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TransCanada, ExxonMobil to Work Together on Alaska Pipeline

TransCanada Corp. and ExxonMobil Corp. have reached an agreement to work together on TransCanada's $26 billion Alaska Pipeline Project, the companies said Thursday.

"TransCanada envisions that our combined activities with ExxonMobil, along with the support of the state of Alaska, the U.S. and Canadian governments and other interested parties will result in the timely completion of the project," said TransCanada CEO Hal Kvisle.

TransCanada Alaska Co. LLC and subsidiaries of Foothills Pipe Lines Ltd. will remain the Alaska Gasline Inducement Act (AGIA) licensees and TransCanada will continue as the primary point of contact for the project. TransCanada's AGIA contract obligations are unaffected by the agreement, the company said.

Palin, who met Wednesday in Dallas with Kvisle and ExxonMobil Production Co. president Rich Kruger, described the announcement as "very encouraging and exciting, but certainly no surprise, because AGIA was crafted to allow just this type of commercial alignment to take place."

Sen. Lisa Murkowski (R-AK), the ranking Republican member of the Senate Energy and Natural Resources Committee, said the deal "is a major sign of progress toward our shared goal of commercializing Alaska's vast natural gas reserves...a gas line is absolutely essential for Alaska's economic future and for the nation's energy security."

American Gas Association CEO David Parker welcomed the day's news. "As Congress debates energy and climate change, this news couldn't come at a better time. Clean burning, abundant domestic natural gas currently meets 25% of the nation's energy needs," he said. "And as we head toward a more efficient, low-carbon future in which natural gas will be in even greater demand, these critical Alaskan resources will help all Americans to be able to more cleanly run their homes and power their way of life."

TransCanada holds the state concession under the AGIA to construct a pipeline from the North Slope to carry gas to Lower 48 markets. Pursuing a competing project are BP plc and ConocoPhillips, which have proposed the Denali pipeline outside the AGIA framework.

The future of both projects is in doubt due to the shifting nature of North American gas markets. Robust production from established and emerging gas shale plays has pushed prices down to levels that make a major North Slope pipeline uneconomic. Additionally, the North American market is poised to receive additional imports of liquefied natural gas (LNG) as the global market for LNG has weakened and supplies are ramping up.

BP, ConocoPhillips and ExxonMobil are the three biggest oil and gas producers on the North Slope.

Last month the Federal Energy Regulatory Commission (FERC) approved TransCanada's request to use the agency's National Environmental Policy Act pre-filing review process for its Alaska pipeline project (see Daily GPI, May 5). The Denali partners already have secured pre-filing status at FERC (see Daily GPI, June 26, 2008).

An agreement of some kind with the Denali team is not out of the question at some point, TransCanada and ExxonMobil said Thursday. "We are interested, we remain interested and will continue to be interested in attracting both BP and ConocoPhillips as potential customers on the pipeline, and if they're also interested in becoming an equity participant, we'd be happy to have those discussions with them as well," said TransCanada Vice President Tony Palmer.

Such an agreement may be necessary in order to push an Alaska natural gas pipeline project to completion.

"Exxon and TransCanada can obviously progress the project for many years, but for the project to ultimately be successful, it is going to require alignment between all of the North Slope producers, TransCanada and the state of Alaska," said Martin Massey, ExxonMobil joint interest manager.

Last year ExxonMobil said it had been invited by ConocoPhillips and BP to participate in their Denali project (see Daily GPI, May 2, 2008).

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