ConocoPhillips said Friday it was submitting a proposal for the long-sought natural gas pipeline to move Alaska's abundant supplies to markets in Canada and the Lower 48. However, BP, another third of the Alaska North Slope producer troika, said it would not submit a proposal.
TransCanada also entered the pipeline fray, saying it had submitted a proposal but not providing any details. Other possible contenders were withholding comments; the official announcement of companies submitting applications under the Alaska Gasline Inducement Act (AGIA) was to come from the governor's office Friday night.
The ConocoPhillips proposal for the $30 billion, 4 Bcf/d pipeline is "nonconforming," meaning it does not answer all of the requirements set forth by the state. BP would not go so far as to submit even a nonconforming proposal. BP spokesman Steve Rinehart told NGI the company could not meet the terms of AGIA. He said BP is reviewing the ConocoPhillips proposal and keeping its options open for "being part of a successful gas project."
ConocoPhillips is prepared to make significant investments, without state matching funds, to advance this project as part of this proposal, the company said. It already has efforts under way to begin new field data acquisition to support the pipeline permit applications.
"We desire to work directly and purposefully with the state of Alaska and the Legislature to advance this project as quickly as possible," said CEO Jim Mulva. "We also expect to approach other parties to explore ways through which their participation could add value to this effort."
During the initial phase of the project, Bechtel Oil, Gas and Chemicals Inc. will provide engineering and technical support and other related project services, ConocoPhillips said.
ConocoPhillips described the initial focus of its project as "a gas transmission system from the ANS [Alaska North Slope] to the border of British Columbia and Alberta in Canada. From there, the natural gas will be transported to markets throughout North America by utilizing a new-build pipeline to Chicago, spare capacity available at the time on then-existing pipelines, or expanded capacity on then-existing pipelines."
Components of the project would include a:
"As an alternative to new construction, an interconnect with the existing Nova Gas Transmission Ltd. system in Alberta for some or all of the ANS natural gas volumes may provide a cost-effective way to access the Alberta gas hub and the other pipelines that connect to that system for transport to the Lower 48 markets," the company said. "There may also be opportunities for ANS natural gas shippers to utilize excess or expanded capacity on the Westcoast or Alliance pipelines."
Details of the proposal are available from a website established by the company at www.ansnaturalgaspipeline.com/.
Alaska Gov. Sarah Palin and several of her commissioners and members of the AGIA team were to announce AGIA applicants at 6 p.m. Alaska time (10 p.m.EST) on Friday. Palin's controversial AGIA has been criticized by ConocoPhillips, BP and ExxonMobil, the state's three North Slope producers. During the year they have said they could not support a pipeline built under the AGIA rules and they would not submit conforming applications (see NGI, May 21). An ExxonMobil spokesperson would not comment Friday on that company's plans.
Earlier this year, however, Martin Massey, joint interest manager for ExxonMobil, told members of the Alaska state finance committee the plan does not account for the upstream risks faced by producer shippers. It is the shippers who will be underwriting the project by making long-term capacity commitments. The project will be built "directly on the backs of long-term transportation commitments," Massey said, and the upstream and pipeline economics must be integrated.
The producers can handle the geologic risk, the risk of cost overruns and the risk of volatile natural gas prices, he said, but they cannot cope with changing fiscal rules imposed by the state. The rules for taxes and royalties need to be "durable and predictable before producers commit to the long-term contracts necessary to get the project financed." The rules laid out in the AGIA for companies to bid to construct the pipeline are too prescriptive, Massey said. The producers recommended that the project rules be more flexible to allow project sponsors to develop viable plans (see NGI, May 7).
BP has said it would not sign take-or-pay contracts with a pipeline licensed under AGIA. MidAmerican Energy said it might submit a proposal. Enbridge Inc. is on record as expressing interest in a pipeline project but not willing to go it alone, preferring to be part of a consortium. An Enbridge spokesperson told NGI Friday afternoon that the company would not submit an application under AGIA but that it was still interested in being part of a consortium that includes gas producers.
Lori Backus, spokesperson for the Alaska Gasline Port Authority (AGPA), the backer of a combined pipeline and natural gas liquefaction project that had been essentially shut out of talks by former governor Frank Murkowski (see NGI, Sept. 11, 2006), said AGPA was submitting a proposal that conforms to AGIA or more so and would have a statement following the release of applicant names.
Kirk Morgan, president of MidAmerican's Kern River Gas Transmission Co. told lawmakers in May that the North Slope producers would be unlikely to withhold their gas reserves from a south-bound pipeline, lest they be accused of antitrust behavior (see NGI, May 7). MidAmerican spokesman Allan Urlis told NGI the company would not comment on any of the project proposals until they had been reviewed by the state.
Based on a settlement some years back, the companies that are now ExxonMobil, BP and ConocoPhillips agreed on ownership shares and operation of the North Slope Prudhoe Bay unit. ExxonMobil has a 36.8% equity interest, ConocoPhillips has a 36.5% equity interest and BP has a 26.7% interest. BP was designated the operator (see NGI, April 17, 2000).
The Wall Street Journal reported Friday that ConocoPhillips' application is not official because it fails to meet all of the requirements set out by the state. However, the company is floating its alternative plan in the hope that the state might be willing or forced to accept it. ConocoPhillips CEO James Mulva told the paper the company's proposal "gives the highest probability that this pipeline will move towards sanctioning." Mulva expressed an interest in partnering with a pipeline company and said he hopes to also partner with BP and ExxonMobil on a project.
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