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

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

Order Code RL31888
CRS Report for Congress
Received through the CRS Web
Proposed Alaska
Natural Gas Pipelines:
Potential Impacts
on the Steel Industry
Updated February 11, 2004
Stephen Cooney
Industry Analyst
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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

Contents
Introduction: An Alaska Natural Gas Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Different Approaches to an Alaska Natural Gas Pipeline . . . . . . . . . . . . . . . . . . . 2
Location of the Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financing the Pipeline . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Liquefied Natural Gas Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Impact on the Steel Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The ExxonMobil Pipeline Steel Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
List of Figures
Figure 1. Alaska Oil and Gas Pipelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Proposed Alaska Natural Gas Pipelines:
Potential Impacts on the Steel Industry
Introduction: An Alaska Natural Gas Pipeline
Alaskan natural gas is a major potential U.S. energy resource that is largely
untapped. The Alaska Department of Natural Resources estimates recoverable gas
reserves in the Prudhoe Bay oil field at about 30 trillion cubic feet (tcf), which is the
energy equivalent of about 5.3 billion barrels of oil. For comparison, the entire
annual U.S. consumption of natural gas is approximately 20 tcf. But most of the gas
that has so far been produced on Alaska’s North Slope, 80% of the 8 to 9 billion
cubic feet produced annually, has been reinjected back into the ground. Only a small
amount has been used for operations in conjunction with oil production and
transportation, such as powering oil through pipelines, and other local uses.
This resource has not so far been developed because of a lack of any means of
cost-effective transportation to major markets. Using a more stringent definition than
the state, the Energy Information Administration (EIA) of the federal Department of
Energy estimates that proved natural reserves in the entire state of Alaska are 9.7 tcf
– because absence of a pipeline, or near-term prospects for a pipeline, render the rest
of Alaska’s gas reserves commercially unrecoverable.1 If a pipeline were to be built,
it would be a major project from the perspective of the steel industry.
Congress has established a statutory framework for an Alaska natural gas
pipeline. The legislative authority for designation of an Alaska natural gas pipeline
route, and for the U.S. role in the approval, construction and operation of such a
pipeline, was established in the Alaska Natural Gas Transportation Act of 1976 (15
USC 719 et seq.), which remains in effect. Acting under that framework, a private
sector consortium has planned a natural gas pipeline that would parallel the existing
Alaska oil pipeline (Trans Alaska Pipeline System) from the North Slope to
Fairbanks, then head southeastward along the Alaska Highway and into Canada via
the Yukon Territory, British Columbia and Alberta. This is the proposed Alaska
Natural Gas Transportation System (ANGTS), which has received approvals and
agreements from the U.S. and Canadian governments.2
According to Foothills Pipe Lines, the Canadian-based consortium partner
jointly owned by TransCanada Pipelines Ltd. and Duke Energy, “the project currently
stands in an advanced state of readiness awaiting market demand.” Phase I
(“Prebuild”) of the ANGTS pipeline was actually completed in the early 1980s and
1 CRS Report RL31278. Arctic National Wildlife Refuge: Background and Issues, p.42.
2 CRS Report RL31278, pp. 44-45.

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is in operation. Its two legs, stretching from a central collecting point in Alberta
respectively in the direction of the U.S. West Coast and the Midwest, deliver one-
third of Canada’s total annual gas exports to the United States.3
But the crucial third leg, connecting the “prebuilt” network to the North Slope,
has never been started. It would run for 2,140 miles, from Prudhoe Bay to
Edmonton, Alberta.4 Extension of an additional pipeline to the Midwest, to add
capacity to the current network, would yield a total length of 3,500 miles.5 The
planned ANGTS pipeline along the Alaska Highway route and the completed lower
legs of the pipeline into the United States are shown in Figure 1.
Different Approaches to an Alaska Natural Gas
Pipeline
Location of the Pipeline
The geographical location of an Alaska natural gas pipeline is not fully settled.
