Significant change in market needed to save Alaska natural gas pipeline

WASHINGTON - The U.S. natural gas market is going to have to change dramatically for pipeline developers to salvage their plan to ship gas from Alaska to the Lower-48 states, a key federal official said on Jan. 10 at the Platts Energy Podium.

"It is going to take a big turnaround in the market, no doubt about it," Larry Persily, federal coordinator of Alaska Natural Gas Transportation Projects, said at the event in Washington, D.C.

TransCanada and ExxonMobil have been working with state and federal officials on plans to build a $40 billion, 48-inch-diameter pipeline from the North Slope to the Canadian border, where Canadian pipelines would carry gas to the Lower-48.

However, shale gas development has dampened U.S. demand for the gas, and North Slope producers BP, ConocoPhillips and ExxonMobil met with Alaska Governor Sean Parnell before the conference to discuss alternatives to the project, including a pipeline to a new liquefied natural gas (LNG) export project.

After the meeting, BP CEO Bob Dudley and ConocoPhillips CEO Jim Mulva said the LNG project seemed to be a better way to get the gas to market, casting growing doubts on the viability of the pipeline.

Persily acknowledged that the pipeline's future hinges on the producers. "It is going to take concurrence of the three producers. They are the ones that control the vast majority of the leased acreage, the production coming out of there. They are the ones that are going to have to sign 20-year firm shipping commitments on the pipeline worth more than $100 billion."

Persily said he thought the project had a 50-50 chance of being constructed by 2020. "I haven't given up on the project. ... What it would take is the companies believing the market is there at a sufficient price."

He also noted that there are key benefits to building the pipeline instead of the LNG project. The Alaska Natural Gas Pipeline Act provides federal loan guarantees for the pipeline, and $21 billion worth of guarantees are currently authorized, he said. The law also allows for accelerated depreciation for the pipeline and an enhanced oil recovery investment tax credit for the gas treatment plant, which together are worth more than $1 billion in tax savings, he added.

Persily says Alaska will have to make concessions to get gas pipeline built

ANCHORAGE - Alaskans just aren't going to rake in the big-time profits that they have from oil from large natural gas pipeline exports to the Lower 48, but they can capture a number of long-term benefits if attractive incentives to producers are provided to get a pipeline built.

"Politics and market economics are the problems here," Larry Persily, federal coordinator for the Alaska transportation project, told Alaska legislators at a hearing on Aug. 17. "AGIA (the Alaska Gasline Inducement Act) isn't going to get you a pipeline. All it gets you is the permit to build a pipeline." By virtue of AGIA, Alaskans are paying "to have a $500 million certificate hanging on the wall."

At a hearing of the Alaska Senate Resources Committee, Persily pointed out that it is not the responsibility of TransCanada PipeLines to negotiate with producers. Under AGIA, TransCanada has contracted with the state to get a certificate. "Getting a project is in the state's lap. The state is going to have to talk to producers."

A TransCanada representative testifying the day before said the pipeline had not had any producers sign up during their recent open season for the 1,715-mile, 4.5 Bcf/d gasline, which would span from a treatment plant at Prudhoe Bay to a connection with the Alberta Hub.

There are a lot of creative ways the state can cut a deal on incentives "without calling it a subsidy," Persily said. He suggested a "progressive" scheme where the state would collect less in the early years. "Look at it as a 50-year project," where the state wouldn't make as much on the first 10-20 Tcf, but would make it up on the next 60 Tcf. "There's a lot of opportunities to make money over 50 years."

Alaska’s Senate Finance co-chair wants to pull plug on state funding of TransCanada gas pipeline if no progress by summer

JUNEAU, Alaska - The state should cut its losses on a major natural gas pipeline if, by summer, it doesn't look like a project will be viable, a leader of a powerful state Senate committee said.

Sen. Bert Stedman, co-chairman of Alaska’s Senate Finance Committee, told The Associated Press that he doesn't want the state spending much more money on a "dead project."

Under an exclusive license issued in 2008, the state committed to pay Alberta, Canada-based TransCanada Corp. up to $500 million to advance a major line to carry gas from Alaska's North Slope to market.

Reimbursements so far have topped $36 million. More than $100 million remains set aside, and Gov. Sean Parnell has requested $160 million more for next fiscal year.

