Major Alaska producers BP Amoco, Phillips Petroleum and Exxon Mobil told a Senate committee last week that they collectively are pursuing plans to build a pipeline to deliver North Slope natural gas to the Lower 48 states, and hope to file an application with FERC and seek other permitting approvals by as early as next year.

“This represents the first time our three companies have appeared together unified in our support of aggressively planning a gas pipeline that would deliver Alaska’s natural gas to North American markets,” said Robert Malone, BP Amoco’s regional president for Western U.S., during an oversight hearing of the Senate Energy and Natural Resources Committee last Thursday.

The three producers indicated they have not yet selected a route for the proposed pipeline yet, but hope to do so “as soon as possible.” They said they expect to include pipeline companies and “other interested parties” in their discussions “at the appropriate time.”

Senate Energy Committee Chairman Frank Murkowski (R-AK) asked the producers whether they might join forces with sponsors of proposed Alaskan pipeline projects that already have received permits and approvals from federal/state agencies, i.e., the Alaska Natural Gas Transportation System (ANGTS) or Yukon Pacific Corp. projects. “…..[C]learly we are actively considering looking at that option as well as other options,” said Malone.

Phillips Alaska Inc., for one, believes the ANGTS route through Fairbanks, AK, has “very compelling political, regulatory and socio-economic advantages,” said company President Kevin O. Meyers. “However, we’re not quite ready to rule out any option at this point in time. We believe we need to fully and fairly evaluate the pros and cons of each route, and let the overall cost and practicality drive the decision.”

The producers — especially Exxon Mobil and Phillips — noted that while their preference was for a pipeline to deliver Alaska gas to the Lower 48 market, they weren’t ruling out non-pipeline alternatives that are being considered, such as gas-to-liquids and liquefied natural gas (LNG) projects.

“Our primary focus… a pipeline to the Lower 48 states. However, we’re going to continue to work [on] other options at the same time,” said Meyers. K. Terry Koonce, president of Exxon Mobil Production, echoed this sentiment, adding that there’s plenty of natural gas reserves on Alaska’s North Slope to support multiple projects.

The producers’ preference for a long-line pipeline from Alaska is bound to carry a lot of weight in the emerging debate over delivery of Alaska gas supplies, given the three own most of the reserves in the North Slope and Prudhoe Bay regions. Exxon Mobil is the largest holder, with about a 40% stake; BP Amoco controls 30% of the gas; and Phillips Alaska just added 8 Tcf of Prudhoe Bay gas to its portfolio with its purchase of Arco’s Alaska interests, according to the producers’ estimates. Recoverable reserves in Alaska’s North Slope were estimated at up to 38 Tcf, while the U.S. Geological Survey has said potential resources averaged 63.5 Tcf.

Phillips Alaska’s Meyers told the Senate panel that an Alaskan pipeline could be serving the lower U.S. market by 2007. The producers estimated the ballpark construction costs would be about $10 billion, making it the largest pipeline project in the world.

FERC Chairman James Hoecker said he was concerned whether new Alaska gas projects could be approved without violating a 1977 U.S.-Canadian agreement, which spelled out the specific requirements for a gas pipeline from Alaska through Canada, and the subsequent Alaska Natural Gas Transportation Act (ANGTS), which was ratified by Congress in the late 1970s and paved the way for ANGTS. The U.S.-Canadian agreement that was signed by then-President Jimmy Carter and Prime Minister Pierre Trudeau remains binding until 2012, and ANGTS still is law.

“We need to explore the status of legal requirements in the statute and [former President Carter’s] decision as it might apply to new projects or [the] revised ANGTS” project, Hoecker told Murkowski. He said “any new [Alaska] project proposals could be affected by Canada’s view of that agreement,” specifically whether or not it will enforce it.

Hoecker said he has assembled a staff team at the Commission to address these “novel” issues and their affect on new Alaska projects, and will submit the findings to the Senate Energy Committee before Jan. 1, 2001. He also indicated FERC might have to review the environmental analyses that some Alaskan projects received years ago to determine whether they should be “supplemented or updated.”

Deputy Secretary T.J. Glauthier said the Department of Energy (DOE) already has met with sponsors of Alaska delivery projects, and “has begun discussions with other federal agencies to ensure commercially viable projects can move expeditiously through [the] permitting process.”

