Interest Revives in Alaska North Slope's Natural Gas
"North to Alaska, go north, the rush is on." The old song by
Johnny Horton about the Alaskan gold rush could easily be rewritten
today --- but the attraction would be the huge reserves of natural
gas there. This past week, the rush began to drum up private and
public support to build a gas pipeline that would transport the
massive untapped reserves from the Alaskan North Slope and the
Canadian Mackenzie Delta to the Lower 48.
Two major pipeline plans, with different routes and management
methods, are now actively pursuing support from producers,
transporters, U.S. and Canadian regulatory officials and affected
landowners. Each plan poses benefits and problems, and both are
expensive. However, both expect to succeed where others have failed
for more than 20 years.
Calling it "the most important energy project currently under
construction" in North America, Arctic Resources Co.'s new chairman
Forrest E. Hoglund began a public relations campaign in Houston
last week to push his company's Northern Gas Pipeline Project. The
buzz for Hoglund and his company's plan was so great, and the
information so intriguing, that one of the callers in to the
teleconference included former U.S. Energy Secretary Federico Pena,
who asked for a meeting with the Arctic group in Washington, D.C.
"as soon as possible."
There was no earth-shattering news last week; there is no
pipeline yet. It remains a 25-year-old pipe dream, but Hoglund said
that his group has a new strategy that will work where others have
failed. Hoglund, who retired less than a year ago as chairman of
the former Enron Oil and Gas (now EOG Resources), currently is the
point man for Arctic Resources, which is working to build support
for their version of an Alaskan pipeline.
"In my mind, this is the most critical high profile project I've
ever been involved in," said Hoglund, who at one time worked on
developing a natural gas pipeline from Alaska for the former Exxon
Corp. "I consider this idea to be on the same concept as building
the first railroad to California. It will open new frontiers and a
A multi-billion dollar project approved by both the Canadian and
U.S. governments 25 years ago to pipeline the gas south from Alaska
was mothballed because of high costs and low gas prices. But,
Alaskan North Slope gas reserves and new fields in the Mackenzie
Delta are looking more attractive as demand and prices for natural
gas rise. Nearly all of the 6.5 Bcf/d of gas now produced on the
North Slope along Prudhoe Bay is reinjected to enhance oil
production or run oil equipment, but North Slope oil production is
declining, and Hoglund says Arctic has a better idea. The company
is developing a consortium of producers, pipeline companies,
Aboriginal groups and government authorities to make the pipeline a
reality --- something that its main competitor for a pipeline,
Foothills Pipe Lines, has so far failed to do.
"I have seen, first hand, the issues that can prevent a
successful pipeline from being developed in a safe and timely
fashion," Hoglund said. "To have a pipeline in place by 2005 or
2006, when Alaskan gas is projected to be available and when the
markets in the U.S. and Canada will be needing that gas, a
consensus approach is needed."
To that end, Arctic is wooing what it calls the "seven or eight"
largest U.S. and Canadian gas producers and pipeline companies,
including BP Amoco, ExxonMobil, Phillips, Imperial, Reliant Energy,
Westcoast, Enron, Kinder Morgan and El Paso. "All of them are
reviewing the proposals now," he said.
Arctic's planned pipeline route includes an offshore pipeline
that would extend eastward from Prudhoe Bay in Alaska and return
onshore in the Mackenzie Delta area in northern Canada. The
pipeline would follow the Mackenzie River south through the
Northwest Territories to interconnect with pipelines in Alberta
with access to U.S. markets. A northern route was chosen by Arctic
because it avoids "costly mountain ranges," and still provides
opportunities for more natural gas exploration and development in
Alaska and Canada, including access to gas reserves in the northern
Following a ramp-up period, Arctic estimates it would transport
4 Bcf/d through the high-pressure line. According to Hoglund, the
project has brought on board several "key" international and
northern/Arctic technical companies that are expected to
participate, including Cimarron Engineering, SNC-Lavalin, EBA
Engineering, Saipem/Snamprogetti, C-Core and Rocksaw Technology.
Construction costs for the 1,200 mile, fully-trenched route
would be $4 billion, and financing and reserves would add another
$1-plus billion, Hoglund said. What could make Arctic's plan more
attractive than an alternative plan is its financial approach,
which would coordinate governmental and aboriginal groups in Alaska
and the Northwest Territories.
Arctic's funding approach centers on using 100% debt financing
instead of a combination of equity and debt used with typical
pipeline projects. Tariff-backed bonds would be issued by special
purpose entities to be owned by aboriginal and government groups,
which could own the pipeline. Hoglund said the 100% debt financing
also would be more attractive to shippers because it would offer a
more favorable tariff structure.
Key to the Arctic proposal is what Hoglund said is the "right
corporate structure." After he joined the effort, he brought on board
Harvie Andre, a former senior minister with the Canadian government ,
who will serve as chair of Arctic's Canadian affiliate, Arctigas
Resources Corp. Andre will direct the company's efforts to coordinate
its activities with Canadian federal and provincial government
departments, aboriginal groups and the Canadian producer and operator
community (see NGI, Nov. 8, 1999).
Established ANGTS Plan Still on Track
What of the competitors' pipeline efforts? TransCanada and
Westcoast, two pipelines that Hoglund mentioned as having interest
in the Arctic consortium, have revved up plans for a joint
competing project --- ANGTS, which is sponsored by Foothills Pipe
ANGTS, or the Alaska Natural Gas Transportation System, which
has been on the books more than 20 years with approvals from the
chief executives of both nations, would transport North Slope gas
from Prudhoe Bay south along the Alaskan Highway, across the Yukon,
northern British Columbia and Alberta, with a terminus at the U.S.
border. Only the northern portion remains to be constructed. The
southern portion, from Alberta into the U.S., which includes
Foothills, PG&E Gas Transmission Northwest and Northern Border
Pipeline, was completed long ago.
Foothills officials are well aware of the Houston-based
upstart's plans to build a gas pipeline along an alternate route.
And there's no hesitation when asked if Arctic might have a better
"It puzzles me why people are turning away from a plan that was
designed more than 20 years ago," said Foothills' John Ellwood,
vice president of engineering and operations. "They think it was a
bad decision. It wasn't. It was a good decision then, and it's a
good decision now."
"We continue to be proponents of ANGTS," said Ellwood. "We will
continue to work to advance that plan. We know the North Slope
producers are taking a look at Arctic's plans, but our work is
continuing. We believe the ANGTS route has advantages. The reasons
the ANGTS route was selected are still valid today. The permits are
in place, the regulatory work is completed. There's not a whole lot
of sense in doing something different at this point." The only
thing he says the ANGTS route proponents are waiting on at this
point is a "convergence of interests" to make the project happen.
Among the advantages for the ANGTS route, said Ellwood, is that
it follows an established transportation corridor, despite the
mountain ranges, and with the transportation corridor, the builders
will be near materials, and as important, will not disturb green
"We would not be building in an undeveloped area. We've got cost
advantages and environmental benefits. Those are the main
advantages," he said.
And, despite a push for another route, it could take up to three
years for permits and regulatory approvals to be issued --- permits
and approvals that the ANGTS project already has.
"I'm comfortable that we could get this thing built in five
years and have natural gas flowing into Chicago," said Ellwood. "We
know enough about the route, we've got a good operation in Alaska
for a conventional pipeline. We're confident we could get it done
in five years, and maybe even less."
Carolyn Davis, Houston