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Denali Plans Open Season as Shale Gas Supply Swells

Denali -- The Alaska Gas Pipeline LLC will begin its open season in April for capacity on a pipeline that would tap North Slope gas reserves for Canadian and Lower 48 markets. In announcing the open season last week, the company, a venture of BP plc and ConocoPhillips, signaled that market developments may dissuade shippers from stepping up.

"The results of the open season will provide an understanding of shipper requirements, which will be important as we consider our next steps," said Denali President Bud Fackrell.

"While our objective is a successful open season, we are concerned that shippers may hesitate to make the financial commitments needed to support the project due to issues outside of Denali's control. These issues include increased gas supply in the Lower 48 market, the legal status of Point Thomson leases [see related story], and the lack of a long-term fiscal regime for North Slope gas production. Our potential shippers have publicly indicated that resolution of these issues will be important in their decision to make the multi-billion-dollar commitments necessary to move the project forward."

The Denali project is being developed outside the state's Alaska Gasline Inducement Act (AGIA), under which TransCanada Corp. was awarded the concession to construct the long-sought pipeline. AGIA was a product of the administration of former Gov. Sarah Palin. While it yielded a developer, the process was criticized by parties in and outside Alaska (see NGI, Nov. 2, 2009).

ExxonMobil Corp. has since signed on to the TransCanada project, and the companies said last summer they would hold an open season early this year (see NGI, Aug. 3, 2009).

Besides the advent of Lower 48 gas shale plays, the fact that another major northern pipeline -- the Mackenzie Gas Project in Canada -- appears to be gaining traction could darken the future of an Alaska gasline (see NGI, Jan. 4).

Denali said it has invested $130 million to advance the project over the past 20 months, primarily in the areas of field work, engineering and stakeholder engagement. "These work products underpin a robust project plan and cost estimate, which are essential components of Denali's commercial offering," it said.

"Denali's open season will provide potential shippers the best opportunity to evaluate the economics of North Slope natural gas sales to the Lower 48 market," said Fackrell. "I expect that the quality and timing of our open season offering will be viewed positively in the marketplace."

Denali would deliver more than 4 Bcf/d from the North Slope to markets in the Lower 48, Alaska and Canada.

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