He doesn’t believe the economic viability of a gas pipeline from Alaska will be as dependent on high gas prices as previously. While the Energy Information Administration (EIA) has forecast an average wellhead price of $3.40/MMcf for this year, it expects it to drop in the neighborhood of $2.80 by 2020. Nevertheless, he said an Alaska delivery system would still be economic due to technological advancements in pipeline construction that “are reducing construction and operating costs.”

Glauthier said DOE would remain “project neutral,” leaving it up to the market to decide.

But the market is far from picking a front-runner project or projects, having been bombarded with a number of proposals for delivery of Alaska gas over the past months. “We believe that the ANGTS is the superior project…,” Robert L. Pierce, chairman of Foothills Pipe Lines Ltd., in Calgary, testified last week. His company has operated the pre-build section of ANGTS for the past 19 years, and is promoting the construction of the second half of the project into the Lower 48 states. Pierce said ANGTS is the only Alaska project that has been certified by FERC and Canada’s National Energy Board (NEB), and already has a number of permits and right-of-way approvals. The ANGTS “will not and does not start from scratch.” (see NGI, Sept. 4)

ANGTS has strong support from Murkowski and Alaska’s other Sen. Ted Stevens, as the project having the most benefit for their state. (see NGI, July 10)

Forrest Hoglund, chairman and CEO of Arctic Resources Co. Ltd. in Houston, touted his company’s Alaska pipeline project, which would run from the North Slope under Prudhoe Bay to the MacKenzie Delta in Canada, and then head southward to the Lower 48 market. This project “would be the shortest, it would be the lowest cost, it would be the least challenging environmentally, and we think it would be the fastest to build, with a possible startup in the time frame of 2006.” Canada’s Northwest Territories and producers exploring potentially huge new reserves in the Mackenzie Delta area support this project. (see NGI, May 22)

He estimated construction costs to the first major U.S. interconnect would be about $5.8 billion. In order to fund the project, Hoglund said “we are looking at a 100% debt financing using a municipal-type financing approach.” He estimated the transportation tariff for the MacKenzie Delta pipeline project would be about $1.25-$1.50, which he believes would give Alaskan producers the incentive to develop their gas reserves, assuming wellhead gas prices stay above $2.50/Mcf.

But Jeffrey B. Lowenfels, president and CEO of Yukon Pacific Corp., contends his project, which would entail converting Alaska North Slope gas to LNG for tanker shipment to Asian markets and possibly even Mexico, makes more sense and is “much cheaper than building 1,700 miles of pipeline” through Canada.

He disagrees with those who believe natural gas prices will remain high enough to sustain an overland pipeline from Alaska to the lower U.S. market. “We do not buy into that. We are quite certain that the price of gas in the Lower 48 states while it will be high this winter, will go back to more normal levels between $2-$2.50” within the next 16 to 18 months.

In addition to its plans to ship LNG to Japan, Korea and Taiwan, Lowenfels said last week that Yukon Pacific was seriously eyeing the feasibility of transporting liquid gas by tanker to western Mexico to serve growing markets there, as well as piping gas from Mexico to the California market. “We think there’s a potential for up to about 500 tons of LNG per year [in Mexico]. We’ve already located a spot [in Mexico] where you could put it [gas] into a pipeline, reverse the flow and bring it up into California,” he told NGI.

Like ANGTS, Lowenfels noted Yukon Pacific’s LNG project, which has been in the works for 16 to 17 years, has a head-start on competing delivery projects because it already has its permits, presidential and Department of Energy approvals, and most of the environmental work is completed.

The company’s project would entail construction of the 800-mile, 36-inch Trans Alaska Gas System (TAGS) from Prudhoe Bay to Valdez, AK, where gas would be liquefied and placed on tankers for Asian markets and possibly Mexico. The project also would require the construction of an LNG receiving facility in western Mexico. Lowenfels estimates it would cost about $8.1 billion for the first phase of the project, which would produce about 9.2 million metric tons of LNG annually.

Right now, Yukon Pacific, a business unit of CSX Corp. of Richmond, VA, is the sole sponsor of the project, but Lowenfels said he “anticipates” others joining.

Susan Parker

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