Alaska's Top Producers Eye Pipeline to Lower 48
Major Alaska producers BP Amoco, Phillips Petroleum and Exxon Mobil
told a Senate committee last week that they collectively are pursuing plans
to build a pipeline to deliver North Slope natural gas to the Lower 48
states, and hope to file an application with FERC and seek other permitting
approvals by as early as next year.
"This represents the first time our three companies have appeared
together unified in our support of aggressively planning a gas pipeline
that would deliver Alaska's natural gas to North American markets,"
said Robert Malone, BP Amoco's regional president for Western U.S., during
an oversight hearing of the Senate Energy and Natural Resources Committee
The three producers indicated they have not yet selected a route for
the proposed pipeline yet, but hope to do so "as soon as possible."
They said they expect to include pipeline companies and "other interested
parties" in their discussions "at the appropriate time."
Senate Energy Committee Chairman Frank Murkowski (R-AK) asked the producers
whether they might join forces with sponsors of proposed Alaskan pipeline
projects that already have received permits and approvals from federal/state
agencies, i.e., the Alaska Natural Gas Transportation System (ANGTS) or
Yukon Pacific Corp. projects. ".....[C]learly we are actively considering
looking at that option as well as other options," said Malone.
Phillips Alaska Inc., for one, believes the ANGTS route through Fairbanks,
AK, has "very compelling political, regulatory and socio-economic
advantages," said company President Kevin O. Meyers. "However,
we're not quite ready to rule out any option at this point in time. We
believe we need to fully and fairly evaluate the pros and cons of each
route, and let the overall cost and practicality drive the decision."
The producers --- especially Exxon Mobil and Phillips --- noted that
while their preference was for a pipeline to deliver Alaska gas to the
Lower 48 market, they weren't ruling out non-pipeline alternatives that
are being considered, such as gas-to-liquids and liquefied natural gas
"Our primary focus.....is a pipeline to the Lower 48 states. However,
we're going to continue to work [on] other options at the same time,"
said Meyers. K. Terry Koonce, president of Exxon Mobil Production, echoed
this sentiment, adding that there's plenty of natural gas reserves on Alaska's
North Slope to support multiple projects.
The producers' preference for a long-line pipeline from Alaska is bound
to carry a lot of weight in the emerging debate over delivery of Alaska
gas supplies, given the three own most of the reserves in the North Slope
and Prudhoe Bay regions. Exxon Mobil is the largest holder, with about
a 40% stake; BP Amoco controls 30% of the gas; and Phillips Alaska just
added 8 Tcf of Prudhoe Bay gas to its portfolio with its purchase of Arco's
Alaska interests, according to the producers' estimates. Recoverable reserves
in Alaska's North Slope were estimated at up to 38 Tcf, while the U.S.
Geological Survey has said potential resources averaged 63.5 Tcf.
Phillips Alaska's Meyers told the Senate panel that an Alaskan pipeline
could be serving the lower U.S. market by 2007. The producers estimated
the ballpark construction costs would be about $10 billion, making it the
largest pipeline project in the world.
FERC Chairman James Hoecker said he was concerned whether new Alaska
gas projects could be approved without violating a 1977 U.S.-Canadian agreement,
which spelled out the specific requirements for a gas pipeline from Alaska
through Canada, and the subsequent Alaska Natural Gas Transportation Act
(ANGTS), which was ratified by Congress in the late 1970s and paved the
way for ANGTS. The U.S.-Canadian agreement that was signed by then-President
Jimmy Carter and Prime Minister Pierre Trudeau remains binding until 2012,
and ANGTS still is law.
"We need to explore the status of legal requirements in the statute
and [former President Carter's] decision as it might apply to new projects
or [the] revised ANGTS" project, Hoecker told Murkowski. He said "any
new [Alaska] project proposals could be affected by Canada's view of that
agreement," specifically whether or not it will enforce it.
Hoecker said he has assembled a staff team at the Commission to address
these "novel" issues and their affect on new Alaska projects,
and will submit the findings to the Senate Energy Committee before Jan.
1, 2001. He also indicated FERC might have to review the environmental
analyses that some Alaskan projects received years ago to determine whether
they should be "supplemented or updated."
Deputy Secretary T.J. Glauthier said the Department of Energy (DOE)
already has met with sponsors of Alaska delivery projects, and "has
begun discussions with other federal agencies to ensure commercially viable
projects can move expeditiously through [the] permitting process."
