Article VIII, Section 2, Constitution of the State of Alaska, specifies that, "the legislature shall provide for the utilization, development, and conservation of all natural resources belonging to the State, including land and waters, for the maximum benefit of its people." For many years, the State of Alaska has relied heavily on the production of oil to foster its livelihood, provide opportunities for its people, and generate revenues to ensure continued prosperity. We have all seen and enjoyed the positive effects of oil development. However, low oil prices, reduced production, and potential field depletion adversely affect the state's ability to provide a secure future for its people. As we face an enormous budget deficit, we must look beyond our reliance on oil production, budget cutting and taxation as the only means of ensuring a long-term fiscal solution. It is incumbent upon the leaders of this state to recognize that further resource development is critical in order to secure an additional and substantial revenue stream to the State of Alaska. Conservatively, 35 trillion cubic feet of natural gas is stranded on the North Slope, and the failure to recognize this vital resource as a valuable commodity is in direct conflict with the provisions of the Constitution of the State of Alaska.

In order to facilitate the extraction and sale of natural gas, House Bill 170 establishes the Alaska Gas Corporation. The prime responsibility of the corporation is to buy natural gas from the producers on the North Slope and sell that gas to the Asian markets. All functions, other than ownership, including the design, construction, operation and maintenance of a natural gas pipeline from Prudhoe Bay to Valdez, construction and maintenance of a liquefaction and gas conditioning facility, and the operation of a sea transportation facility shall be contracted to private sector businesses.

Bringing gas to market through the construction of a gas pipeline is not a new concept. Numerous studies have concluded that a natural gas pipeline project undertaken by the private sector is not economically viable. Moreover, this scenario only equates to $300 million of revenue to the state during the peak year of operation. Contrarily, the model depicting complete state ownership significantly increases the rate of return for a natural gas pipeline project. $1.2 billion per year will be saved through the omission of state, federal and local taxes. Furthermore, capitalization costs will be substantially reduced by the state's ability to issue revenue bonds for construction. Using these assumptions, conservatively, $53 billion of new revenue will be generated to the state over the next 28 years. State ownership clearly increases the economic viability of this project.

Overcoming a number of additional impediments is essential in order for a project of this nature to become feasible. We have extensively studied the economics, market viability, financial needs, and regulatory obstacles associated with the construction and operation of this project. The analysis of each of these components contributes positively to the feasibility of state ownership. However, in order to truly understand the economic viability of the Alaska Gas Corporation, we must turn to professionals in the engineering, financial and market sectors in order to determine absolute economic feasibility of this project.

House Bill 170 requires a natural gas pipeline feasibility study to be conducted and presented to the twenty-second Alaska State Legislature. This report shall contain specific information pertaining to technical, financial, regulatory and market access matters relating to the project. Consequently, the Alaska Gas Corporation will not be formed until this project has been deemed feasible. This study is of paramount importance in order to move forward and develop our natural resources in the maximum best interest of the citizens of the State of Alaska.