According to one press report, it is not clear whether rights granted by U.S. and
Canadian authorities in the 1970s to build the ANGTS pipeline are still valid.6 In
January 2004, two consortia filed proposals with the Alaska state government to
build a gas pipeline along the Alaska Highway route, but with some changes from the
existing ANGTS plan. One group was a consortium that included the three North
Slope oil and gas producers. The other consortium is led by MidAmerican, a major
U.S. pipeline operator. It is requesting permission to build a 745-mile pipeline from
the North Slope to a point on the Alaska Highway at the Yukon border. A Canadian
partner would complete the pipeline to join the “prebuilt” pipeline in Alberta.7
Meanwhile, a separate group, the Arctic Resources Consortium (ARC), based
in Canada, has promoted an alternative Northern Route Gas Pipeline Project (NGPP).
This project is proposed to access the Prudhoe Bay gas field in Alaska, then to swing
offshore across the top of the state, under the Beaufort Sea, and to join the existing
Alberta pipeline connection via the Mackenzie River (see Figure 1). This route could
then also serve to deliver to the North American market the more recently found gas
reserves of the Mackenzie Delta, as well as the Alaska North Slope gas.
3 Information from the website [http://www.foothillspipe.com].
4 The length of 2,140 miles is from a chart in Arctic Resources Corporation (ARC). The
Right Solution to Tap Arctic Gas (Nov. 12, 2002), Fig. 2 [http://www.arcticresources.com].
It was confirmed to the author by EIA on Nov. 19, 2003.
5 Sen. Lisa Murkowski. “Murkowski Says Gas Loan Guarantee Designed to Help Get Alaska
Natural Gas to Market, Regardless of Final Project,” press release, Dec. 2, 2003.
6 Larry Persily, “TransCanada Wants Piece of Pipe,” Petroleum News (Feb. 8, 2004), p. 4.
7 Larry Persily, “The Wait Is Over,” Petroleum News (Jan. 25, 2004), p. 1; and, “Exxon
Unwilling to Line Up,” Petroleum News (Feb. 8, 2004), p. 1; Mid American Energy Holding
Co., “Application Filed to Build Alaska Pipeline,” press release (Jan. 22, 2004).

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Figure 1. Alaska Oil and Gas Pipelines
A Mackenzie River pipeline would require a separate 1,350 mile project. ARC
claims that it could feasibly build a single 1,665-mile pipeline connecting both Alaska
North Slope and Mackenzie Delta gas to North American markets.8 It states that the
route originally fell out of consideration when President Carter decided on the Alaska
Highway route in 1977, in part because of Canadian aboriginal claims issues, which
were still unsettled at that time.9 In June 2003, TransCanada Pipelines joined this
consortium and agreed to fund participation by a group representing indigenous
8 ARC, Right Solution, Fig. 2 and p. 7.
9 Ibid., p. 4.

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Canadians, to allow them to participate in a Mackenzie River project, which may be
going ahead on its own, regardless of any connection to Prudhoe Bay.10
The Alaska state legislature enacted a law that bans construction of a gas pipeline
in northern state waters, while strongly supporting proposals for a pipeline to the
south. As noted in an earlier CRS report, “... State officials see a greater gain through
the income multiplier effect of construction within the state and greater access by
Alaskan communities to the new gas supplies. Also at issue is the fact that a Canadian
route would likely serve new Canadian gas fields, which would then compete with
Alaska in U.S. markets.”11
The Senate-passed version of the energy bill in the 107th Congress agreed with
the Alaskan position. It provided that no pipeline could be constructed for Prudhoe
Bay gas that traverses the submerged lands of the Beaufort Sea, as well as its adjacent
shoreline, and that enters Canada “at any point north of 68°N latitude ” (Sec. 704(d)
of H.R. 4). In a March 2003 article, Peter Behr of the Washington Post stated that the
route along the Alaska Highway was “mandated by the Senate last year to secure the
greatest number of construction jobs for Alaskans.”12
In the 108th Congress, the House on April 11, 2003, passed a new version of its
energy bill, H.R. 6, which included as Sec. 12004(d) this identical provision on
location of the gas pipeline. The same provision was also included as Section 133(d)
of S. 14, as approved by the Senate Energy and Natural Resources Committee on
April 30, 2003. But S. 14 also included a “sense of Congress” provision (Sec. 145)
that, as North American gas demand will continue to increase, it will be necessary to
complete a separate Mackenzie Delta natural gas project, and that “Federal and State
officials should work together with officials in Canada to ensure both projects can
move forward in a mutually beneficial fashion.” This section further noted that,
“Federal and state officials should acknowledge that the smaller scope, fewer
permitting requirements and lower cost of the Mackenzie Delta project means it will
most likely be completed before the Alaska Natural Gas Pipeline.”
