While many in Alaska and elsewhere have harbored doubts that the Alaska Gasline Inducement Act (AGIA) would yield a viable proposal for a pipeline to commercialize the state's vast gas reserves, last week two of the three major North Slope producers joined hands and stepped up to the task. Their gasline gambit has stirred new optimism that a pipeline might actually get built.

BP and ConocoPhillips last week announced a 4 Bcf/d Alaska gasline project, called Denali -- The Alaska Gas Pipeline. They claimed the project would be the largest private-sector construction ever in North America. The move comes as state lawmakers are considering the only proposal for a gasline to qualify under AGIA, a project proposed by TransCanada. ConocoPhillips previously proposed a gasline project outside of the AGIA process, which the administration of Gov. Sarah Palin declined to consider but in which lawmakers expressed further interest (see NGI, Feb. 25; Jan. 14).

ConocoPhillips and BP are two of the big three producers on the North Slope, the other being ExxonMobil. Last month ExxonMobil told the state it "plans to be a co-owner" in a gasline to the extent of its share of the system's throughput (see NGI, March 17).

BP and ConocoPhillips said they plan to spend $600 million to reach the first project milestone -- an open season -- commencing before year-end 2010. Following a successful open season, a process during which the pipeline company seeks customers to make long-term firm transportation commitments to the project, the companies said they would obtain Federal Energy Regulatory Commission (FERC) and National Energy Board (NEB) certification and move forward with construction. The FERC and NEB certificates are critical to any project.

"This project is vital for North American energy consumers and for the future of the Alaska oil and gas industry. It will allow us to keep our North Slope fields in production for another 50 years," said BP CEO Tony Hayward. "The Alaska gas pipeline will be an historic project and we are pleased to be working with ConocoPhillips to move it forward."

An ExxonMobil spokeswoman told NGI that the company had been invited by the Denali partners to participate in the project but that was only a few days prior to the proposal's announcement and did not allow enough time for ExxonMobil to consider the offer.

"We were invited to participate," said spokeswoman Margaret Ross. "However, ExxonMobil was only made aware of the ConocoPhillips-BP plan a few days prior to the announcement. We need to better understand their approach to ensure that it will lead to a commercially viable development on a cost and schedule basis that will deliver maximum benefits to the State of Alaska, the producers and consumers in the United States and Canada. ExxonMobil remains committed to commercializing North Slope gas resources. We continue to evaluate all options for pursuing an Alaska gas pipeline, including the State of Alaska's consideration of a project under the AGIA process."

During a press briefing last Tuesday, Palin was upbeat about the Denali proposal and praised the competition it brings to the gasline evaluation process, although she seemed to be rather short on details of the project herself. She said consideration of TransCanada's proposal under AGIA will continue as planned and the Denali project will be considered alongside the AGIA process. AGIA findings on the TransCanada proposal are to be presented to lawmakers beginning May 19 (see NGI, March 31a).

The Palin administration has sparred with the big North Slope producers, particularly ExxonMobil, over the the time it has taken them to develop state resources for which they've held leases for many years. Alaska's Point Thomson leaseholders recently offered the state a series of steps they will take by 2013 to develop the long-dormant North Slope gas field, which the state has been trying to reclaim in court. ExxonMobil, the operator of the Point Thomson Unit, is leading the proposal, which includes BP Exploration (Alaska) Inc., Chevron U.S.A. Inc. and ConocoPhillips Alaska Inc. (see NGI, March 31b).

When asked about ExxonMobil during the press briefing, Palin said the company's absence, at least so far, from the Denali proposal was not a cause for concern. "Don't let the door hit you in the stern on the way out if you choose not to participate in progressive development of Alaska's resources," Palin said by way of describing the sentiment toward ExxonMobil she perceives to be held by Alaskans.

Nevertheless, ExxonMobil still sees itself as very much in the game, according to Ross.

"An Alaska gas pipeline project has the potential to increase ExxonMobil worldwide gas production by 10% and add over one billion oil-equivalent barrels of proved reserves -- nearly enough to replace a full year of our worldwide production," Ross said. "Given the significant value to our company, we are keen to be part of a project that commercializes the gas."

ConocoPhillips also would like to see gas molecules and dollars flowing from the North Slope.

