Statement of Mark Maddox
Principal Deputy Assistant Secretary for Fossil Energy
to the
Alaska Legislative and Audit Committee
in
Post-Session Meeting
Juneau, Alaska
May 12, 2005

Chairman Therriault, Vice Chairman Samuels, members of the Legislative Budget and Audit Committee: 

To identify myself, I am Mark Maddox, the Principal Deputy Assistant Secretary for Fossil Energy of the U.S. Department of Energy.  For the time-being, I am also the designated coordinator of federal activities in moving this important project forward.

Beginning construction of the Alaska Natural Gas Pipeline as soon as possible is one of the Bush Administration's highest priorities.  

The President himself touched on it in his energy policy speech last month.  The best way to put the project's priority in context is to quote him directly. President Bush said: "Natural gas is an important source of energy….we'll do more to develop this vital resource….[and] that's why I signed into law a tax credit to encourage a new pipeline to bring Alaskan natural gas to the rest of the United States."
  
Interest in an Alaska natural gas pipeline is as high in Washington as it is in Alaska. 

Alaskans are eager to benefit from its economic potential – the tens of thousands of jobs to be generated by $20 billion in capital investment, and the substantial revenue stream to be delivered by the production and sale of natural gas. 

In the lower 48, we need the pipeline and Alaska's natural gas to uphold the balance and security of our energy portfolio, which in turn upholds our Nation's economic growth and our place in the global economy.  

Without Alaska's gas in the supply mix, all projections change.  And they do not change for the better. 

Alaska has 35-to-100 trillion cubic feet of proven-to-probably-recoverable reserves.
When this natural gas starts moving south through a pipeline at a rate of up to 2 trillion cubic feet a year, it will impart substantial balance to the energy portfolio and the economy – balance to the present and in expectations of the future. 

In the Department of Energy, we initiated federal inter-agency preparations on pipeline matters soon after the President signed the enacting legislation last October.  We intend to be ready to respond to a project proposal as soon as the basic arrangements are completed here in Alaska.  And we look forward to proceeding in cooperation with state authorities. 

Over the last six months, our initial activities produced:  

•  An inter-agency working group of federal entities for the purpose of discussing coordination where responsibilities touch on the pipeline;
• A draft memorandum of understanding on coordination to clarify roles, responsibilities and jurisdictions among these agencies, which is in legal review;
• And a Department of Energy business plan. 

This month, through executive action provided for by the pipeline act, Secretary Bodman:

• Created the new Office of Alaska Natural Gas Projects within the Office of Fossil Energy; 
• And, designated the Assistant Secretary for Fossil Energy to be temporary Federal Coordinator of pipeline activities.

The new Office of Alaska Natural Gas Projects has two purposes:

• To house the activities of a permanent Federal Coordinator with authority to both expedite and enforce the execution of federal responsibilities relating to pipeline construction;
• And to begin preparations for ultimate issuance of up to $18 billion in federal loan guarantees to underwrite construction. 

We are reprogramming from other activities the sum of $900,000 to open the new Office of Alaska Natural Gas Projects in this fiscal year, and last week the appropriate Congressional notifications were made. 

And we are in the process of seeking a budget amendment to ask appropriation of $3.5 million for stepping up activities of the office in FY 2006.  Soon we will place the required notice in the Federal Register for actions that will lay the foundation for bringing a loan guarantee program to life. 

The present designation of the Assistant Secretary for Fossil Energy as the temporary Federal Coordinator will hold until April 13, 2006, or until the President nominates a permanent coordinator, whichever comes later. 

The permanent Federal Coordinator will serve for the duration of the project, and the position is subject to confirmation by the Senate.  If no project is proposed in the next 11 months, the duty of the temporary Federal Coordinator is to initiate a study of alternatives, including federal ownership and operation of a pipeline.  And no one involved wants federal ownership, including the current temporary coordinator.
 
As the President said, natural gas is a very important source of energy for our Nation.
Natural gas serves six of every 10 households, about 62 million, and fills many industrial uses across the economy in which it is not easily replaced.

In addition, natural gas is indispensable as a feedstock for fertilizers and chemical manufacturers and it is the fuel for about 16 percent of America's electric power.

The current situation in the lower 48's natural gas markets has:

• Left thousands of megawatts of natural-gas generating capacity stranded due to fuel costs;
• Led to higher power costs where gas-based generation is substantial; 
• Caused widespread layoffs and plant closings in the industries it most directly affects;
• And, squeezed the budgets of millions of households with much higher heating costs. 

The Energy Information Administration's most recent projections for the next 20 years note that:

• Natural gas production in the lower 48 will actually decline by almost 1 trillion cubic feet;
• Alaskan production will rise by almost 2.2 trillion cubic feet;
• And our Nation's only way to increase natural gas supply is with the combination of LNG imports and pipeline gas from Alaska. 

This is why beginning construction of an Alaska pipeline as soon as possible is one of the Bush Administration's highest priorities.

The EIA projects that natural gas could be moving southward by 2016.  Our intent in the U.S. Department of Energy is to do everything possible within our jurisdiction to help it before then – to help it happen as soon as possible.