The provisions on location of the Alaska pipeline and on the Mackenzie River
pipeline were both included in the conference report on H.R. 6 (Energy Policy Act of
2003), which was considered on the floors of both houses before the end of the first
session of the 108th Congress. The conference report included the language on
location of a gas pipeline as Sec. 373(d). The provision on the Mackenzie River
pipeline was included as Sec. 384. The H.R. 6 conference report was passed by the
House 246-180 on November 18, 2003. In the Senate, however, a cloture motion to
10 Peter Behr, “Agreement Advances Canadian Gas Pipeline; Project Moves Ahead of
Alaska Proposal,” Washington Post (June 19, 2003), p. E4; “Canadian Gas Pipeline Takes
Big Step in Deal with Arctic Indigenes,” Agence France Presse (June 19, 2003); David Pike,
“Accord on Canadian Gas Pipeline Could Unleash Drilling Boom,” International Oil Daily
(June 23, 2003); Gary Park, “Gas Line on Track,” Petroleum News (Jan. 18, 2004), p. 1.
11 CRS Report RL31278. Arctic National Wildlife Refuge: Background and Issues, p. 47.
12 Washington Post. “Natural Gas Line Proposed in Alaska,” by Peter Behr (Mar. 26, 2003).

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limit debate on H.R. 6 failed (57-40) on November 21, 2003, and no further action
was taken in the first session.13
Financing the Pipeline
Another key question on approaches to building a pipeline is the matter of
government financial support. The three major North Slope oil and gas development
companies, ExxonMobil, ConocoPhillips and BP, undertook a joint study of the costs
of a natural gas pipeline, especially in view of a rise in the North American price of
natural gas. The study, completed in April 2002, estimated the cost of a new pipeline
as $19.4 billion if the ANGTS route were used, and $18.6 billion if it followed the
NGPP route. Either way, the companies concluded that the cost was prohibitive for
natural gas to be commercially delivered to the U.S. market, even at relatively high
natural gas price levels.14
In response to this question of cost, the Senate has considered a number of
financial measures to support construction of an Alaska pipeline. In 2002 it included
a $10 billion loan guarantee for private sector parties that would undertake the project
(Sec. 710 of H.R. 4, as approved in April 2002), and a price floor mechanism that
would guarantee a minimum price for Alaskan natural gas through tax credits (Sec.
2503 of the same bill). In the 108th Congress, the Senate Energy and Natural
Resources Committee increased the Alaska natural gas pipeline loan guarantee to $18
billion when it approved S. 14 (Sec. 144). The price floor provision was included as
Section 511 of the revised Energy Tax Incentives Act (S. 1149) reported by the Senate
Finance Committee.15 The stated intention of the Energy Committee was to amend
the Energy Tax Incentives Act “into S. 14 during floor action.”16
BP and ConocoPhillips reportedly stated that they would not go forward with
development of a pipeline without approval of these incentives.17 ExxonMobil
opposes the incentives. The company believes that such a project should only go
forward without incentives and price supports.18 However, after initial hesitation, it
joined the “producers’ consortium” in submitting a project proposal in January 2004.19
13 H.R. 6 procedural details are summarized in CRS Issue Brief IB10116, Energy policy:
The Continuing Debate and Omnibus Energy Legislation (H.R. 6), by Robert L. Bamberger,
pp. 1 and 4-6.
14 Interview with ExxonMobil spokesman Bob Davis, April 25, 2003. The study assumed
that the pipeline would be completed to Chicago, so it could be possible to effect some
savings if capacity could be shared with the existing ANGTS “prebuilt” pipeline to the
Midwest.
15 See S.Rept. 108-54, part J.
16 Senate Committee on Energy and Natural Resources. “Highlights of the Energy Policy Act
of 2003 and the Energy Tax Incentives Act of 2003,” press release, May 1, 2003.
