NGI The Weekly Gas Market Report
Major Alaska producers BP Amoco, Phillips Petroleum and ExxonMobil told a Senate committee yesterday that they collectively arepursuing plans to build a pipeline to deliver North Slope naturalgas to the Lower 48 states, and hope to file an application withFERC and seek other permitting by as early as next year.
“This represents the first time our three companies haveappeared together unified in our support of aggressively planning agas pipeline that would deliver Alaska’s natural gas to NorthAmerican markets,” said Robert Malone, BP Amoco’s regionalpresident for Western U.S., during an oversight hearing of theSenate Energy and Natural Resources Committee Thursday.
The three producers indicated they have not yet selected a routefor the proposed pipeline yet, but hope to do so “as soon aspossible.” They said they expect to include pipeline companies and”other interested parties” in their discussions “at the appropriatetime.”
Senate Energy Committee Chairman Frank Murkowski (R-AK) askedthe producers whether they might join forces with sponsors of otherproposed Alaskan pipeline projects that already have receivedpermits and approvals from federal and state agencies, i.e., theAlaska Natural Gas Transportation System (ANGST) or Yukon Pacificprojects. “…..[C]learly we are actively considering looking atthat option as well as other options,” said Malone.
Phillips Alaska Inc., for one, believes the ANGTS route throughFairbanks, AK, has “very compelling political, regulatory andsocioeconomic advantages,” said company President Kevin O. Meyers.”However, we’re not quite ready to rule out any option at thispoint in time. We believe we need to fully and fairly evaluate thepros and cons of each route, and let the overall cost andpracticality drive the decision.”
The producers — especially Exxon Mobil and Phillips — notedthat while their preference was for a pipeline to deliver Alaskagas to the Lower 48 market, they weren’t ruling out non-pipelinealternatives that are being considered, such as gas-to-liquids andliquefied natural gas (LNG) projects.
“Our primary focus…..is a pipeline to the Lower 48 states.However, we’re going to continue to work [on] other options at thesame time,” said Meyers. K. Terry Koonce, president of Exxon MobilProduction, echoed the sentiment, adding that there’s plenty ofnatural gas reserves on Alaska’s North Slope to support multipleprojects.
The producers’ preference for a long-line pipeline from Alaskais bound to carry a lot of weight in the emerging debate overdelivery of Alaskan gas supplies, given the three own most of thereserves in the North Slope and Prudhoe Bay regions. Exxon Mobil isthe largest holder, with about a 40% stake; BP Amoco controls 30%of the gas; and Phillips Alaska just picked up 8 Tcf of Prudhoe Baygas with its purchase of Arco’s Alaska interests, according to theproducers’ estimates. Recoverable reserves in Alaska’s North Slopewere estimated at up to 38 Tcf, while the U.S. Geological Surveyhas said potential resources averaged 63.5 Tcf.
Phillips Alaska’s Meyers told the Senate panel that an Alaskanpipeline could be serving the lower U.S. market by 2007. Theproducers 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 newAlaska gas projects could be approved without violating a 1977U.S.-Canadian agreement, which spelled out the specificrequirements of a gas pipeline from Alaska through Canada, and thesubsequent Alaska Natural Gas Transportation Act (ANGTA), which wasratified by Congress in the late 1970s and paved the way for ANGTS.The U.S.-Canadian agreement that was signed by then-President JimmyCarter and Prime Minister Pierre Trudeau remains binding until2012, and ANGTA still is law.
“We need to explore the status of legal requirements in thestatute and [former President Carter’s] decision as it might applyto new projects or [the] revised ANGTS” project, Hoecker toldMurkowski. He said “any new [Alaskan] project proposals could beaffected by Canada’s view of that agreement,” specifically whetheror not it will enforce it.
Hoecker said he has assembled a staff team at the Commission toaddress these “novel” issues and their affect on new Alaskanprojects, and will submit the findings to the Senate EnergyCommittee before Jan. 1, 2001. He also indicated FERC might have toreview the environmental analyses that some Alaskan projectsreceived years ago to determine whether they should be”supplemented or updated.”
Deputy Energy Secretary T. J. Glauthier said the departmentalready has met with sponsors of Alaska delivery projects, and “hasbegun discussions with other federal agencies to ensure commercialviable projects can move expeditiously through [the] permittingprocess.”
He doesn’t believe the economic viability of a gas pipeline fromAlaska will be as dependent on high gas prices as previously. TheEnergy Information Administration (EIA) has forecast an averagewellhead price of $3.40/MMcf for this year, Glauthier noted, butprices are likely to be in the neighborhood of $2.80 by 2020.Nevertheless, he said an Alaska delivery system would still beeconomic due to technological advancements in pipeline constructionthat “are reducing construction and operating costs.”
Glauthier said it was “too early” for the department to”determine which, if any, project or combination of projects willmove forward” in Alaska. He noted it would remain “projectneutral,” leaving it up to the market to decide.
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