Arctic Gas: Bonanza or Boondoggle?
Prospects for Arctic natural gas development in both Alaska and
Canada's Northwest Territories are running at their strongest since
the dawn of the idea three decades ago, but how it will happen
remains up in the air.
This sketchy view --- the time is ripe, but nobody knows for
what --- emerged as an international consensus at the 16th World
Petroleum Congress in Calgary last week. Arctic development stood
out as one of the hottest topics. It was agreed that northern gas
could begin to reach markets as early as 2008. But the route,
markets to be served, and even the form the gas will be in when it
reaches them, are still unsettled.
At a press conference at the World Petroleum Congress in Calgary
last week, BP Amoco's Sir John Browne said his company might
consider taking an ownership role in a new natural gas pipeline as
it eyes development in the Mackenzie Delta, Beaufort Sea and
Alaska. Said Browne: "Our cost of capital is such that if we find
the right returns on a pipeline and are permitted to own it, we'd
certainly consider doing that. Pipelines are not something that we
shy away from as a matter of principle."
In fact, BP Amoco announced last week that it plans to
strengthen its position in Canada's far north as it works to be a
top dog in natural gas development in the region. In the Northwest
Territories and the Yukon, BP Amoco holds 89,000 acres of discovery
licenses and producing licenses. It also has another 155,700 acres
of discovery licenses and 617,800 acres of exploration licenses in
the Beaufort Sea, currently under an E&P moratorium.
"We want to maintain our good position in Canada, and if there's
good business to be done, we'll do that in the north," Browne said
He also predicted even though it would be "well beyond this
year" before development decisions are made, within a decade, a
pipeline from the North Slope would be reality.
BP Amoco has a 26.7% ownership of about 30 Tcf of Alaskan gas
reserves which are produced only to be reinjected at a rate of six
to eight Bcf/d into the associated Prudhoe Bay oilfield.
Imperial Oil Ltd. has estimated its established reserves on the
Mackenzie Delta and in shallow waters of the Beaufort Sea at 5.1
Tcf or about half the supplies discovered for sure so far by the
But neither of the northern gas giants are about to be rushed
into production or supporting a pipeline. "That is a popular
question," said the BP Amoco chairman, but "there is no decision"
on key questions: whether to build a pipeline to connect with the
established transportation grid in Alberta, use new gas-to-liquids
technology to create an expanded portfolio of North American
delivery options, or adopt conventional methods of conversion into
liquefied natural gas for tanker exports to Asia. The BP Amoco
chief described work on all options as under way, and especially on
determining a market destination. He indicated no options have been
rejected yet, including part-ownership of a pipeline by producers.
There are others who support a pipeline, but point out that it's
already in place --- it just happens to be carrying oil right now.
Use of the Trans-Alaska Pipeline, however, could be an option as
the North Slope oil runs low.
Chairman Bob Peterson of Imperial Oil indicated that his company
is prepared to think about entirely new approaches to tapping
Arctic resources. Imperial is 70%- owned by ExxonMobil, which also
owns a 36.8% share of the North Slope reserves.
An ExxonMobil team presenting a technical paper at the WPC
pointed to Alaska as a potential location for a commercial
gas-to-liquids plant and "in this decade." The Trans-Alaska
Pipeline System (for oil) offers the opportunity to transport
AGC-21 products through the existing pipeline and provide
high-quality synthetic hydrocarbons to world markets." ExxonMobil
has spent about US$400 million into developing AGC-21, short for
Advanced Gas Conversion for the 21st Century. Covered by more than
400 patents in the U.S. and 1,500 abroad, the process concentrates
the energy content of gas into high-grade, clean liquids for
refineries and petrochemical plants. The productivity of the AGC-21
system has more than doubled and costs have been cut in half in
recent trials, the technical paper reported.
Peterson didn't indicate which avenue he favored, but offered
"there's no doubt there is a large resource. At today's gas prices,
you could show good economics." He also added that "no matter how
you think about it, it's still seven to eight years away." He
rattled off the host of issues that northern development still
raises: native relations, pipeline competition, the route,
government interests, and the tax and royalty regime. In a
nutshell, Peterson told reporters, moving Arctic gas to markets is
a case of "2008 maybe." He said, "I used to say it was eight years
away. That was 27 years ago. I still say eight years."
It was made plain that production companies are in the driver's
seat when it comes to the future of Arctic gas. At the WPC, David
Anderson, from the Houston-based international consulting house of
IHS Energy Group, presented a paper echoing earlier verdicts by
others such as rival Purvin & Gertz Inc. Anderson also echoed a
message heard repeatedly from pipeline promoters. No gas
transporter is about to launch an Arctic project by itself.
Anderson pointed out this theme has been sounded by Enbridge
Inc., operator of the northern-most oil line from Norman Wells, as
well as the Foothills partnership of Westcoast Energy and
TransCanada PipeLines, which are attempting to revive the dormant
Alaska Natural Gas Transportation System, with its plan eventually
to tap both the U.S. and Canadian Arctic. "For a project of this
scale, spreading the risk is paramount," Anderson wrote.
IHS calculates a Mackenzie Valley gas pipeline could be built
for C$5 billion (US$3.4 billion) and take until the 2008-09 period
to build "unless the project receives additional impetus from . . .
governments." While the territorial and Yukon governments are
giving moral support to rival Arctic pipeline routes, neither has
the resources to finance a project. Federal authorities likewise
show no signs of stepping forward with active support. But at the
WPC, the National Energy Board's Laura Richards reminded the
international industry of the scale of the Arctic wealth awaiting
Estimates of discovered resources in the Canadian Arctic are 724
million to 1.38 billion barrels of recoverable oil and 6.96-11.44
Tcf of marketable gas, Richards reported. Anderson said IHS
calculations show the Canadians have to raise their established
reserves into the 15 Tcf range to support a pipeline with a 20-year
project life. He pointed out that the effort is beginning.
Canadian producers are beginning exploration on vast tracts of the
Mackenzie Delta they procured last year with C$183 million (US$126
million) in work commitments, and an auction of Mackenzie Valley
properties will be held later this year.
Richards reported that projections based on the limited
geological knowledge available to date calculate the total Canadian
Arctic resource endowment to be 12 billion barrels of oil and 168
Tcf of gas.
Gordon Jaremko, Calgary