17 Behr article, Washington Post, Mar. 26, 2003.
18 Davis interview, Apr. 25, 2003.
19 “Exxon,” Petroleum News (Feb. 8, 2004), p. 10.

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The Bush Administration in 2002 indicated its opposition to the “price-floor
subsidy provision ... and any similar provision because it would distort markets, could
cost over $1 billion in annual lost revenue, and would likely undermine Canada’s
support for construction of the pipeline and thus set back broader bilateral energy
integration.”20 The Statement of Administration Policy of May 8, 2003, on Senate
energy legislation reiterated opposition to “the price-floor tax subsidy provision in the
Senate Finance Committee bill, because it could distort markets and could be very
costly.”21 In response, Senators John Breaux, Jeff Bingaman and Tom Daschle wrote
President Bush on May 21, 2003, asking him to “reconsider” this position. The three
senators argued that, “Given the inevitable volatility of gas prices over the 50 year life
of this project, this Administration position effectively means that no pipeline will be
built ...”22
The Canadian government position has been one of declared official neutrality
between the two (or more) potential routes, but opposition to any mandated, unilateral
selection of routes by the U.S. government, particularly if this is included in a policy
utilizing price support mechanisms for Alaskan gas, which Canada strenuously
opposes.23 Price supports and any other mechanisms that favor Alaskan gas over
imports from Canada also raise trade policy questions under World Trade
Organization agreements.
The conference report of November 18, 2003, on H.R. 6 (H.Rept. 108-375)
included the loan guarantee provision as approved in the Senate Energy Committee,
but did not include the price floor/tax credit mechanism to reduce the risk of low
natural gas prices. Section 386 would authorize the Secretary of Energy to issue a
guarantee within two years after a “final certificate of public convenience and
necessity (including any Canadian certificates of public convenience and necessity)
is issued for the project.” As in the version approved earlier by the Senate Energy
Committee, the guarantee would be for 80% of the total cost of a “qualified” project,
up to $18 billion.
According to a press report, ConocoPhillips has publicly confirmed that it will
not participate in the pipeline project without a price floor mechanism. An Alaska
executive of the company informed a conference in Anchorage on November 20,
2003, that, “We’re not going to be able to advance the project without the risk
mitigation.” The same press source noted that BP was still “interested” in moving
forward with the project, though it would find the risk-mitigation tax credit
“helpful.”24
20 Secretary of Energy Spencer Abraham. Letter to Rep. W.J. Tauzin, June 27, 2002.
21 Office of Management and Budget. “Statement of Administration Policy: S. 14 – Energy
Policy Act of 2003” (May 8, 2003), p. 2.
22 Sens. Breaux, Bingaman and Daschle. Letter to President George W. Bush, May 21, 2003.
23 Ambassador of Canada Michael Kergin. “Trust the Market (and Canada),” article in Wall
Street Journal, May 15, 2002; Letter to U.S. Under Secretary of State for Economic Affairs
Alan P. Larson, Sept. 17, 2002.
24 Tim Bradner, “ConocoPhillips Out of Gas Line,” Alaska Journal of Commerce (Nov. 30,
(continued...)

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The Liquefied Natural Gas Option
High prices for natural gas since 2000 have revived interest in the United States
and abroad in developing liquefied natural gas (LNG) technology. LNG is gas that
has been liquefied by cryogenic technology, transported in special-purpose carriers,
then regasified for normal commercial use. All four LNG plants that were built in the
United States in the 1970s have been reopened, and more are currently being
considered, including on the U.S. West Coast.25
Thus, another possibility that has emerged is a new natural gas pipeline wholly
within Alaska to feed an LNG operation. From there, the LNG could be transshipped
by special-purpose maritime carriers to domestic or foreign markets. Alaska voters
in a November 2002 referendum by 61% authorized a new state authority to build a
gas pipeline to parallel the existing oil pipeline from Prudhoe Bay to Valdez, and to
build a new LNG plant there.26 But ConocoPhillips Alaska representatives in July
2003 shared with members of the new Alaska Natural Gas Development Authority the
results of an extensive multi-company industry study, which concluded that an Alaska
North Slope LNG project was not commercially competitive with other LNG
projects.27
To enhance the prospects for such an alternative, Senator Lisa Murkowski sought
to “provide equal financial incentives” for federal support in transporting Alaska
natural gas to U.S. markets, “whether that gas moves by pipeline through Canada or
by tanker from Alaska’s south coast.”28 She succeeded in adding to H.R. 2673, the
comprehensive appropriations bill considered at the end of the first session of the 108th
Congress, a provision to achieve this purpose. Section 146 of the conference report
on the bill “amends Section 386 of the Energy Policy Act of 2003 to permit the
consideration of an option providing a loan guarantee for [an LNG] transportation
24 (...continued)
2003).
