Elusive pipeline dreams: waiting for suitable demand.

• Author: Bradner, Mike
• Position: OIL & GAS

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Alaskans are increasingly worried there may not be a $40 billion-plus, 48-inch pipeline built from the North Slope to Alberta, at least any time soon. Hopes for a large-diameter pipeline to Valdez to a natural gas liquefaction, or LNG, plant seems equally elusive.

There was more optimism in 2010 when two consortiums working on a gas pipeline had spent $150 million each on cost estimates and preliminary technical investigations. This was serious money.

The companies held open seasons, periods when gas-shipping contracts are solicited. One group, headed by TransCanada Corp., a pipeline company, hoped to have contracts signed by the end of the year. Negotiations are still continuing in early March. The competing project, the Denali pipeline owned by BP and ConocoPhillips, held its open season later in the 2010 summer.

There have been disappointments before on a gas pipeline. One attempt in the 1980s was an effort to build into Canada along the Alaska Highway, the same route being proposed today. The effort collapsed when gas prices in the Lower 48 dropped, a situation eerily similar to today.

Another effort, in the early 1990s, involved North Slope producers teaming up to look at a LNG, project in Valdez. It was concluded the Asian market couldn't absorb the volumes of LNG required to make a Valdez project viable. Today there are huge amounts of LNG being sold in Asia from Southeast Asia and Australia, and there doesn't seem to be room for Alaska LNG. ConocoPhillips was unable to sell even small quantities of liquefied gas from its existing Kenai LNG plant. The plant's owners, ConocoPhillips and Marathon Oil, decided to close the facility.

RELIEF FROM AGIA

Disillusionment on the gas pipeline has reached the point where several State legislators argue that it's time to reconsider the State's endorsement of the TransCanada project under the State's Alaska Gasline Inducement Act, or AGIA. The State has committed up to $500 million in a subsidy to TransCanada in return for agreements by the pipeline company to certain terms mainly involving tariffs and schedules. So far, the State has paid $134 million to reimburse TransCanada for expenses and Gov. Scan Parnell has asked legislator's approval for another payment of $160 million next year.

The State subsidy bothers lawmakers because it seems to project will go given the size of the surplus of shale gas in the Lower 48. What also concerns legislators is the agreement with TransCanada limits the State in pursuing an alternative gas project, at least one...