Interest Revives in Alaska North Slope's Natural Gas

"North to Alaska, go north, the rush is on." The old song by Johnny Horton about the Alaskan gold rush could easily be rewritten today --- but the attraction would be the huge reserves of natural gas there. This past week, the rush began to drum up private and public support to build a gas pipeline that would transport the massive untapped reserves from the Alaskan North Slope and the Canadian Mackenzie Delta to the Lower 48.

Two major pipeline plans, with different routes and management methods, are now actively pursuing support from producers, transporters, U.S. and Canadian regulatory officials and affected landowners. Each plan poses benefits and problems, and both are expensive. However, both expect to succeed where others have failed for more than 20 years.

Calling it "the most important energy project currently under construction" in North America, Arctic Resources Co.'s new chairman Forrest E. Hoglund began a public relations campaign in Houston last week to push his company's Northern Gas Pipeline Project. The buzz for Hoglund and his company's plan was so great, and the information so intriguing, that one of the callers in to the teleconference included former U.S. Energy Secretary Federico Pena, who asked for a meeting with the Arctic group in Washington, D.C. "as soon as possible."

There was no earth-shattering news last week; there is no pipeline yet. It remains a 25-year-old pipe dream, but Hoglund said that his group has a new strategy that will work where others have failed. Hoglund, who retired less than a year ago as chairman of the former Enron Oil and Gas (now EOG Resources), currently is the point man for Arctic Resources, which is working to build support for their version of an Alaskan pipeline.

"In my mind, this is the most critical high profile project I've ever been involved in," said Hoglund, who at one time worked on developing a natural gas pipeline from Alaska for the former Exxon Corp. "I consider this idea to be on the same concept as building the first railroad to California. It will open new frontiers and a new area."

A multi-billion dollar project approved by both the Canadian and U.S. governments 25 years ago to pipeline the gas south from Alaska was mothballed because of high costs and low gas prices. But, Alaskan North Slope gas reserves and new fields in the Mackenzie Delta are looking more attractive as demand and prices for natural gas rise. Nearly all of the 6.5 Bcf/d of gas now produced on the North Slope along Prudhoe Bay is reinjected to enhance oil production or run oil equipment, but North Slope oil production is declining, and Hoglund says Arctic has a better idea. The company is developing a consortium of producers, pipeline companies, Aboriginal groups and government authorities to make the pipeline a reality --- something that its main competitor for a pipeline, Foothills Pipe Lines, has so far failed to do.

"I have seen, first hand, the issues that can prevent a successful pipeline from being developed in a safe and timely fashion," Hoglund said. "To have a pipeline in place by 2005 or 2006, when Alaskan gas is projected to be available and when the markets in the U.S. and Canada will be needing that gas, a consensus approach is needed."

To that end, Arctic is wooing what it calls the "seven or eight" largest U.S. and Canadian gas producers and pipeline companies, including BP Amoco, ExxonMobil, Phillips, Imperial, Reliant Energy, Westcoast, Enron, Kinder Morgan and El Paso. "All of them are reviewing the proposals now," he said.

Arctic's planned pipeline route includes an offshore pipeline that would extend eastward from Prudhoe Bay in Alaska and return onshore in the Mackenzie Delta area in northern Canada. The pipeline would follow the Mackenzie River south through the Northwest Territories to interconnect with pipelines in Alberta with access to U.S. markets. A northern route was chosen by Arctic because it avoids "costly mountain ranges," and still provides opportunities for more natural gas exploration and development in Alaska and Canada, including access to gas reserves in the northern Yukon.

Following a ramp-up period, Arctic estimates it would transport 4 Bcf/d through the high-pressure line. According to Hoglund, the project has brought on board several "key" international and northern/Arctic technical companies that are expected to participate, including Cimarron Engineering, SNC-Lavalin, EBA Engineering, Saipem/Snamprogetti, C-Core and Rocksaw Technology.

Construction costs for the 1,200 mile, fully-trenched route would be $4 billion, and financing and reserves would add another $1-plus billion, Hoglund said. What could make Arctic's plan more attractive than an alternative plan is its financial approach, which would coordinate governmental and aboriginal groups in Alaska and the Northwest Territories.

Arctic's funding approach centers on using 100% debt financing instead of a combination of equity and debt used with typical pipeline projects. Tariff-backed bonds would be issued by special purpose entities to be owned by aboriginal and government groups, which could own the pipeline. Hoglund said the 100% debt financing also would be more attractive to shippers because it would offer a more favorable tariff structure.

Key to the Arctic proposal is what Hoglund said is the "right corporate structure." After he joined the effort, he brought on board Harvie Andre, a former senior minister with the Canadian government , who will serve as chair of Arctic's Canadian affiliate, Arctigas Resources Corp. Andre will direct the company's efforts to coordinate its activities with Canadian federal and provincial government departments, aboriginal groups and the Canadian producer and operator community (see NGI, Nov. 8, 1999).

Established ANGTS Plan Still on Track

What of the competitors' pipeline efforts? TransCanada and Westcoast, two pipelines that Hoglund mentioned as having interest in the Arctic consortium, have revved up plans for a joint competing project --- ANGTS, which is sponsored by Foothills Pipe Lines Ltd.

ANGTS, or the Alaska Natural Gas Transportation System, which has been on the books more than 20 years with approvals from the chief executives of both nations, would transport North Slope gas from Prudhoe Bay south along the Alaskan Highway, across the Yukon, northern British Columbia and Alberta, with a terminus at the U.S. border. Only the northern portion remains to be constructed. The southern portion, from Alberta into the U.S., which includes Foothills, PG&E Gas Transmission Northwest and Northern Border Pipeline, was completed long ago.

Foothills officials are well aware of the Houston-based upstart's plans to build a gas pipeline along an alternate route. And there's no hesitation when asked if Arctic might have a better plan.

"It puzzles me why people are turning away from a plan that was designed more than 20 years ago," said Foothills' John Ellwood, vice president of engineering and operations. "They think it was a bad decision. It wasn't. It was a good decision then, and it's a good decision now."

"We continue to be proponents of ANGTS," said Ellwood. "We will continue to work to advance that plan. We know the North Slope producers are taking a look at Arctic's plans, but our work is continuing. We believe the ANGTS route has advantages. The reasons the ANGTS route was selected are still valid today. The permits are in place, the regulatory work is completed. There's not a whole lot of sense in doing something different at this point." The only thing he says the ANGTS route proponents are waiting on at this point is a "convergence of interests" to make the project happen.

Among the advantages for the ANGTS route, said Ellwood, is that it follows an established transportation corridor, despite the mountain ranges, and with the transportation corridor, the builders will be near materials, and as important, will not disturb green space.

"We would not be building in an undeveloped area. We've got cost advantages and environmental benefits. Those are the main advantages," he said.

And, despite a push for another route, it could take up to three years for permits and regulatory approvals to be issued --- permits and approvals that the ANGTS project already has.

"I'm comfortable that we could get this thing built in five years and have natural gas flowing into Chicago," said Ellwood. "We know enough about the route, we've got a good operation in Alaska for a conventional pipeline. We're confident we could get it done in five years, and maybe even less."

Carolyn Davis, Houston

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