Hart Energy Publishing

Alaska: The Final Frontier for Natural Gas

Alaskan natural gas has been touted as the next big thing for years. Build-up in Alaska, especially in the resource-rich North Slope, has been talked up as natural gas prices have risen only to get pushed aside when prices retreated and the projects are no longer viewed as profitable.

Frank Nieto
July 6, 2009
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Experts discuss development of Alaskan gas reserves at GPR webinar

 

Alaskan natural gas has been touted as the next big thing for years. Build-up in Alaska, especially in the resource-rich North Slope, has been talked up as natural gas prices have risen only to get pushed aside when prices retreated and the projects are no longer viewed as profitable.

That same situation looked to be happening again during the past year. In 2007 and 2008, there were record high gas prices and producers again began casting their eyes to the North Slope for development…and then prices fell and it looked like the same old situation of the projects being shelved.

Only so far that hasn’t been the case as there is a renewed push for natural gas to become a bigger part of the U.S. energy infrastructure through agendas such as the Pickens Plan.

The biggest reason for optimism for development of the North Slope natural gas reserves is because several of the largest and most powerful energy companies in the world – BP, ConocoPhillips, ExxonMobil and TransCanada – are continuing with plans for the development of multi-billion dollar pipeline projects to transport these reserves into the Lower 48 states.

Yesterday, Gas Processors Report hosted a webinar on this subject, ―Alaska: The Final Frontier for Natural Gas—to discuss the developments in Alaska – what is happening and what may happen and who the players in these actions are or could be. (Click to register for the webinar, now available on demand: Alaska: The Final Frontier for Natural Gas)

Dr. Douglas Reynolds, professor of oil and energy economics at the University of Alaska Fairbanks, noted that while Gov. Sarah Palin’s Alaska Gas Inducement Act was designed to spur development by providing funding to help build the pipeline, it has actually been an issue in its own right as it does not effectively address the issues that producers have raised.

The biggest issue for producers has to do with stability – they want to ensure rates and taxes won’t be increased by the state after work and operations begin.

―They haven’t taken care of the producers’ issues and the producers have stated they want financial stability. They want a tax contract or a reimbursement contract in lieu of tax changes. Whoever builds the pipeline is immaterial because the producers will in fact be paying for the pipeline. It’s similar to an off-balance sheet item…when the producers give a ship or pay contract, they are required to fill the pipeline and it’s an off-balance sheet obligation,‖ he said.

Additionally, the U.S. Congress is not supportive in terms of funding development because of the onset of shale gas.

―Congress has helped a little, but they’re not going to do anything more. They’re not going to build a pipeline. Everybody in the Lower 48 thinks there are vast reserves of shale natural gas, so there’s really no real political will or money to build such a pipeline, Reynolds said.

An interesting option for the development may come from China, which with the U.S. government not fiscally supporting North Slope projects could do so since it owns its oil and gas companies, such as Sinopec and can back their projects.

A liquefied natural gas pipeline project would be appealing to China since it is inflation proof, could help the country gain energy security and has a history of doing so in regions that are far less stable than the United States – Chad, Iran and Nigeria.

The likelihood of legislators allowing such a valuable resource to go to a foreign nation is rare. Additionally, as mentioned earlier there are some huge names involved in two multi-billion dollar pipeline projects to transport natural gas from the North Slope to the Lower 48 states, including Denali – The Alaska Gas Pipeline, which is a 50/50 joint venture between BP and ConocoPhillips.

Scott Jepsen, vice president of external affairs for Denali, said this new company is headquartered in Anchorage and Calgary to oversee the full implementation of this large-scale project, which includes the largest natural gas treatment plant in the world and is to be located at the north end of the Prudhoe Bay.

―This is going to be an immense project on its own; if this was the only thing we were building, we would be garnering headlines. It will require pulling upon the expertise from our owner companies – BP and ConocoPhillips, he said.

The pipeline itself is designed to transport more than 4 billion cubic feet per day as it runs more than 2,000 miles from the North Slope to Alberta. Jepsen said an additional 1,500 miles of pipe could be laid to ship volumes to additional U.S. markets through Chicago.

―Denali has the perspective that there is going to be a place for Alaskan gas in the North American market, but it’s going to have to be competitive. There are a number of reasons why we think that, besides just trying to build a competitive gas project.

―Alaska gas is one of the key parts of President [Barack] Obama’s energy plans. That doesn’t mean we’ll be going to Congress or expect any funding. What it does mean is that we expect federal agencies and politicians will try to do what they can to make sure the processing and permitting gets done in an expeditious manner.

―There is a strong push to reduce greenhouse gases and a strong push towards renewables, but there’s going to have to be a bridging period in there for when we’ll still have to rely on hydrocarbons…Natural gas is the cleanest burning hydrocarbon out there, and we think there’s going to be a fairly significant push to move towards natural gas whenever we can,” he said.

The pipeline is also designed to benefit the Canadian and Alaskan markets with five offtake points in the state and plans for offtake points in Canada depending on demand.

The Denali project is scheduled for an open season next year, and Jepsen said the economy has not changed the company’s approach.

―This is going to be a long-term project, and you have to have a long-term view in this business. We anticipate seeing ups and downs in the world and U.S. economies in the course of planning and operating this project, Jepsen said.

Thus far the company has spent roughly $100 million on the project so far with a team of 80 to 90 in both offices, a pre-filing approval from the Federal Regulatory Energy Commission and a successful summer field program last year.

There was a point of contention between Jepsen and Reynolds regarding the authority of pipelines outside of TransCanada’s proposed pipeline, which features ExxonMobil as a minority partner.

―TransCanada still claims that they have the right to build the [North Slope gas] pipeline because of the 1970s negotiated settlement between Canada and the U.S., which might go to court, Reynolds said.

―There is no exclusive right to build a pipeline in Canada…Those provisions applied to an earlier project and it doesn’t mean that you can’t build another Alaska pipeline. There is nothing in the rules and regulations that would prevent the [Canadian government] from permitting the Denali pipeline. That is a fallacy and misperception going around, Jepsen said.