"Our goal of bringing Alaska's North Slope gas to market is becoming a reality. Denali -- The Alaska Gas Pipeline project will deliver natural gas to meet North America's growing energy needs," said ConocoPhillips CEO Jim Mulva. "ConocoPhillips is pleased to be working with BP on this project; our companies have a long history of successfully developing projects on Alaska's North Slope, in Canada, and around the world. The time is right to start moving this project forward."

The project consists of a gas treatment plant on Alaska's North Slope and a large-diameter pipeline that travels more than 700 miles through Alaska and then into Canada through the Yukon Territory and British Columbia to Alberta. Should it be required to transport gas from Alberta, the project would also include a large-diameter pipeline from Alberta to the Lower 48. BP and ConocoPhillips said they will seek other equity partners, including pipeline companies, that can add value to the project and help manage the risks involved.

Ron Brintnell, Enbridge director of gas development, said his company is encouraged by the announcement by BP and ConocoPhillips, noting that Enbridge would like to be part of the project with a 10-20% equity stake. "That's the kind of area we think is the right fit for Enbridge," Brintnell said. "We would hope to be a full participant."

Both TransCanada's proposed pipeline and Denali would end up in Alberta, and gas could then move to market on a number of existing pipelines, Brintnell said.

"We don't believe that ultimately there will be a need for a new pipeline coming out of Canada," he said. "With our own Alliance Pipeline, with the Spectra pipeline [BC Pipeline] and TransCanada's pipeline, there will be the ability to move the gas into the Lower 48 and into the market."

ConocoPhillips' Brian R. Wenzel, vice president of gas development, said "there are multiple ways of bringing gas into the Lower 48 from Alberta," the Associated Press reported. "We'll look at existing network capacity and look at costs. We've got to keep those options open."

As for the competing Denali and TransCanada proposals to tap the North Slope, the two have their similarities. While TransCanada would make use of a $500 million state development subsidy offered under AGIA, Denali would not. Each, however, would require about $600 million for planning costs alone. TransCanada would move 4.5 Bcf/d while Denali would move 4 Bcf/d. TransCanada has proposed completion in about 2017 while Denali targets 2019.

It's possible that the projects could be combined. TransCanada has offered participation in its project to producers, and the two producers behind Denali said last week they would be open to the participation of a pipeline company, which could certainly be TransCanada and/or Enbridge.

"We're encouraged to hear them [the Denali backers] say that they're open to participation, so we ultimately think that there will be a spot for us," Brintnell said. He touted Enbridge's development abilities, particularly in the North, adding that the company has garnered much expertise in procuring labor and materials as it works through $12 billion worth of development. "No one in North America is currently developing the amount of pipeline that Enbridge currently is," he said.

Drue Pearce, coordinator of the federal government's Alaska gasline activities, said she was encouraged by the Denali announcement as well. "An Alaska gas pipeline is a key component for the nation's energy security," said Pearce. "It will provide a stable supply of affordable natural gas to the Lower 48 for decades to come.

"Two North Slope producers are committing to going to an open season and engaging FERC in the licensing process. This appears to be an important advance beyond any producer's previous commitments. We look forward to working with them and any other potential federal applicant."

The companies have assigned staff to the joint project team, which will be ramping up over the coming months. A new project headquarters in Anchorage will be identified and a new company formed to manage the project. ConocoPhillips' previously announced intent to conduct summer field work in Alaska will be rolled into the joint effort.

Whether the Denali announcement came because of or in spite of the state's AGIA process, Brintnell would not say. After TransCanada was announced as the sole qualifier under the AGIA process (see NGI, Jan. 7) -- a process in which the state's major North Slope producers (BP, ConocoPhillips and ExxonMobil) did not even participate -- many criticized Palin and her AGIA plan (see NGI, Jan. 28). Many saw the absence of the producers from the process as making the TransCanada proposal ultimately a nonstarter.

However, last week's Denali announcement elicited praise for AGIA and Palin from even Sen. Lisa Murkowski, the daughter of former Gov. Frank Murkowski, whom Palin had criticized during her campaign for his pipeline negotiations with the producers. At the time, Palin accused Murkowski of giving up too much to the producers.

"By [Palin's] tough stance over the past two years, she has brought the companies around to building a gas line now," Lisa Murkowski said last week. "It is unlikely this announcement would have come [last Tuesday] if not for a process like AGIA that has crystallized the outlook for development of Alaska's North Slope gas reserves."

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