25 Dept. of Energy. EIA. The Global Liquefied Natural Gas Market: Status & Outlook
(DOE/EIA-0637), December 2003. Chairman Alan Greenspan of the Federal Reserve Board
(FRB) has emphasized the potential role of LNG in relieving recurrent U.S. natural gas
shortages and price volatility; see FRB, Testimony of Chairman Alan Greenspan, “Natural
Gas Supply and Demand Issues,” House Committee on Energy and Commerce (June 10,
2003). See also Bureau of National Affairs. Daily Report for Executives (DER), “Four-Year
Spike in Natural Gas Prices Alters Consumption, Development Outlook, EIA Says” (Dec.
17, 2003); Susan Warren, “Qatar Pursues Natural Gas Deals,” Wall St. Journal (July 14,
2003), p. B4; Wesley Loy, “State to Court Asian Buyers for Natural Gas,” Anchorage Daily
News (Aug. 12, 2003), p. F1.
26 Ben Spiess, “Ulmer Authorizes Gas Pipeline Referendum for November 5 Ballot,”
Anchorage Daily News (Mar. 13, 2002), p. F4; Tim Bradner, “Voters Approve Gas
Authority; Now What?” Alaska Journal of Commerce (Nov. 17, 2002), p. B1.
27 Kristen Nelson, “LNG Not Cost Competitive for ConocoPhillips,” Petroleum News (July
13, 2003), p. 2.
28 Sen. Lisa Murkowski, “Murkowski Says Gas Loan Guarantee Designed to Help Get
Alaska Natural Gas to Market ...” press release (Dec. 2, 2003).

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project in Alaska.”29 It limits the principal in the LNG portion of the project that
could receive the federal loan guarantee to $2 billion, out of the total $18 billion limit.
The cost of building LNG tankers could be included.30 A House opponent of the
measure stated in a letter to colleagues on the Energy and Commerce Committee that
this provision had been rejected in subcommittee, with bipartisan opposition, and
represented an unwarranted subsidy for construction of LNG facilities.31 H.R. 2673,
including Sec. 146, passed the House 242-176 on December 8, 2003, and the Senate
by 65-28 on January 22, 2004. It was signed into law (P.L. 108-199) by President
Bush on January 23, 2004.
Pursuit of the LNG option would entail a much shorter pipeline (the Trans
Alaska oil pipeline is about 800 miles long) and therefore would imply use of a much
smaller amount of steel. Of course, if the federal guarantee is used, an additional
amount of domestic steel may be required for building Jones Act-qualified LNG
tankers. Senator Murkowski has emphasized that her amendment to H.R. 2673 and
thereby to Section 386 of H.R. 6 only serves to give Alaska the additional flexibility
it has sought in bringing its natural gas to the U.S. market.32 Unless the underlying
bill, H.R. 6, is passed, any amendment to Section 386 remains moot. The companies
that own the gas remain less interested in an LNG project, and, along with Alaska
Governor Frank Murkowski, continue to emphasize the Alaska Highway pipeline.33
Impact on the Steel Industry
The impact of an Alaska natural gas pipeline on employment and revenues in the
steel industry could be significant. The American Iron and Steel Institute (AISI)
supports the project, though it has been neutral with respect to routing and financing
issues. It estimated, for example, in a statement attached to a letter to then-Senator
Frank Murkowski, who was then ranking member of the Energy and Natural
Resources Committee, that the project could generate “up to 10,000 work years of
29 Description quoted from H.Rept. 108-401, p. 1180. See account in Larry Persily, “Federal
Loan Guarantee Extended to LNG,” Petroleum News (Dec. 7, 2003), p. 13.
