It's open season on natural gas pipeline
CONFERENCE: State's intentions don't faze competing ventures.
Petroleum News
Published: May 12th, 2008 11:07 PM
The two North Slope producers looking to build a natural gas pipeline in Alaska plan to move forward even if the state awards a license to a competing project, according to a senior executive.
BP and Conoco Phillips announced plans last month to spend $600 million over the next several years to prepare for a 2010 event called an "open season" on a large-diameter pipeline from the North Slope to markets in the Lower 48. An open season is when gas producers would bid for space in a pipeline for their gas.
But competing with that project is a state-led effort to build a pipeline under the Alaska Gasline Inducement Act, or AGIA, passed last year.
The state is evaluating a proposal from Canadian pipeline company TransCanada, and if the state approves the proposal, lawmakers will have 60 days to decide whether to award TransCanada the license and incentive cash to start work on an open season.
Regardless of the outcome, though, BP and Conoco plan to continue their efforts on what they call "Denali -- The Alaska Gas Pipeline," according to a BP executive speaking at an oil and gas conference in Calgary last week.
Asked why the joint venture would gamble $600 million of shareholders' money and later untold billions of dollars more on the project when TransCanada seems to hold an edge, Angus Walker, senior vice president at BP in Alaska, said they believe they have the experience needed to complete the project.
"We've never given up on Alaska gas. ... We've had a team working on it for decades," Walker said during the final day of the Interstate Oil and Gas Compact Commission's midyear issues summit.
Alaska Gov. Sarah Palin is the chairwoman of IOGCC this year.
COMPETING CLAIMS
This summer, BP and Conoco plan to collect data between Tok and the Canadian border in preparation for a pipeline. Walker said the companies will be working in the field in both Alaska and Canada during the following two summers.
Following the open season in 2010, BP and Conoco expect to take two more years to complete the regulatory process and more detailed engineering, and another five years after that to finish major construction work, Walker said.
On that schedule, Walker said, gas could start flowing through the pipeline as early as 2018 and ramp up to initial capacity of 4 billion cubic feet per day within a year.
With a combined 50,000 miles of oil and gas pipelines, $300 billion in joint market capitalization and a track record in the Arctic, the companies believe they are best suited for the project, according to Walker.
But speaking to the same crowd the day before, Tony Palmer, vice president of Alaska development for TransCanada, made similar arguments, saying his company has been trying to build a gas pipeline in Alaska for 30 years.
"You might also ask, 'Well, TransCanada, have you ever done a project this large?' And I would tell you, 'Indeed we have,' " Palmer said, comparing the proposed Alaska natural gas project to previous work done by TransCanada.
At 1,715 miles, the Alaska project would represent less than 5 percent of the existing TransCanada system of 36,500 miles of pipeline running throughout Canada and the United States, Palmer said.
He added that the Alaska pipeline would be shorter than both the original 2,300-mile gas mainline across Canada that TransCanada built in 1958 and the 2,150-mile Keystone oil pipeline under construction.
However, Palmer's comparison doesn't take into account the challenges of building a pipeline across subarctic climates like Alaska and the Yukon, and as of yet, TransCanada has not built any pipelines north of the 60th parallel, the approximate latitude of Anchorage. The TransCanada pipeline, like Denali, could also start moving gas by 2018, Palmer said.
WHAT ABOUT TAXES?
With the announcement of the Denali project and the special Alaska Legislature session on TransCanada's license approaching in early June, an Alaska natural gas pipeline might look like a race to the finish line, but both proposals face significant hurdles before construction, and ultimately they could merge into a single proposal.
A big issue for one of the projects could be BP and Conoco's demands for new state terms on taxes and other levies for their Denali pipeline.
They're not pressing that demand at the moment: The two North Slope oil producers have said that after they complete their initial cost estimates and engineering, they'll have a stronger position in negotiating taxes with the state.
MESSAGE TO ALASKANS
The failed negotiations between the North Slope producers and the state, held under the Murkowski administration in 2006, prompted the Palin administration to draft AGIA in 2007, Alaska Revenue Commissioner Patrick Galvin said at the Calgary conference.
Describing the negotiations between the producers and the Murkowski administration, Galvin said that while the companies "don't speak in a single voice," they did "provide a certain message to Alaskans about their interests and their expectations about what was going to be needed in order to move the project ahead."
Galvin said, "They were clearly looking for a project that they would control ... both from the standpoint of controlling the costs and controlling access to the pipeline."
Some of that control also came from demands for a comprehensive definition of "fiscal certainty" over "every interaction between the state and the oil industry, not just on gas, but on all the oil leases as well" and the authority of the court system, Galvin said.
"And all that basically had to be swept aside for a generation," Galvin said. "And that ultimately proved unacceptable to the state of Alaska, and I think it would be unacceptable to most sovereign governments. And it led to a stalemate, at least as far as the discussions with the producers were concerned."
CONCILIATORY COMMENTS
By the end of this summer, Alaskans should know whether two pipeline proposals remain on the table or not, and Walker isn't troubled by the very real prospect that TransCanada will get the state license over the coming months.
"From our point of view, that's fine. ... We're not afraid of competition," he said.
But Walker wasn't prepared to close the door on an eventual partnership with a third-party pipeline company like TransCanada or Enbridge, another Canadian pipeline company, noting that two-thirds of an overland pipeline would run through Canada.
Even if TransCanada is successful with its proposal, individual producers will still determine the fate of the pipeline during an open season.
"We want to get our gas to market, and if there's a commercially viable project, then people are going to make commercial decisions," Walker said.
TransCanada isn't opposed to a partnership either. Palmer said his company, which specializes in building and operating pipelines, would prefer to hand over the construction and ownership of a multibillion-dollar North Slope plant to treat gas before putting it in the pipeline, believing "there are other companies better suited than ourselves."
Walker said the gas plant at Prudhoe Bay would be the largest built anywhere.
TransCanada also plans to offer part ownership in the pipeline to producers that commit gas during the first open season.
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