A natural gas pipeline running from the Mackenzie Delta appears to be more likely in the near term than any pipeline from Alaska, according to a panel of industry executives who spoke at the Ziff Energy Group’s North American Gas Strategies Conference in Houston last week. Among those who concluded there will be a Canadian pipe first was a BP executive, whose company has been one of main proponents in moving Alaska gas south.

“The Mackenzie pipeline has the potential to move ahead first,” said BP’s Tim Holt, vice president of onshore U.S. development. Holt has a good understanding of what’s happening in Alaska: his company has been working with Exxon Mobil Corp. and Phillips Petroleum Corp. to build infrastructure to move gas from the North Slope. The trio completed a $100 million infrastructure study in December 2001, and Holt conceded that the chance of building an Alaska pipe now appear small.

“There’s 35 Tcf of North Slope gas reserves, but getting the reserves to market requires compelling economics,” Holt said. “Alaska has a lot of economic problems that need to be overcome before a pipe could be built.” Plus, he said that politics and stakeholder problems also have pushed the gas pipe further down the producers’ agenda. “Suffice to say, there’s lots of complexity involved — and substantial risk.”

While the pros and cons have been tossed about for months (if not years), the outlook for a U.S. pipe being built first appear less likely mostly because of cost, said both producers and pipeline executives who spoke Monday. However, it also appears, said several, that no one has taken charge to move the gas from the North Slope. What it will probably take in the end — and this goes for approval of a Canadian-based pipeline as well — will be more cooperative agreements between producers and pipeline companies.

“You have to find a balance between the return and the risks,” said Doug Whisenant, president of Williams pipeline. “There are greater challenges and greater risks than there were a few years ago….What it boils down to is who’s motivated the most. It depends on the market being served. In the case of Alaska, it will be the producers that will make it happen.”

TransCanada PipeLines CEO Hal Kvisle agreed. “Whether it’s Alaska or the Mackenzie Delta, it will be the producers who drive the project. You have to think about the northern pipes two ways. In the first 10 years, it will be pushed by the producers. In the longer term, it will be the pipeline operators who have to take the risk.”

Whisenant added that it will be critical for stakeholders to work together, and noted that eventually, a pipeline will have to be built because the “conventional gas supplies are not going to be easily sustained.” He said all sources of gas will one day be needed, which will require infrastructure to be in place. To that end, he said that “legislation can have a dramatic impact on our ability to meet demand.”

TransCanada is supporting a two-pipeline model for Alaska and the Mackenzie Delta. “Both could proceed,” he said, but only one at a time, with a stand-alone Mackenzie Valley pipe running 765 miles from Inuvik to the Northwest Territories/Alberta border. The stand-alone pipe would only require a “little pipe to start, growing as the volumes build.”

A Mackenzie pipe first “is a sensible way to pursue this,” said Kvisle, “but we’ve got to give value to all of the gas. There is a growing demand, and the flat supply will drive the need for northern gas. It is a long-term, capital intensive commitment that will require full alignment across a broad spectrum of parties. Producers will decide the timing, but the key is getting the gas price to where it will motivate developers.”

E. J. Holm, CEO of El Paso Corp.’s Eastern Pipeline Group, noted that there had been an “overall change in risk” for pipeline operators. “Now there is more change and more diversity than in the last 30 years. We have to have a reorientation about supply and where it’s going to come from. It will be a challenge for us without an extensive gas grid.”

“Ten years from now, there will be a major impact from the Arctic and LNG (liquefied natural gas), and more significance from Nova Scotian gas as we move forward. It will require a total change in our supply orientation,” said Holm. “We will have a truly global scenario by 2011.”

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