He doesn't believe the economic viability of a gas pipeline from Alaska
will be as dependent on high gas prices as previously. While the Energy
Information Administration (EIA) has forecast an average wellhead price
of $3.40/MMcf for this year, it expects it to drop in the neighborhood
of $2.80 by 2020. Nevertheless, he said an Alaska delivery system would
still be economic due to technological advancements in pipeline construction
that "are reducing construction and operating costs."
Glauthier said DOE would remain "project neutral," leaving
it up to the market to decide.
But the market is far from picking a front-runner project or projects,
having been bombarded with a number of proposals for delivery of Alaska
gas over the past months. "We believe that the ANGTS is the superior
project...," Robert L. Pierce, chairman of Foothills Pipe Lines Ltd.,
in Calgary, testified last week. His company has operated the pre-build
section of ANGTS for the past 19 years, and is promoting the construction
of the second half of the project into the Lower 48 states. Pierce said
ANGTS is the only Alaska project that has been certified by FERC and Canada's
National Energy Board (NEB), and already has a number of permits and right-of-way
approvals. The ANGTS "will not and does not start from scratch."
(see NGI, Sept. 4)
ANGTS has strong support from Murkowski and Alaska's other Sen. Ted
Stevens, as the project having the most benefit for their state. (see NGI,
Forrest Hoglund, chairman and CEO of Arctic Resources Co. Ltd. in Houston,
touted his company's Alaska pipeline project, which would run from the
North Slope under Prudhoe Bay to the MacKenzie Delta in Canada, and then
head southward to the Lower 48 market. This project "would be the
shortest, it would be the lowest cost, it would be the least challenging
environmentally, and we think it would be the fastest to build, with a
possible startup in the time frame of 2006." Canada's Northwest Territories
and producers exploring potentially huge new reserves in the Mackenzie
Delta area support this project. (see NGI, May
He estimated construction costs to the first major U.S. interconnect
would be about $5.8 billion. In order to fund the project, Hoglund said
"we are looking at a 100% debt financing using a municipal-type financing
approach." He estimated the transportation tariff for the MacKenzie
Delta pipeline project would be about $1.25-$1.50, which he believes would
give Alaskan producers the incentive to develop their gas reserves, assuming
wellhead gas prices stay above $2.50/Mcf.
But Jeffrey B. Lowenfels, president and CEO of Yukon Pacific Corp.,
contends his project, which would entail converting Alaska North Slope
gas to LNG for tanker shipment to Asian markets and possibly even Mexico,
makes more sense and is "much cheaper than building 1,700 miles of
pipeline" through Canada.
He disagrees with those who believe natural gas prices will remain high
enough to sustain an overland pipeline from Alaska to the lower U.S. market.
"We do not buy into that. We are quite certain that the price of gas
in the Lower 48 states while it will be high this winter, will go back
to more normal levels between $2-$2.50" within the next 16 to 18 months.
In addition to its plans to ship LNG to Japan, Korea and Taiwan, Lowenfels
said last week that Yukon Pacific was seriously eyeing the feasibility
of transporting liquid gas by tanker to western Mexico to serve growing
markets there, as well as piping gas from Mexico to the California market.
"We think there's a potential for up to about 500 tons of LNG per
year [in Mexico]. We've already located a spot [in Mexico] where you could
put it [gas] into a pipeline, reverse the flow and bring it up into California,"
he told NGI.
Like ANGTS, Lowenfels noted Yukon Pacific's LNG project, which has been
in the works for 16 to 17 years, has a head-start on competing delivery
projects because it already has its permits, presidential and Department
of Energy approvals, and most of the environmental work is completed.
The company's project would entail construction of the 800-mile, 36-inch
Trans Alaska Gas System (TAGS) from Prudhoe Bay to Valdez, AK, where gas
would be liquefied and placed on tankers for Asian markets and possibly
Mexico. The project also would require the construction of an LNG receiving
facility in western Mexico. Lowenfels estimates it would cost about $8.1
billion for the first phase of the project, which would produce about 9.2
million metric tons of LNG annually.
Right now, Yukon Pacific, a business unit of CSX Corp. of Richmond,
VA, is the sole sponsor of the project, but Lowenfels said he "anticipates"