufort and Chukchi. But the company has yet to submit applications for individual permits to drill specific wells, Hayes said. Hayes also said Interior will not budge on a condition that Shell end its drilling program about 38 days short of the time the company had requested. Hayes said the time was needed for the drilling of a relief well in the event of a blowout.

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In December of 2009, the average price of gasoline nationally reached $2.60. Republicans in Alaska and Florida, along with those in other coastal states, worked to build support for the expansion of offshore drilling efforts. The attractive potential of stabilized oil had much of Congress reconsidering the offshore ban of protected areas. The slogan “Drill, baby, drill!” a staple of the 2008 Republican Presidential campaign, became commonplace among the vernacular of the American people. For all intents and purposes, the country was moving in the direction of expanding offshore exploration.

But on April 20, 2010, the explosion of BP’s Deepwater Horizon platform accelerated the pulse of the nation. Oil spewed freely into the Gulf of Mexico for three months, causing what is being called the worst environmental disaster in the history of the United States. The progress of those jockeying to expand drilling was lost in a matter of hours. Many supporters quickly changed routes, instead opting to preserve career longevity. The drilling issue looked dead.

Now, though, the country may be forced to revisit the debate. Revolutions throughout the Middle East have thrown a major wrench into the oil importation strategies of the U.S. Because of the shutdowns of petroleum production sites throughout Northern Africa, prices have risen to over $3.50 a gallon (almost 80 cents more than numbers a year ago).  Economists are concerned that if unrest continues, high fuel costs could slow the already fragile global economy. So what are the alternatives for the United States?

Analysts predict that if the levels continue to dissipate, the United States can release supplies from the Strategic Petroleum Reserve. That strategy would have a minimal impact on prices, though, and only dent the nation’s reserve tanks.

Alternative energy gurus have touted progress for the last two decades; still no viable alternative fuel can be mass produced at the bulk necessary to sustain the American people. Sure, someone will one day find a way to harness solar energy or wind power into something realistic for automotive transport. But when? The country needs to find other means as soon as possible. Waiting for a legitimate fix is no longer an option.

Suddenly, we’ve gone full circle. The ball once again rests in the court of Congress.

The expansion of offshore petroleum exploration appears to hold the most opportunity. Many claim that an increase in production could drive prices back to reasonable areas. Tapping into new production would also provide many new jobs. Many policy makers now insist on the expansion of offshore drilling allowances. Florida lawmakers looked close to making the decision to allow drilling before the BP incident. Research into the other nations allowing offshore production could give the U.S. a good blueprint from which to work.

Many of the views against drilling off the coast of Florida have arisen from the think tanks of environmentalist groups. “Green” associations cite many reasons to continue the Florida offshore moratorium, many of which were strongly reiterated by the BP oil spill example. One of the main arguments of drilling opponents is the pollution factor. Oil rigs have oil spills. No oil rigs, no oil spills. The three-month long release of oil into the Gulf of Mexico provides much of the evidence needed to support the case. The opposition also cites the estimation that offshore production will not be enough to relieve the U.S. dependence on foreign oil. A study shows that offshore drilling (nationwide) will bring in an additional 18 million barrels – total.  The U.S. uses over 8 million barrels a year, according to statistics. Claims by anti-drilling advocates note that the continued importation of petroleum will not allow gas prices to subside. Another platform argues that drilling in Florida waters will damage the state’s profitable tourism industry ($61 billion in 2009). “The biggest con I see to offshore oil drilling is that no one wants to be looking at an offshore oil rig when they go out to the beach,” political blogger Mark Hutcherson testified. Like many arguments in the court of political opinion, this one too has two-sides.

Data gathered by the National Ocean Industries Association shows that each oil platform will provide up to 1,400 new jobs and an estimated $10 million in wages. The infrastructures of many states are not yet setup for offshore production; therefore, many new jobs will be created in the development and building of industrial refining facilities. Considering the number of employees required to run the facilities once they are constructed, the impact on the workforce will be seismic. Employment opportunities will filter down through the trucking and construction industries. New jobs with environmental agencies will also hatch.

The increased domestic production could also mean more government revenues, both nationally and locally. The current national debt is $13,679,284,890,000 plus. The royalties and taxes collected from the new drilling endeavors would allow policy makers to significantly reduce debt levels.  As Marco Rubio, U.S. Senator-elect notes, “The issue of offshore drilling is not going away because America and the world depend heavily on petroleum products.” Although Democrats have backed off their stance of promoting drilling (the then-Democrat-controlled house voted 236 to 189 in October 2008 to lift the moratorium), many Republicans insist on the benefits of increased drilling. If a larger share of the oil being consumed were produced in the United States, it would lessen the U.S. trade deficit with the rest of the world, economists realize.

Despite the recent BP incident, U.S. offshore facilities are generally environmentally sound. From 1971 to 2000, offshore facilities and pipelines were responsible for only 2 percent of the oil in U.S. waters (according to statistics compiled by the Environmental Protection Agency). The BP/Deepwater Horizon oil disaster is an outlier; in 40 years of aggressive oil exploration, the nation has never faced a spill of that magnitude. The odds of a major hurricane (Category 3, 4, or 5) landing in Florida are nine times greater than the state’s chances of facing a spill like the BP debacle. According to Coast Guard records, of the 44 oil spills reported in the aftermath of Hurricane Katrina, none were reported by offshore facilities.

Environmentalists also downplay the evidence that oil importation is actually more damaging than drilling in the United States. The countries from which the U.S. imports oil have lower environmental standards than us. For example, many countries elect to vent methane into the environment rather than spending money to capture it. Also, tankers are less reliable than platforms. As history has shown (until recently), the four largest offshore spills involved transportation vessels. Producing the oil off the coast of the U.S. would minimize sea transport of the product via tankers, therefore reducing the risk of transfer error. Also, transport vessels use tons of diesel fuel, which causes damaging exhaust fumes. Proponents of drilling also point out that the Bahamas and Cuba both drill just outside of Florida’s protected waters.

The potential benefits of drilling in coastal waters are just too significant to ignore. Opponents will continue to build allegations and claims about the evils of drilling, but in the end, necessity will win out. Why wait until offshore drilling becomes essential when we can reap the benefits now? The expansion of drilling into the coastal waters of the United States could lead to the creation of new jobs, higher government revenue, lower gas prices, safer oil transport and drilling, and cheaper prices on common household items.

How much must gas prices rise before we rehash the discussion?

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