30 Inclusion of the cost of building LNG tankers is justified on grounds that they would have
to be U.S.-built and -manned under the Jones Act, and therefore the price of construction
may be “two to three times as much as foreign-built ships;” Sen. Murkowski press statement
(Dec. 2, 2003).
31 Rep. Ed Markey, letter to Reps. Joe Barton and John Shimkus (Dec. 2, 2003) and “Markey
Calls on Republicans to Reject Secret Subsidy for LNG in Omnibus Spending bill,” press
release (Dec. , 2003).
32 Sen. Murkowski, press release (Dec. 2, 2003).
33 Christian Schmollinger, “Pork Barrel Language No Guarantee for Alaska LNG Project,”
Oil Daily ((Dec. 4, 2003);Associated Press, “Governor Pushes Alaska Highway Pipeline
Route ...” Anchorage Daily News (Dec. 2, 2003), p. F2; Tim Bradner, “Pipeline Firms Eye
Highway Line,” Alaska Journal of Commerce (Dec. 14, 2003), p. B1. For an earlier CRS
report that reviews technical aspects of all these options, see CRS Report RL31165, Natural
Gas Reserves in Alaska: An Overview of Conventional and Non-conventional Development
and Transport Options.

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direct employment from North American steel supply. In addition almost 4,000
additional work years would be used to manufacture pipe from steel.”34 This estimate
was based on the use of 3 to 5 million tons of steel. By comparison, in 1999-2000,
“three North American steel pipe producers supplied over 1,000,000 tons of steel for
the 2,000 mile Alliance Pipeline running from Northern British Columbia to
Chicago,” which AISI claimed to be “the most technologically advanced and largest
pipeline construction project ever in North America.”35 The total production of steel
in the United States has recently been about 100 million tons per year, with imports
adding roughly 20-30 million tons to meet U.S. demand.
The relative capabilities of U.S. and Canadian industries to supply steel for the
project would depend on a number of variables, including the time frame for
completing the project, the route chosen and the pipeline specifications.36 According
to AISI, gas producers have indicated that they would require a pipe of maximum
capacity, to ensure the ability to transport a high enough volume of gas to earn an
adequate return on a privately financed system.
The maximum diameter considered is 52 inches, capable of delivering 6.0 billion
cubic feet of gas per day (Bcf/d), as indicated in data provided by AISI. But 52-inch
pipe has only been produced in very limited capacities in North America (or anywhere
else) and the rating requirement for producing such pipe in the necessary quantity at
reasonable cost and timeliness may be larger than the X80 grade that is currently the
highest available. Use of this size and grade of pipe would create a high level of
logistical complexities in pipeline construction and operation, requiring 48
compressor stations along the ANGTS route. Using a 48-inch pipe would reduce
operational and construction difficulties somewhat, and it could be made from X80-
rated steel, but would reduce capacity to 4.0 Bcf/d. Downsizing to a 42-inch pipe
would substantially reduce retooling costs, but would also reduce capacity to 2.0
Bcf/d. Arctic Resources Corporation claims that construction and operational
difficulties could be minimized by laying twin 36-inch X80 pipes along the proposed
NGPP/Mackenzie River route, where, it believes, construction difficulties would be
34 The phrase “North American steel” is used throughout this report and most AISI
documents, instead of “U.S.” steel. The U.S. and Canadian steel industries are highly
integrated. Moreover, if any pipeline were to run through Canada, agreement by that
country’s government and participation by Canadian steelmakers in any competitive bidding
process would presumably be required.
35 Quotations from Andrew G. Sharkey, III, AISI. Letter to Sen. Frank Murkowski (April 17,
2002), with attached statement. Estimates of total amounts of steel from interviews with
Chip Foley, AISI, April 22 and 24, 2003. Other sources identified the three major steel pipe
suppliers as Ipsco, Inc.; the Welland Pipe unit of Stelco; and, Oregon Steel’s pipe mill in
Napa, California, with participation also by Berg Steel Pipe; interviews with Martha
Gibbons, Ipsco, Inc., and Tom Danjczek, Steel Manufacturers Association (May 1, 2003).
