Arctic gas lines: Adversaries or teammates?
Rena Delbridge
Jan 13, 2010
In the decades-long quest to tap Alaska's vast natural gas reserves, it has been easy for residents to forget their state is not the only petroleum province with big pipeline proposals. Alaska's neighbor -- Canada's Northwest Territories -- also has a multibillion-dollar proposal to develop its Arctic gas holdings, and that project has the potential to delay Alaska's pipeline plans.
Known as the Mackenzie Valley gas project, this $16 billion Canadian proposal enjoyed a boost last month after a government panel offered it a favorable review. While the Mackenzie line is far from a sure thing, with many hurdles yet to clear, some argue it has a better chance of moving forward before an Alaska pipeline.
"It's unlikely (an Alaska project and Mackenzie pipeline) could be constructed at the same time because of resource limitations on labor and other things," said David MacDowell, a spokesman for Denali, a partnership between BP and Conoco Phillips pursuing an Alaska pipeline.
Both projects have long been on the drawing boards; both come with massive price tags, long construction schedules and the promise of thousands of jobs. Together, the two projects could cost as much as $56 billion. That's a serious investment by the governments, which could factor into financing through loan guarantees or outright assistance, and for the companies behind the lines -- more or less the same players for both projects.
An Alaska line was considered a given following the construction of the trans-Alaska oil pipeline in the 1970s, while the Mackenzie Valley line was also proposed more than 30 years ago. Each line would traverse hundreds of miles of Arctic hinterland, promising thousands of construction jobs and tax royalties.
Today, both lines are hitting milestones that, some say, show progress. Yet, each project also faces emerging competition from new, unconventional shale gas supplies across North America.
Is there demand for gas from either line? And can Canada and the Lower 48 states support both projects?
Jack Weixel, director of energy analysis for Bentek Energy, an industry market analysis firm based in Colorado, says there's not enough demand for natural gas -- used to turn on lights, heat homes and power industry -- to support either pipeline in the next five years. "If we're looking at a 10 to 20 year horizon, maybe that changes the story a bit," he said.
Just the same, he says, backers of an Alaska pipeline should move quickly to develop a project so it's ready when markets open up -- or, possibly, alter plans to allow for liquefied natural gas exports from Valdez to hungry Asian markets.
The "Alaska (project) needs to move fast, swiftly," Weixel said. "The gas is either going to come from Alaska, or it's going to come from Russia, and Russia is planning on exporting a lot more."
Built first, the Mackenzie line's initial 1.2 billion cubic feet per day (bcf) of gas could be just the right amount to take the edge off declining production in Alberta gas fields. If so, that supply balancing could relax any market push for an Alaska line capable of carrying 4.5 bcf a day -- more than three times as much gas as the Mackenzie pipe, at least as long as unconventional shale gas is flowing furiously from Lower 48 fields.
"Alberta actually may end up needing more of the gas than the Lower 48," Weixel said. "The conventional production in Alberta is really starting to fall off."
Ultimately, though, there should be plenty of room for both to feed markets, backers of the two Alaska proposals say.
The Mackenzie line is looking more favorable following a report from the Canada's Joint Review Panel report, which examined environmental and socioeconomic issues associated with the project. Nearly 700 pages thick, the document laid out 176 recommendations, should the project proceed, and offered a positive view of success, provided that those suggestions are followed.
Canada's National Energy Board -- similar to the Federal Energy Regulatory Commission in the U.S. -- will consider the report in deciding whether to authorize the Mackenzie pipeline. A decision is expected in September, but financial issues remain.
The $16 billion (Canadian) project would stretch roughly 750 miles from the Inuvik region of the Northwest Territories south to existing pipeline systems in Alberta. Imperial Oil, an Exxon Mobil Corp. subsidiary, is backing the project with help from Royal Dutch Shell, ConocoPhillips Canada, and Aboriginal Pipeline Group, a consortium funded by Calgary-based TransCanada Corp. TransCanada is also the builder behind Alaska's state-backed gas pipeline proposal, with the state providing TransCanada up to $500 million in subsidies.
"From TransCanada's standpoint it's not one line versus the other," TransCanada Vice President Tony Palmer said. "They both need to achieve certain regulatory and commercial breakthroughs in order to succeed."
For now, the Mackenzie line is ahead of the Alaska plan in terms of schedules, Palmer said. While the Mackenzie line project is nearing the end of the complex regulatory process, the Alaska line isn't slated to reach FERC's table until 2012. Meanwhile, TransCanada's Alaska line proposal is on track for an open season between May and July -- that's the period in which potential shippers and customers can evaluate the plans and make bids on line capacity. In turn, those commitments define the project's commercial viability.
A second Alaska project, a partnership between BP and ConocoPhillips dubbed "Denali," is also lined up for an open season in 2010. While a date hasn't been set, the open season will conclude by the end of the year, which means it could start in summer, said MacDowell, the spokesman for the Denali pipeline project.
The Mackenzie and Alaska projects are distinct, and Denali is focused on presenting an attractive proposal to potential customers later this year. McDowell acknowledged the two would likely never be built concurrently, but said a Mackenzie-first scenario could be good for an Alaska line.
"An Alaska project following the Mackenzie Valley project could actually help Alaska," he said. "You're kind of warming up the construction infrastructure."
Contact Rena Delbridge at rena_alaskadispatch.com
http://www.alaskadispatch.com/dispatches/energy/3588-arctic-gas-lines-ad...
