Alaska' natural gas pipeline: market changes make plans uncertain.

AuthorBradner, Mike
PositionOIL & GAS

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Alaskans and oil and gas companies have worked on getting a natural gas pipeline built from the North Slope for decades. Several times the pipeline appeared on a solid course toward approval and construction, only to be sidetracked by changes in market or political developments.

The idea has progressed in the last year further than it ever has before. However, the curse of the project, changes in the market, may have occurred once again. What may be different now is the State of Alaska, with its financial strength, seems to be committed to making sure something happens, at last.

Whatever "something" is--several ideas are on the table. The base case is still a large-diameter pipeline carrying large volumes of gas from the North Slope to continental North American markets by way of Interior Alaska and Canada and it is the furthest along in terms of engineering and feasibility work, but it may be now undercut by the entry into the North American market of inexpensive gas produced from shale.

In spite of this, there are substantial companies leading this initiative: TransCanada Corp., a major pipeline company, and ExxonMobil Corp., one of the world's largest oil producers. TransCanada and ExxonMobil, with support from the State, propose a 48-inch pipeline moving about 4 billion cubic feet of gas a day. The project is massive in scale, with cost estimates ranging above $40 billion.

The State is also backing the Trans-Canada/ExxonMobil project with a contract signed with TransCanada under the State's Alaska Gasline Inducement Act, or AGIA. The pipeline company has agreed to meet certain requirements the State has set out in terms of timing, tariff structure and financing. In return, the State has committed $500 million in funding for the initial engineering, environmental and other feasibility work.

A discouraging note is the demise of the Denali pipeline project, a competing plan to that by TransCanada that was put forth by BP and ConocoPhillips. Denali's management cited lack of sufficient market commitments for its project, which has caused many to worry the same fate awaits TransCanada and ExxonMobil.

IN-STATE OPTIONS

Meanwhile, the Alaska Gasline Port Authority, a municipal group, is still carrying the flag for an "all-Alaska" pipeline from the North Slope to Valdez, a route parallel to the existing trans-Alaska oil pipeline. The engineering and feasibility work on the first half of this, from the Slope to Interior Alaska, has already been done by TransCanada and ExxonMobil. Some engineering and...

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