36 The 800-mile Trans Alaska oil pipeline was built in the 1970s using 500,000 tons of
special cold-weather steel 48-inch diameter pipe imported from Japan. U.S. Dept. of the
Interior, with Argonne National Laboratory. “TAPS History,” in TAPS Renewal
Environmental Impact Statement, http://tapseis.anl.gov.

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minimal, only 10 compressor stations would be required, Mackenzie Delta gas would
be tapped in addition to Alaska gas, and the total capacity would be 5.2 Bcf/d.37
While demand for natural gas has grown rapidly, especially for use in electric
power generation, in recent years in the United States,38 this has not led to a more
general growth of profitable capacity in the large-diameter steel pipe industry. There
are only a few large-diameter pipe producers now active in North America. Ipsco, Inc.
was originally a Canadian company, which now has more of its assets in U.S. mills
and its operational headquarters in Illinois. It has recently been profitable mainly
because of a boom in western Canada oil and gas drilling, but its large-diameter pipe
business has lagged.39 Stelco, based in Hamilton, Ontario, is reorganizing under
Canadian bankruptcy law. It has closed its Welland Pipe unit due to weak demand.
Stelco reportedly still manufactures large-diameter pipe in a joint venture with Oregon
Steel.40 Oregon Steel is a minimill operator with a separate large-diameter pipe unit
in Napa, California. But in 2003 the company indicated that its large-diameter pipe
shipments fell by half in volume over the previous year and this was the primary
reason that the company as a whole lost money.41 Berg Steel Pipe, a subsidiary of
Europipe, jointly owned by German and French steel interests, manufactures pipe in
Panama City, Florida, and has been a large-diameter pipe supplier in North America
for more than 25 years42.
Many of these units are based on minimill operations, which in 2003 have faced
much higher input costs. Not only have natural gas prices been higher, but prices for
scrap, the main input for most minimills, were at record levels at the beginning of
2004.43 Among the large integrated companies, U.S. Steel and Bethlehem Steel have
both closed steel pipemaking operations in recent years, though both U.S. Steel and
Bethlehem’s successor, the International Steel Group (ISG), may be able to produce
the plate size required for large-diameter pipe. U.S. Steel has not recently been a
37 Estimates and data from 2002 analyses supplied to AISI task force established on the
Alaska Natural Gas Pipeline (provided on April 22, 2003).
38 The report to President Bush on National Energy Policy in May 2001 indicated that
natural gas electricity generation had already overtaken hydropower and other renewables
in the 1990s and was projected to increase from 16% to 36% as a fuel source for U.S.
electric power by 2020. National Energy Policy Development Group. National Energy
Policy (May 2001), Fig. 5-5. But more recent EIA estimates state that the relative high and
volatile price of natural gas since 2000 could serve to reduce demand below such
projections. For example, it notes that, “Beyond the completion of plants currently under
construction, little new [gas-fired] generating capacity is expected to be added before 2010;”
see DER, “Four-Year Spike ...” (Dec. 17, 2003).
39 American Metal Market (AMM), April 25, 2003.
40 AMM, April 24, 2003.
41 AMM, May 1, 2003.
42 Information from their website at [http://www.bergpipe.com].
43 Primarily because of strong export demand; see AMM, “Runaway Prices Rock the Melt
Shop Floor,” print ed. (Dec. 22, 2003).

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major market force in plate and in 2003 agreed to trade its plate operation at Gary,
Indiana, to ISG for a different type of operation in the same vicinity.44
U.S. steel industry sources expect that North American steel companies can and
would make the investment, and provide the expertise necessary, to supply steel for
an Alaska natural gas pipeline. President Andrew Sharkey of AISI, citing supply of
steel for the Alliance pipeline in the letter to Senator Frank Murkowski quoted earlier
as evidence of the industry’s capabilities, stated that “North American steel and pipe
industries stand ready to work with all other interested parties to arrive at the best
pipeline design necessary to accomplish the objective.” He further advocated that
North American steel suppliers be fully included in the design of pipeline and be
given an opportunity to compete for steel procurement.45 The H.R. 6 conference
report includes in Section 381 a “sense of Congress” resolution, by which the sponsors
of the pipeline project are urged that they “should make every effort to use steel that
is manufactured in North America.”46
The ExxonMobil Pipeline Steel Project
An alternative to domestic pipe supply from currently available sources has been
advanced by one of the three producers of Alaska oil and gas, the ExxonMobil
Corporation. As mentioned above, ExxonMobil participated in a study with the other
two producers, which concluded that a North Slope pipeline was not, at present,
commercially feasible. The company, also as noted above, did not join the other
producers in urging measures that would offset pipeline construction costs through gas
price supports or other measures that ExxonMobil believes would distort the market
price of natural gas in the North American market. ExxonMobil would instead
address the cost problem through reducing federal and state regulatory uncertainties,
a course it is pursuing in common with the other two producers. This includes
securing changes in the federal permitting rules established under the 1976 law and
securing assurances in the stability of state rules on royalties and fiscal treatment.47
ExxonMobil also hopes to achieve substantial cost reductions by using innovative
technology in building the pipeline.
