Palin Didn’t Beat Big Oil - a Blast From the Past

Palin Didn’t Beat Big Oil — She Just Handed Them an Excuse to Walk Away

Everyone loves the story of Sarah Palin riding into Juneau on a white horse, vanquishing the corrupt Frank Murkowski and his backroom pipeline deal. It’s a great political story. Unfortunately, great political stories don’t move natural gas.

Let’s look at this strictly through the lens of economic viability, because that’s where the pipeline died — and Palin pulled the trigger.

Murkowski’s approach was flawed in its process but sound in one fundamental economic reality: you cannot build a pipeline without the gas producers. BP, ConocoPhillips, and ExxonMobil own the gas on the North Slope. Without their committed participation as shippers, no lender on earth finances a $26 billion pipeline. That is not politics. That is arithmetic.

Palin won the governorship, scrapped Murkowski’s deal, and designed AGIA — the Alaska Gasline Inducement Act — specifically to exclude the producers from driving the process. The result was entirely predictable. BP said flatly it could not meet the terms of AGIA and would not sign take-or-pay contracts with a pipeline licensed under it. ExxonMobil and BG Group didn’t even submit applications.  The three major North Slope producers — the only parties whose gas commitments could make the project financially viable — were either absent or operating outside the AGIA framework entirely.

What Palin was left with was a Canadian pipeline company, a license, and a $500 million check from Alaska’s taxpayers. TransCanada had not promised to actually build the gas line. The state license was not a construction contract and did not guarantee a pipeline would be built.  Palin repeatedly told Alaskans otherwise, which the Anchorage Daily News flatly called incorrect.

The deeper economic problem was Palin’s own tax structure. Producers held that unreliable tax terms — windfall profit taxes based on profit and therefore impossible to calculate in advance — kept them from pursuing a pipeline before AGIA was even introduced.  Rather than resolve that core commercial obstacle, Palin doubled down by raising taxes through ACES and then wondering why the producers wouldn’t commit to a decades-long infrastructure project with no tax certainty.

A petroleum economist with over 25 years in the Alaska Department of Revenue put it bluntly: Palin’s proposal used faulty accounting to reach the flawed conclusion that a pipeline owned by a third party would be more profitable than one owned by the major gas producers, who must be on board for the project to work at all. 

The open season came and went. It closed with no bids. 

And the final verdict? In 2014, the agreement between Alaska and TransCanada was cancelled in light of substantially lower natural gas prices and increased supply from new extraction technology, making the pipeline arrangement uneconomic. The $500 million in seed money was forfeited to TransCanada under a cancellation clause. 

Alaska spent $500 million dollars, wasted nearly a decade, and ended up with nothing — not because the pipeline was inherently unworkable, but because the AGIA framework was economically illiterate from the start. It treated the producers as adversaries rather than the indispensable commercial partners they were.

Murkowski tried to deal with those partners and got voted out. Palin refused to deal with them and got celebrated. But the North Slope gas is still sitting up there, unmonetized, and Alaska is still waiting for a pipeline.

Sometimes the voters are wrong.