UPDATE 3-Denali exits; TransCanada alone on Alaska pipeline
Tue, 17th May 2011 2
By Jeffrey Jones and Yereth Rosen
CALGARY/ANCHORAGE, May 17 (Reuters) - BP Plc and Conoco Phillips dropped efforts on Tuesday to build a $35 billion gas pipeline from Alaska, blaming chronically low prices as well as a technological revolution that has opened up huge supplies of natural gas much closer to big U.S. markets.
The move to scrap the Denali pipeline proposal after three years of trying to develop it leaves longtime hopeful TransCanada Corp as the only proponent of a gas pipeline from Alaska to the Lower 48 States, a project that has faced years of delays and market uncertainty.
In the meantime, energy companies have developed drilling and hydraulic rock fracturing technology that allows them to tap massive shale gas reserves in Pennsylvania, New York state, Texas, Louisiana and the U.S. and Canadian Rockies.
'Since Denali began its efforts in 2008, the North American gas market has changed significantly, primarily as a result of the development of shale gas resources,' Denali President Bud Fackrell said in a statement. 'This has created a very difficult environment in which to secure financial commitments from potential customers.'
Both Denali and TransCanada held 'open seasons' last year to gain shipping commitments from the three major gas producers on Alaska's North Slope, where about 35 trillion cubic feet of reserves currently have no market outlet
With BP and ConocoPhillips backing Denali and the other major producer, Exxon Mobil Corp, aligned with TransCanada, neither pipeline proposal gained sufficient backing. The two projects had planned different routes to the big U.S. markets.
TransCanada, whose hopes of a pipeline to U.S. markets from Alaska date back to the 1970s, has the backing of the state government under a process that was started by former Governor Sarah Palin. But producers have been hesitant to commit to either project due to a glut of supplies and the lack of fiscal deal with the state.
An executive at Calgary-based TransCanada declined to say if the scrapping of Denali by BP and ConocoPhillips may have paved the way for them to support TransCanada's $40 billion project.
'We've said clearly for a long time that we very much want to attract all major producers in Alaska to be our customers, that's always been our goal, and certainly we've also indicated our standing offer for major customers -- if they wish to be our equity partner, we'd love to have them,' Vice-President Tony Palmer told Reuters.
The pipeline would ship up to 4.5 billion cubic feet of gas a day 1,717 miles (2,763 km) through Alaska and northern Canada to the Alberta border, where it could be routed to numerous Canadian and U.S. markets on TransCanada's network. The current in-service target is around 2020.
The shale gas revolution has created a flood of new supplies across the continent, pushing prices below break-even levels in some cases and prompting a new push to export gas to Asia. This has all squeezed the economics of an Alaska pipeline and the competing Mackenzie Gas Project in Canada's Northwest Territories.
'Over the last several years, North America has been blessed with the development of unconventional gas. The result though, is people thought we would have decades of natural gas and now people are talking about a century or more of natural gas,' ConocoPhillips Chief Executive James Mulva said last week.
'So the gas pipeline from Alaska, from my way of thinking, is more challenged than in the past.'
The Denali partners had spent $165 million on their plan.
Both said on Tuesday they still aim to find a commercially feasible way to get their Alaska gas to market with the state's oil supplies -- its financial lifeblood -- declining.
However, a Denali official said they had no plans to join the TransCanada project.