BP is "extremely disappointed with where we are at right now in Alaska," Lee Lunde, senior vice president of BP Canada Energy, said Thursday, commenting on the progress of legislation proposed by the new Alaska governor to spur construction of a natural gas pipeline going south to the Lower 48.

"In spite of our attempts to show that [the current] legislation will not result in a successful project, our sense is that it is going to go ahead," Lunde said, responding to questions at a GasMart 2007 session in Chicago. "I can't say at this point there is any good news. It is a never-ending story." The Alaska legislature currently is holding hearings on the governor's Alaska Gasline Inducement Act and producers have been urging lawmakers to make changes (see Daily GPI, May 7).

In the longer term, Lunde said there is "at least 6 Bcf/d of gas that can flow each and every day to the North American market" from the two proposed northern pipeline projects, the Alaska line and the proposed Mackenzie pipeline in Canada. "That is an absolutely vital part of the equation going forward."

In the meantime, LNG could bridge the gap caused by flat or declining production from the United States and Canada in tandem with rising demand. Lunde pointed out that while there are about 50 proposed LNG regasification projects on the drawing boards, a much smaller number will be needed. "We will need about 10 Bcf/d from LNG to balance the market," Lunde said, adding that currently there is about 7 Bcf/d of capacity.

Right now there is a steep decline in Canadian drilling for natural gas that is driven by economics. While drilling costs have increased between 50-200%, natural gas prices have dropped from last year. Right now the economics are better for drilling and production of oil from the oilsands fields, and producers are reallocating their capital spending away from natural gas, Lunde said.

One of the demand factors Lunde quantified was the growing natural gas use for ethanol production. That industry currently is using about 500 MMcf/d to manufacture ethanol. By 2012 overall ethanol production could use 1 Bcf/d of natural gas. The BP chart showed an average 31,550 Btu of natural gas going into the manufacture of a gallon of ethanol.

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