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Arctic Gas Faces More Than Political Challenges

Even with political alignment and the right economic metrics, the movement of Arctic natural gas to the Lower 48 states faces the challenge of pipe manufacturing limitations that should prevent the proposed Alaska and Canadian (Mackenzie Delta) pipeline projects being developed concurrently, a Houston-based Chevron executive told an industry audience in Los Angeles Wednesday.

Even with expected lowering of record-level natural gas prices, the economics will remain strong for either project, said Nick Wallace vice president for business development in Chevron's natural gas division, speaking as one of four panel members examining gas marketing models at the "LDC Forum -- Rockies & West" conference in Los Angeles.

Detailed sequencing would be required for one or both projects because of the steel pipe requirements and constraints on the capacity of the pipe manufacturing sector globally, Wallace said. So, even if current misalignment between the three principal actionable parties -- the Federal Energy Regulatory Commission, state of Alaska, and Canadian National Energy Board -- could be resolved, there is no easy answer for bringing together the logistics for building one or both of the massive, multi-billion-dollar pipelines.

While current high prices "certainly have something to do with" the emergence of a number of new infrastructure projects, there can be a "lower-priced environment and still justify the economics," Wallace said. "Timing is the wild card for the various things going on in the regulatory arena, but sequencing is also an issue for both. They are both quite large with the Alaska pipeline being about twice the size of the Mackenzie Delta pipeline.

"So when you look at the steel required to build those pipelines, it would be very difficult to build those projects concurrently. I think one thought is the Mackenzie project may go ahead first and establish the requirements for that steel to get the rolling mills going for the manufacturing that eventually also will be needed to get the Alaskan project going."

As a result, Wallace estimates that it will be 2014 or 2015 before any Arctic gas project is being completed.

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