Alaska’s co-chair of Senate Finance wants to pull the plug on state funding of TransCanada gas pipeline proposal if no progress by summer

JUNEAU, Alaska - The state should cut its losses on a major natural gas pipeline if, by summer, it doesn't look like a project will be viable, a leader of a powerful state Senate committee said.

Sen. Bert Stedman, co-chairman of Alaska’s Senate Finance Committee, told The Associated Press that he doesn't want the state spending much more money on a "dead project."

Under an exclusive license issued in 2008, the state committed to pay Alberta, Canada-based TransCanada Corp. up to $500 million to advance a major line to carry gas from Alaska's North Slope to market.

Reimbursements so far have topped $36 million. More than $100 million remains set aside, and Gov. Sean Parnell has requested $160 million more for next fiscal year.

TransCanada still seeking agreements on Alaska gas pipeline project

JUNEAU, Alaska - TransCanada Corp. says it may not meet its goal of securing binding agreements by year's end for a major natural gas pipeline in Alaska, but the company remains optimistic about the project.
TransCanada spokesman James Millar told The Associated Press on Dec. 7 that officials are pleased with negotiations with gas producers so far, but the process is complicated and takes time.

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Competing Alaska gasline joint ventures said considering merger

ANCHORAGE - The BP/ConocoPhillips Denali joint venture that is planning to build a massive natural gas pipeline from Alaska to the Lower 48 is in preliminary talks to join a competing project headed by TransCanada and Exxon Mobil, according to a source familiar with the projects.
The BP/Conoco project, known as the Denali Pipeline, received approval from federal regulators earlier this month to conduct an open season to solicit interest in the project from North Slope gas producers. The TransCanada/Exxon project - which won a special license to build a pipeline from the State of Alaska in 2008 - received its open season approval in March.
The $30-billion-plus price tag on the project means it is highly unlikely two pipelines would actually get built - a joining of the projects has long been seen as inevitable.
But BP's growing financial burden from the Gulf of Mexico oil spill may be accelerating the process. BP has already announced plans for up to $10 billion in asset sales, and likely changes in its capital spending.
Dave MacDowell, a spokesman for Denali, said he wasn't aware of such discussions, but stressed that BP and ConocoPhillips "have said repeatedly they are open to considering involvement of any entity that adds value and takes on risk."
The natural gas pipeline would be among the largest single energy infrastructure projects in the world. It would include a massive natural gas processing plant on the North Slope and 1,700 miles of pipe that would most likely run to Alberta, Canada. There, existing pipelines would carry the gas to U.S. markets.
Alaska granted TransCanada a license in January 2008 to build the long-sought companion to the Trans-Alaska Pipeline System, which has been moving oil to U.S. markets since 1977.
That license followed a public bidding process initiated by then-Alaska Gov. Sarah Palin, who canceled a pipeline deal that her predecessor, Frank Murkowski, had negotiated in closed-door sessions with the three major North Slope producers.
The three producers - Exxon Mobil, BP and Conoco - did not take part in Palin's state bidding process, saying it did not provide the kind of tax and tariff assurances they needed. ConocoPhillips announced its competing project shortly after, and BP joined in that project in April 2008.
Many were skeptical of the state-backed project from the beginning, saying it could not proceed without cooperation from the producers. Dwindling state coffers in Alaska, which relies heavily on royalty payments and taxes from oil and natural gas production, also undermined support.
But last year Exxon Mobil said it would partner with TransCanada on the state-backed project. Exxon Mobil holds many of the largest natural gas fields on the North Slope.

TransCanada launches open season for proposed Alaska gas pipeline

TransCanada on April 30 began taking bids for space on its proposed natural gas pipeline from the North Slope.
The open season is the 90-day period in which a pipeline owner takes bids on space in the proposed line. Depending on the bids and the conditions placed upon them, the project might or might not proceed.
The Alaska Pipeline Project, as TransCanada has dubbed its proposal, was developed in accordance with the process outlined in the state’s Alaska Gasline Inducement Act (AGIA). That means the proposal complies with a variety of state-imposed requirements, in exchange for state assistance with the preconstruction planning and design costs and certain incentives.
The bids, if they come, will come from gas owners, and that primarily means the three major North Slope petroleum producers.
Exxon Mobil, the primary leaseholder at the North Slope’s largest undeveloped gas field, Point Thomson, is working with TransCanada. The two firms together have proposed two alternatives - a 1,700-mile line to Alberta, Canada, or an 800-mile bullet line to Valdez.

