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BP Exec Says Supply Infrastructure Investment Must Remain High

Defending oil and gas company profits by noting that the money is often reinvested in supply infrastructure, Brian Frank, president of BP Energy Co., North America Gas & Power, told a GasMart 2008 audience in Chicago last Wednesday that the high level of investment up and down the supply chain needs to be maintained in order to keep up with U.S. demand.

Citing tight supply conditions, Frank said the industry has "enormous challenges ahead." He added that current skyrocketing commodity prices are something that no one saw coming. "We are in a period of unprecedented commodity values with crude trading over $130/bbl and June natural gas trading [around $11.60]," he said. "We are seeing all commodities -- not just energy commodities -- at record levels. It doesn't matter whether it is agricultural products, steel products, cement or lumber. All commodities are at levels that are unprecedented...probably levels that none of us predicted four or five years ago."

Frank defended producer profit levels. "BP over the last five years in the United States has made about $35 billion. As you probably know oil company profits are the subject of quite a bit of political discussion these days. What they don't talk about is that over the last five years we have invested $35 billion in the United States in supply and infrastructure," he said. "There is an enormous amount of investment that needs to be made. If that investment does not continue, the tightness in the supply chain will continue. He added that costs for infrastructure additions are going up, from labor costs to the costs of raw materials such as steel.

"From a supply perspective, as BP we are in every major basin. We are a nonconventional producer and a conventional producer."

Frank said the Alaska gasline is an important piece of the supply infrastructure puzzle, pointing to the fact that Alaska gas is "baseload supply" while liquefied natural gas terminal construction is a gamble because of the uncertainty of receiving cargoes in a competitive global market. "We are working to bring Alaska gas supplies to the North American market," he said, noting that in early April BP partnered with ConocoPhillips to move the Alaska gas pipeline project forward (see NGI, April 14). "With Alaska gas, we've always said 10 years from when we say 'go.' We said 'go' about a month ago, so that is probably the best case scenario," he said, adding that the project has "a lot of challenges and a lot of risks."

Frank said one such challenge is the reality that constructing a pipeline to deliver gas to the Lower 48 was expected to cost $20 billion in 2002, but is now thought to be in the neighborhood of $30 billion.

Another challenge is competition, as Alaska Gov. Sarah Palin and her administration last Thursday tapped TransCanada Corp. to build a pipeline from the North Slope to Alberta to commercialize the state's vast natural gas reserves (see related story). The pipeline company's proposal, called TC Alaska, will be presented to state lawmakers, who will have 60 days to decide whether to move forward with the project.

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