Denali AGIA open season coming: big three producers involved in all angles.

• Author: Liles, Patricia
• Position: OIL & GAS

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Energy-minded Alaskans have been following for three decades the progress of a North Slope natural gas project, a massive infrastructure system that would commercialize and transport large amounts of clean-burning fuel.

Expensive construction costs for the 2,000-mile long transportation system and related processing facilities, coupled with low market prices for natural gas, have historically kept the energy project sidelined, despite multiple past attempts to move it into development.

THREE PRODUCERS TWO PROJECTS

Although those basic economic factors still remain in play, new forces have motivated all three of Alaska's North Slope major oil producers to get involved with two competing projects to advance a gas pipeline project.

BP Exploration (Alaska) Inc. and ConocoPhillips joined forces last year, forming a consortium called Denali-The Alaska Gas Pipeline LLC. Then, the two producers said they would spend $600 million on pipeline cost preparations in order to hold an open season before the end of 2010.

That early 2008 announcement came as State officials were evaluating several submissions of gas pipeline development proposals under new legislation called AGIA--Alaska Gasline Inducement Act.

A proposal by TransCanada Corp. was selected as the best option by officials working for then Gov. Sarah Palin, and eventually, State legislators voted to issue the Calgary-based pipeline company the AGIA license and the accompanying promise to contribute up to $500 million in costs to move to an open season, anticipated in mid-2010.

Since then, TransCanada has been joined by Alaska's third major North Slope producer, ExxonMobil, a joint project team announced in June. Then, former Gov. Palin said the agreement was "very encouraging and exciting, but certainly no surprise, because AGIA was crafted to allow just this type of commercial alignment to take place."

While the two competing projects have both spent 2009 working to assemble cost estimates for a 2,000-mile gas pipeline system in order to hold an open season next year, the financial factors remain negative for such a project.

Natural gas prices dropped 75 percent from the $13.31 per million British thermal unit peak in July 2008 to less than $3 per million Btu in late summer 2009.

Financial markets remain troubled after last fall's crisis, resulting in limited credit availability for companies seeking new capital, noted by a State report released in late April.

"Many companies, particularly those with lower credit ratings, were unable to access commercial paper or other short-term credit markets. Those that were able to access credit markets...