For new TransCanada boss, Alaska pipeline at bottom of priorities

CALGARY, Alta. - The Alaska gas pipeline project will be vital for TransCanada Corp. in a decade, but the company’s incoming chief executive said he is more focused now on moving forward with $22-billion of projects that garner far fewer headlines.
Russ Girling, who takes over as CEO in July, said on April 15 that the multibillion-dollar Alaska proposal would help TransCanada keep its Alberta and Canadian main line gas systems running at capacity as conventional western Canadian production dwindles in the coming years.
But Girling, 47, said in an interview he is still more focused on major investments that will come to fruition over the next eight years, such as its Keystone oil pipeline system to the United States in June and its subsequent expansions.
“If you made the decision today, you’d be looking at eight to 10 years in terms of first flow of gas (from Alaska). So it’s still a long lead-time project,” he said.

Denali estimates Alaska gas pipeline will cost $35 billion

JUNEAU, Alaska - Details of the Denali project, a joint effort of ConocoPhillips and BP PLC, were released on April 6 in a filing with the Federal Energy Regulatory Commission. The pipeline to move natural gas from Alaska's North Slope to North American markets will cost an estimated $35 billion, according to its planners.
Denali proposes a pipeline stretching more than 1,700 miles, with delivery points along the way to help meet gas needs in Alaska and Canada. It bills the project as "one of the largest private investments in the history of North America."
Denali is competing with a proposal being advanced by Calgary, Alberta-based TransCanada Corp. and Exxon Mobil Corp., of Irving, Texas. That project, which has been promised up to $500 million from the state for eligible costs, has estimated its cost at $20 billion to $41 billion, depending on the route, with an option crossing Alaska and into Canada estimated at $32 billion to $41 billion.

Obama to back Alaska's effort to build gas line from North Slope

JUNEAU, Alaska - President Barack Obama plans to boost the effort to develop Alaska's natural gas resources into the executive office of the White House, according to Alaska legislators who visited Washington to discuss energy issues with other legislators.
Sen. Mark Begich, D-Alaska, has nominated legislative aide Larry Persily for the Obama appointment as federal coordinator for Alaska development. Persily has support from Sen. Lisa Murkowski, R-Alaska, as well.
He is now awaiting confirmation by the Senate, after having been approved by the Senate Energy Committee.
Senate Majority Leader Johnny Ellis, D-Anchorage, said a top Obama administration official, former Alaskan Pete Rouse, told Alaska legislators in Washington that Obama would be more than just verbally supporting the Alaska natural gas pipeline.
"Mr. Rouse said the president was planning to elevate the Alaska gas line coordinator's office effort into the executive office of the president once Mr. Persily is in place and is official," he said.
After returning from Washington, Ellis told colleagues on the Senate floor on March 8 that Persily was likely to win confirmation and be well-placed to give Alaska's views on the gas pipeline.
Rep. Berta Gardner, D-Anchorage, said the message she and others received from the Energy Council meetings was that Obama would raise the coordinator's profile.
"They want to boost his position, get him access to an executive committee on energy issues," she said.

TransCanada getting more interest in Alaska LNG project than pipeline

ANCHORAGE – TransCanada Corp. told Alaska legislators on June 23 that it is getting serious interest in an LNG alternative to its all-land Alaska gas pipeline project as the company prepares for a 2010 initial open season.
TransCanada Vice President Tony Palmer said potential shippers have expressed interest in up to three billion cubic feet per day of gas for an LNG project at Valdez, which is up from two billion cubic feet TransCanada initially planned to offer as an LNG alternative to an all-land pipeline from northern Alaska.
Palmer would not disclose names of the companies expressing interest, but in recent years, four major firms - BG Energy, Mitsubishi, Sempra International and the Chinese-owned energy company Sinopec - have expressed interest in Alaska LNG.
Palmer said there is not enough gas available for both an LNG and land pipeline, at least initially, if three billion cubic feet a day is shipped to an LNG project in addition to the four billion cubic feet per day TransCanada hopes to ship through a land pipeline.
"It would be an either/or situation for us, not both," he told the House Resources Committee in the committee's meeting.

