Prospects for Arctic natural gas development in both Alaska andCanada’s Northwest Territories are running at their strongest sincethe dawn of the idea three decades ago, but how it will happenremains up in the air.

This sketchy view — the time is ripe, but nobody knows forwhat — emerged as an international consensus at the 16th WorldPetroleum Congress in Calgary last week. Arctic development stoodout as one of the hottest topics. It was agreed that northern gascould 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 itreaches them, are still unsettled.

At a press conference at the World Petroleum Congress in Calgarylast week, BP Amoco’s Sir John Browne said his company mightconsider taking an ownership role in a new natural gas pipeline asit eyes development in the Mackenzie Delta, Beaufort Sea andAlaska. Said Browne: “Our cost of capital is such that if we findthe right returns on a pipeline and are permitted to own it, we’dcertainly consider doing that. Pipelines are not something that weshy away from as a matter of principle.”

In fact, BP Amoco announced last week that it plans tostrengthen its position in Canada’s far north as it works to be atop dog in natural gas development in the region. In the NorthwestTerritories and the Yukon, BP Amoco holds 89,000 acres of discoverylicenses and producing licenses. It also has another 155,700 acresof discovery licenses and 617,800 acres of exploration licenses inthe Beaufort Sea, currently under an E&P moratorium.

“We want to maintain our good position in Canada, and if there’sgood business to be done, we’ll do that in the north,” Browne saidin Calgary.

He also predicted even though it would be “well beyond thisyear” before development decisions are made, within a decade, apipeline from the North Slope would be reality.

BP Amoco has a 26.7% ownership of about 30 Tcf of Alaskan gasreserves which are produced only to be reinjected at a rate of sixto eight Bcf/d into the associated Prudhoe Bay oilfield.

Imperial Oil Ltd. has estimated its established reserves on theMackenzie Delta and in shallow waters of the Beaufort Sea at 5.1Tcf or about half the supplies discovered for sure so far by theCanadian industry.

But neither of the northern gas giants are about to be rushedinto production or supporting a pipeline. “That is a popularquestion,” said the BP Amoco chairman, but “there is no decision”on key questions: whether to build a pipeline to connect with theestablished transportation grid in Alberta, use new gas-to-liquidstechnology to create an expanded portfolio of North Americandelivery options, or adopt conventional methods of conversion intoliquefied natural gas for tanker exports to Asia. The BP Amocochief described work on all options as under way, and especially ondetermining a market destination. He indicated no options have beenrejected yet, including part-ownership of a pipeline by producers.

There are others who support a pipeline, but point out that it’salready in place — it just happens to be carrying oil right now.Use of the Trans-Alaska Pipeline, however, could be an option asthe North Slope oil runs low.

Chairman Bob Peterson of Imperial Oil indicated that his companyis prepared to think about entirely new approaches to tappingArctic resources. Imperial is 70%- owned by ExxonMobil, which alsoowns a 36.8% share of the North Slope reserves.

An ExxonMobil team presenting a technical paper at the WPCpointed to Alaska as a potential location for a commercialgas-to-liquids plant and “in this decade.” The Trans-AlaskaPipeline System (for oil) offers the opportunity to transportAGC-21 products through the existing pipeline and providehigh-quality synthetic hydrocarbons to world markets.” ExxonMobilhas spent about US$400 million into developing AGC-21, short forAdvanced Gas Conversion for the 21st Century. Covered by more than400 patents in the U.S. and 1,500 abroad, the process concentratesthe energy content of gas into high-grade, clean liquids forrefineries and petrochemical plants. The productivity of the AGC-21system has more than doubled and costs have been cut in half inrecent 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 howyou think about it, it’s still seven to eight years away.” Herattled off the host of issues that northern development stillraises: native relations, pipeline competition, the route,government interests, and the tax and royalty regime. In anutshell, Peterson told reporters, moving Arctic gas to markets isa case of “2008 maybe.” He said, “I used to say it was eight yearsaway. That was 27 years ago. I still say eight years.”

It was made plain that production companies are in the driver’sseat when it comes to the future of Arctic gas. At the WPC, DavidAnderson, from the Houston-based international consulting house ofIHS Energy Group, presented a paper echoing earlier verdicts byothers such as rival Purvin & Gertz Inc. Anderson also echoed amessage heard repeatedly from pipeline promoters. No gastransporter is about to launch an Arctic project by itself.

Anderson pointed out this theme has been sounded by EnbridgeInc., operator of the northern-most oil line from Norman Wells, aswell as the Foothills partnership of Westcoast Energy andTransCanada PipeLines, which are attempting to revive the dormantAlaska Natural Gas Transportation System, with its plan eventuallyto tap both the U.S. and Canadian Arctic. “For a project of thisscale, spreading the risk is paramount,” Anderson wrote.

IHS calculates a Mackenzie Valley gas pipeline could be builtfor C$5 billion (US$3.4 billion) and take until the 2008-09 periodto build “unless the project receives additional impetus from . . .governments.” While the territorial and Yukon governments aregiving moral support to rival Arctic pipeline routes, neither hasthe resources to finance a project. Federal authorities likewiseshow no signs of stepping forward with active support. But at theWPC, the National Energy Board’s Laura Richards reminded theinternational industry of the scale of the Arctic wealth awaitingdevelopment.

Estimates of discovered resources in the Canadian Arctic are 724million to 1.38 billion barrels of recoverable oil and 6.96-11.44Tcf of marketable gas, Richards reported. Anderson said IHScalculations show the Canadians have to raise their establishedreserves into the 15 Tcf range to support a pipeline with a 20-yearproject life. He pointed out that the effort is beginning.Canadian producers are beginning exploration on vast tracts of theMackenzie Delta they procured last year with C$183 million (US$126million) in work commitments, and an auction of Mackenzie Valleyproperties will be held later this year.

Richards reported that projections based on the limitedgeological knowledge available to date calculate the total CanadianArctic resource endowment to be 12 billion barrels of oil and 168Tcf of gas.

Gordon Jaremko, Calgary

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