As negotiations drag on between major Alaska producers and the state over the terms involved in building a long-line natural gas transportation system from the North Slope to the Lower 48 states, the costs to construct the mammoth project continue to spiral upwards, FERC said in a report submitted to Congress last Wednesday.
The Alaska gas pipeline project contemplated by Alaska producers BP, ExxonMobil and ConocoPhillips was estimated to cost $20 billion in 2001 dollars. "However, the cost of the steel required to build the pipeline has nearly doubled since that estimate was developed," according to the report filed by the Federal Energy Regulatory Commission. "Further delay [in building an Alaska line]...could impede the economic and commercial feasibility of the project."
The Mackenzie Pipeline Project, which currently is being considered by the Canadian government, also could "negatively impact" the Alaska pipeline project, the agency said. The Mackenzie project calls for the construction of more than 750 miles of 30-inch diameter pipeline to transport 1.2 Bcf/d of Arctic gas to market. The capital cost of the project is pegged at more than $7 billion and it is planned to be in operation by 2011.
"Although this project is neither a complement to nor competitor of an Alaska natural gas pipeline, its development presents certain problems and risks. First, industry reports indicate that there will not be enough pipeline grade steel available to construct both projects at the same time. Similarly, there could be a shortage of skilled labor force required to build two technically challenging Arctic projects of such magnitude at the same time," the Commission told Capitol Hill lawmakers.
The producer-sponsored Alaska pipeline project, which is considered the front-runner project, would add roughly 1,800 miles of pipe to already existing infrastructure for delivery of 4.5 Bcf/d of natural gas to Midwest and West markets. The overall length of the system, including the already constructed segments, would be about 3,500 miles. The pipeline is expected to take at least 10 years to permit and construct.
"A successful Alaska natural gas pipeline will have to overcome a variety of significant impediments presented by the tremendous size, scope and cost of any such delivery system, the long lead-time needed to develop such a project, unique environmental and competitive conditions, and the international scope of such a project," the Commission said in the progress report, which it was required to provide to lawmakers under the Energy Policy Act of 2005.
"These obstacles have all led potential project sponsors to agree that several things need to occur before they can move seriously toward developing their respective proposals. First, project sponsors require fiscal certainty regarding Alaska state tax and royalty payments... Second, certain jurisdictional, permitting and financial issues [need] to be addressed through legislation and regulatory action, both in the United States and in Canada. Third, the potential sponsors require reasonable assurances that over time, the project will be economically feasible. In turn, the North Slope producers must be assured that the project's economic viability justifies the commercial decision to make a long-term investment in a multi-billion-dollar transportation system and to enter into long-term commitments to sell their gas supplies."
The agency report noted that there are three potential projects being "seriously considered" to bring Alaska gas from the North Slope to the Lower 48 states, but "due to the tremendous technical, financial and commercial challenges involved, it is likely that only one of the three projects will be developed." One of the projects is the Alaska Natural Gas Transportation System (ANGTS), which FERC conditionally approved in 1977. The ANGTS consists of a 48-inch diameter pipeline that would parallel the Trans-Alaska Pipeline System (TAPS) from Prudhoe Bay to Delta Junction, then follow the Alaska Highway to the Alaska-Yukon border and continue through Canada to the Alberta hub, where it would split into two legs: the eastern leg would terminate near Chicago and the western leg would terminate near Antioch, CA. The eastern and western legs of the project were constructed in the 1980s.
A second potential project is the Trans-Alaska Gas System (TAGS), a liquefied natural gas (LNG) export project. This proposal calls for the construction of a 36-inch diameter pipeline to parallel the TAPS from Prudhoe Bay to Anderson Bay near Valdez, AK, where an LNG liquefaction plant would be built to ship the LNG to worldwide markets.
The third project, which many believe is the one most likely to be built, is the one sponsored by the Alaska North Slope producers. It would consist of a 52-inch diameter pipeline that would follow much of the same path of the ANGTS project, taking advantage of the portions that have already been constructed.
While all three prospective project sponsors have filed applications to begin negotiations with Alaska under the Stranded Gas Development Act (SGA), "the producer group is the only sponsor with whom the state of Alaska is negotiating at present," the report said. ConocoPhillips and Alaska announced last October that they had reached agreement on all terms, while BP and ExxonMobil still are in talks. "All parties are committed to resolving their differences in the very near future," Alaska Gov. Frank Murkowski said in mid-December.
The SGA allows Alaska and project sponsors to negotiate the terms of more fiscally certain contract payments in lieu of taxes and royalty adjustments that are subject to fluctuation, the report said.
In October 2004, Congress approved legislation that authorized the secretary of the Department of Energy (DOE) to enter into agreements with the builders of the long-line Alaska gas system to provide loans not to exceed 80% of the total capital costs of construction, to be capped at $18 billion. The measure was intended to significantly reduce the risks associated with building potentially the largest private construction project ever in the United States.
Last year the DOE received public comments on the $18 billion loan guarantee program. But "no final decision has been made on whether formal DOE regulations to implement the loan guarantee program are needed," the FERC report said.
Intelligence Press Inc. All rights reserved. The preceding news report
may not be republished or redistributed, in whole or in part, in any
form, without prior written consent of Intelligence Press, Inc.