TransCanada, Denali leaders says gas line is needed despite glut

JUNEAU, Alaska - Low natural gas prices don't pose a threat to the Alaska natural gas pipeline, a top official with TransCanada Corp. said on June 18.
"That's the nature of the gas business - the price goes up and the price goes down," said Tony Palmer, vice president for Alaska development with the Alberta-based company, in a meeting with the Juneau Empire's editorial staff.
TransCanada knew when it began the process that natural gas prices fluctuate, Palmer said.
Industry sources have speculated that Alaska gas is not needed, given new means of producing gas in deep shales in the Lower 48. A top executive at Enbridge Inc. recently expressed doubts publicly that there is enough demand for Alaska gas, given the pipeline's cost.
TransCanada is working together with Exxon Mobil Corp., one of the state's three big natural gas lease holders, on its pipeline, developed under the Alaska Gasline Inducement Act.
A competing pipeline, Denali, is being developed by BP PLC and ConocoPhillips Co., the other two big leaseholders.
Denali spokesman Dave MacDowell said despite today's low natural gas prices, his company also expects a pipeline to be viable.

Exxon elects to support TransCanada over Denali gas pipeline plan

IRVING, Texas - Exxon Mobil said on June 11 that it will work with Canadian pipeline operator TransCanada to build a natural gas pipeline to provide natural gas from Alaska’s North Slope to the lower-48 states.
Exxon holds the largest natural gas reserves on Alaska’s North Slope. Its decision deals a blow to the rival Denali project being developed by BP and ConocoPhillips.
The competition to build a gas pipeline was set up by Gov. Sarah Palin, who had been critical of the slow pace at which oil companies, including Exxon, were moving.
TransCanada said it would retain a majority interest in the project. Both it and Exxon invited BP and Conoco to abandon their rival effort, saying they would be welcome to join the TransCanada plan.
“It has always been our position that the project will require the support of all the North Slope producers, the state of Alaska and TransCanada, and we will need to work with them,” Marty Massey, a senior executive with the Exxon Mobil Production Company, said during a conference call.
Alaska’s estimated 35 trillion cubic feet of gas reserves are now being reinjected into oil fields or left in the ground because there is no way to get it to consumers.
With Exxon and TransCanada on one side, and BP and Conoco on the other, there are two contenders for what would be the biggest civil engineering project in North America.
BP and Conoco responded to the Exxon announcement by saying their joint pipeline project, dubbed Denali, was going forward. But both said they would be open to alternative plans.
TransCanada has estimated that the project will cost $30 billion. It would stretch roughly 1,700 miles from the North Slope of Alaska through Yukon and northeastern British Columbia to the Alberta border near Boundary Lake. From there, it would connect to Alberta’s existing gas infrastructure, which is linked to the United States.

Federal bill gives incentives for building Alaska gas pipeline

FAIRBANKS, Alaska - U.S. Sen. Lisa Murkowski has announced several provisions benefiting an Alaska gas pipeline that she’s secured in a comprehensive energy bill.
Murkowski is the ranking Republican on the Energy and Natural Resources Committee, chaired by Sen. Jeff Bingaman, D-N.M.
If approved by Congress, the bill would increase a federal loan guarantee for an Alaska gas pipeline project from $18 billion, set in 2004, to $30 billion plus inflation from 2004 values.
In addition, a project could tap into super-low-interest loans from the Federal Financing Bank, a federal corporation, and clarifies 2004 language to specify that the federal loan guarantee will cover a full 80 percent of the total project costs.
“This is a recognition that Alaska’s gas resource is necessary for the country, and that we as a nation will step forward in helping to facilitate such a project,” she said. “The federal government is not nationalizing this. We are not taking it over. But, we are helping to facilitate it.
All provisions are available to either TransCanada, licensed by the state under the Alaska Gasline Inducement Act, or Denali - The Alaska Gas Pipeline, a joint venture between producers BP and ConocoPhillips.

TransCanada awards engineering contract for Alaska gas plant

ANCHORAGE - TransCanada Corp. has awarded a contract to URS Corp. to develop a preliminary feasibility and engineering study for a multi-billion dollar gas treatment plant that would be part of an Alaska natural gas pipeline project, TransCanada vice president Tony Palmer said.
Arctic Slope Energy Services, a subsidiary of Arctic Slope Regional Corp., will provide engineering services to URS on the contract, he said.
Palmer said the engineering and design work, as well as cost estimates for the gas plant, would be combined with other engineering and environmental work TransCanada is doing to develop overall cost estimates for its project.
Cost estimates are needed for an open season planned in 2010 in which the pipeline company will solicit customers to ship gas on its pipeline. The URS and ASRC Energy work is due to be complete in early 2010, Palmer said.