Williams Considering Petrochemical Investments to Pay for Alaska Pipeline

Williams Cos. CEO Cuba Wadlington Jr. said last week that his company is committing itself to build a pipeline to deliver natural gas from the North Slope to markets in Alaska, Canada and the Lower 48 and announced a feasibility study has begun that will look at new petrochemical investments in Alaska, which could finance the pipeline.

The pipeline, which would parallel the Alaska Highway, would connect with existing pipelines in Alberta and could cost as much as $10 billion to build. To finance the project, Williams wants to assess the "numerous opportunities surrounding an Arctic gas pipeline," which would ultimately provide a solution to economically move Arctic gas and liquids to market.

"Williams has been very active in the development of Alaska's energy resources for more than a generation," Wadlington said. "We were deeply involved in the Alaska North Slope gas project when it was first discussed in the 1970s."

With 500 employees already in Alaska, the Tulsa-based company's infrastructure there includes more than $340 million in fixed assets, including a 200,000 bbl/d refinery, petroleum terminals, convenience stores and a 50% ownership position in an air-cargo terminal. In Canada, Williams owns a 14.6% interest in the Alliance pipeline system, which delivers 1.5 Bcf/d of wet gas from Western Canada to the Chicago area. The company also has acquired extensive gas processing and natural gas liquid production, fractionation and storage capacity in British Columbia and Alberta.

"Williams is initiating a process to substantially accelerate efforts to participate in the development of a pipeline that will bring North Slope gas to market," he said, because the "production of this gas also brings the potential for new natural gas liquids investments, such as the potential for petrochemical development in Alaska."

A full-time team with cross-functional employees is already been dedicated to the Alaska pipeline said Wadlington, and members represented on Williams' natural gas pipelines, gas liquids extraction, value-added manufacturing, energy marketing and trading and regulatory affairs in the United States and Canada. The team is charged with assessing all of Williams' possible opportunities with the venture, and is expected to take about a year to complete its study.

Wadlington, who spoke to the state's Alaska Highway Natural Gas Policy Council last Thursday, told Gov. Tony Knowles' appointees and a crowded audience that liquids would have to be extracted at some point for natural gas to be transported to the Lower 48. The question, he said, is whether the extraction would be done on the North Slope or in Fairbanks or Canada.

Williams' plan sounds reasonable, according to Ed Small, the Calgary representative of Cambridge Energy Research Associates. Small, who spoke to the council's meeting along with Wadlington, said the sale of petrochemicals would increase the economics of a gas pipe, and suggested there were three ways to make the project work: either build an extraction plant in Alaska, which would require a separate pipeline to move the liquids; use the existing infrastructure in Alberta; or ship the liquids to Chicago and extract them there.

Though Alaska might not like the option, Small said the Alberta extraction plan would make the most economic sense because a North Slope extraction plant and separate pipeline could cost $3 billion to $4 billion and would slow down the already complicated process of getting a gas pipeline built.

However, Alaska wants a pipeline along the Alaska Highway, and earlier this year, the state legislature approved a bill prohibiting a second, shorter route through Canada. If a shorter route proves to be the plan selected, Alaska would ban pipeline construction in the tidal waters surrounding the state.

To be competitive, Small said natural gas would have to sell for at least $3 million/Btu, and while prices should remain at $3 or above through 2005, he said companies might expect pressure once the pipeline is built and on line inn early 2008. With more supply, prices will be driven down, said Small, and another six or seven new liquid natural gas facilities being proposed and the growth of clean coal also would push down natural gas.

Already, other companies have announced their intention to find a way to bring Alaska's gas reserves, estimated at more than 112 Tcf, to the Lower 48. Alaska producers BP Amoco, Phillips Petroleum and Exxon Mobil told a Senate committee last September that they collectively are pursuing plans to build a pipeline to deliver North Slope natural gas to the Lower 48, and hope to file an application with Federal Energy Regulatory Commission by as early as this year and seek other permitting approvals by as early as next year (see NGI, Sept. 18, 2000).

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