In seeking to achieve such a technology breakthrough, ExxonMobil
representatives on April 22, 2003, signed a letter of intent with two Japanese
companies, Nippon Steel Corporation (NSC) and Mitsui & Co. Ltd., “to
commercialize a jointly developed new steel, which is 20-50% stronger than
44 CRS Report RL31748, The American Steel Industry: A Changing Profile, p. 13.
45 AISI letter and statement to Sen. Murkowski, April 17, 2002.
46 H.R. 4, §714, as passed in the Senate, April 25, 2002; and H.R. 6, §12012, as passed in
the House, April 11, 2003. Similar language is currently in S. 14, §144.
47 Both of the latest versions of bills passed in Congress would replace the 1976 Alaska
pipeline law with an expedited federal permitting procedure. At the state level, the
companies are seeking a state royalty and fiscal regime that would be in place for a 5-7 year
pipeline construction period; see, for example, ExxonMobil. “Governor of Alaska and
Producers Meet to Discuss Natural Gas Pipelines,” press release, March 28, 2003.

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alternative pipeline steels in use today. The agreement includes possible upgrades to
an NSC pipe mill.” The announcement also noted that the formulation for the steel
had first been developed in ExxonMobil Upstream Research laboratories, and that
further work to make commercial production viable has already occurred jointly with
Nippon Steel.48 The technical announcement indicated that the new steel would be
rated X100 and X120, grades that have hitherto not been manufactured anywhere.49
Press commentary on the ExxonMobil announcement stated that pipe made from the
new grade of steel would be lighter in weight, and therefore easier to handle –
meaning significant potential reductions in construction costs. In addition to
production and long-distance pipeline interests in Alaska and the Mackenzie Delta,
ExxonMobil also has interests in a Sakhalin-Japan gas pipeline project and the west-
east pipeline project being considered to bring gas from Central Asia to China.50
The ExxonMobil proposal for a technologically innovative grade of steel for
pipeline construction apparently does not rely on U.S. (or Canadian) steel industry
technology. The new rating of steel could be produced under license, although tooling
and set-up costs would be substantial for multiple manufacturers working in different
locations. But the required order for an Alaska gas pipeline (and a Mackenzie River
pipeline, if one were built separately) may be so large as to require sharing of the work
by multiple mills anyway.
Conclusion
If, how, when and where an Alaska natural gas pipeline will be built, and by
whom, will depend on a complex set of factors, only some of which have been
mentioned in this report. If a pipeline is constructed, estimates mentioned in this
report indicate that it will be a major steel order, which could be significant for the
North American steel industry. Of course, even were Congress to approve new
pipeline legislation, any actual orders for steel mills would still be years away. The
joint venture between ExxonMobil and the two Japanese companies appears to present
an option that will guarantee a debate with respect to whose technology, and whose
steel, would be used in this major project, should it go ahead.
48 ExxonMobil. “ExxonMobil Signs Letter of Intent with Nippon Steel and Mitsui & Co.
Ltd. to Commercialize Advanced High Strength Steel,” press release, April 22, 2003.
49 Technical details are presented in Proceedings of the Thirteenth (2003) International
Offshore and Polar Engineering Conference, vol. IV (2003), “Steel Development,” at
www.isope.org.
50 Oil Daily, “Exxon Steel Deal Boosts ANS Gas Prospects,” April 23, 2003.