From the WSJ's Weekly Report:
Latest Risk to Alaska Gas Pipeline: More Gas
by: Ben Casselman
Jan 30, 2010
TOPICS: Energy, Supply and Demand
SUMMARY: The discovery of huge new natural-gas fields across the contiguous U.S. is threatening Alaska's plans for a pipeline to export gas to the lower 48 states.
CLASSROOM APPLICATION: The article offers a straightforward analysis of the effect of increased supply on the entry decision of a higher-cost firm.
QUESTIONS:
1. (Introductory) What is the effect of huge new natural-gas fields across the contiguous U.S. on Alaska's pipeline plans?
2. (Advanced) The article comments on two projects. One is a pipeline through Canada with an expected cost of $41 billion. The other would be a pipeline to Alaska's southern coast, where gas would then be transported by ship, and would cost up to $26 billion. How does the decision about which pipe to build depend on the expected future price of natural gas and the level of uncertainty about future prices?
3. (Advanced) The article states that a pipeline to move natural gas from Alaska to the lower 48 would stabilize natural gas prices. Do you agree with this statement?
Reviewed By: James Dearden, Lehigh University
