While some have said robust production from Lower 48 gas shales has all but doomed Arctic gas pipeline development, a Purvin & Gertz Inc. consultant believes developers that make haste and not waste can pull their projects through.

In Canada the decades-old Mackenzie Gas Project has been fraught with delays (see NGI, April 13). In Alaska two projects are competing to tap North Slope gas reserves. They are the Denali pipeline, a venture of BP plc and ConocoPhillips; and the TransCanada Alaska Co. LLC (TC Alaska) pipeline, which has the support of ExxonMobil.

“In order for Arctic gas, and that includes Mackenzie, to be successful, they really have to get it going soon,” Purvin & Gertz’s Gerry Goobie told NGI. “They have to get through the regulatory process soon, and they have to deliver a project at low cost because, fundamentally, natural gas is a commodity and the consumers are looking for cheap. The low-cost supplier of the product will win at the end of the day, and when Arctic gas comes on stream you don’t want to be the high-cost supplier trying to push your product into a market that is likely going to be well supplied with gas from a whole bunch of alternative sources.”

TC Alaska, the licensee under the Alaska Gasline Inducement Act (AGIA), proposes to construct and operate a 5 Bcf/d, 48-inch diameter line to transport gas from the North Slope to markets in the Lower 48 via the Alberta Hub. In June TransCanada said it had reached an agreement with affiliates of ExxonMobil to work together on the pipeline (see NGI, June 15). The Denali line took a small step backward last month when it said it would delay filing its application for a Federal Energy Regulatory Commission certificate for more than a year (see NGI, Aug. 31).

“Some people are very pessimistic and say shale has killed Arctic gas,” Goobie said. “I’m not that pessimistic; however, don’t underestimate shale and LNG [liquefied natural gas] and unconventional sources of gas. It will supplant Arctic gas if they’re not careful.”

An Alaska project that results in tolls of $4/MMBtu to deliver gas to Lower 48 markets would put shale supplies at a “huge advantage,” he said. “Arctic gas has got to compete in what’s going to be a very competitive marketplace over the next number of years because we’ve got an awful lot of supply chasing, certainly today, limited demand.”

Goobie isn’t picking a favorite project and said the market ultimately will have room for both. “Most people believe that Mackenzie will go before Alaska. Logically that makes sense, but will they be able to get through the regulatory process in time is still a big question mark. It’s not entirely clear.”

What is clear is that there are and will be alternatives to gas from the North, and for now Arctic gas is waiting for a pipeline.

Last Monday Calgary-based junior producer MGM Energy Corp., which targets gas in the high Arctic, said it “has determined that given the uncertainty regarding the Mackenzie Valley Pipeline, the appropriate decision is to forego any drilling activity this winter.” The decision will cost the company a $10 million penalty to be paid to the Inuvialuit Regional Corp. MGM is currently unable to deliver from its gas discoveries due to a lack of pipeline infrastructure. The holdup on the Mackenzie pipeline has delayed the company’s plans before (see NGI, May 11).

“North America is not sitting around and waiting for the Alaska Gas Pipeline,” Goobie said.

Last week the AFL-CIO said it is counting on an Alaska pipeline project to deliver jobs when it threw its support behind the project. Vince Beltrami, president of the Alaska AFL-CIO, addressed the union’s national convention on the importance of a pipeline project to labor. “It would create tens of thousands of direct jobs and estimates exceeding 100,000 indirect jobs. From the engineering and manufacturing of pipe and other parts to the transportation, loading, shipping, and construction of the project and operations thereafter,” he said.

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