An Alaska natural gas pipeline from the North Slope to the Lower 48 states would be constructed with “less delay and at a lower price” as a result of the financial incentives and expedited processing procedures proposed in the Senate omnibus energy bill (S. 517), according to a new report issued by the Energy Information Administration (EIA).

The bill would reduce the planning for an Alaska pipeline to one year from three years, and it would lower the “trigger price” required for construction to be economically favorable to $3.05/Mcf, the Department of Energy (DOE) agency said. The planning and permitting period together would take about three years, while construction would require four years, it estimated.

The legislation’s provisions to provide a $10 billion loan guarantee to the qualifying pipeline project and to speed up the permitting, right-of-way and certification processes would chop off as much as 45 cents/Mcf from the trigger price sought by investors to proceed with the mega-project, the EIA estimated. Absent the Senate’s proposed incentives, the EIA initially had projected that a sustained Lower 48 wellhead price of at least $3.50/Mcf would be in order for the economics of the project to be favorable.

Although the carrots being dangled in the energy bill are enticing, the EIA cautioned that the Senate’s proposed loan guarantee and increased federal oversight may not be enough to convince pipeline companies and producers to build the $10 billion-plus project. Investors “may still feel that the project is risky enough that they will not commit to build the pipeline until the Lower 48 wellhead price is well above the minimum level for profitability,” it said. The agency admitted it made some “very simply assumptions” in the report, and that the trigger price (minus the incentives) might be higher than the originally projected $3.50 — possibly $4 or more — for the Alaska project.

The EIA noted a major factor in determining the “trigger price” will be the pipeline’s construction costs, estimates for which it said are either “outdated or preliminary.”

The EIA reviewed the pipeline provisions of the Senate’s original comprehensive energy bill (S. 1766) at the urging of Sen. Frank Murkowski of Alaska. The bill has since been revised to S. 517, but the majority of the provisions dealing with the Alaska pipeline are unchanged.

Absent the incentives in the energy bill, the EIA said it did not forecast construction of an Alaska pipeline before 2020 in its Annual Energy Outlook for 2002 (AEO2002). But when the assumptions made in its AEO2002 reference case (which forecasts wellhead prices at below $3.50) are combined with the Senate energy bill, the EIA projects that construction of an Alaska would begin in 2016, with the first year of deliveries to the Lower 48 (730 Bcf) expected in 2020. By 2020, the wellhead price in the Lower 48 states ($3.20/Mcf) is expected to be lower than it would be without the Alaska pipeline ($3.26/Mcf), the report said.

In an alternative scenario that combines higher wellhead prices for Lower 48 states ($4.06/Mcf) with the energy bill’s pipeline incentives, construction on an Alaska gas pipeline is projected to begin as early as 2010, with deliveries starting in 2014 — reaching full capacity of 4 Bcf/d, or 1.5 Tcf a year, by 2015. Absent the Senate energy bill, construction on the line wouldn’t get underway until 2018, according to the agency.

Murkowski also asked the EIA to review the effects of the House energy bill (H.R.4), which would open access to reserves in the Arctic National Wildlife Refuge (ANWR), on crude oil production in the United States.

By opening ANWR, the EIA estimated that on average domestic oil development would rise by 800,000 barrels/day in 2020, nine years after production in ANWR is projected to start. This, it said, would reduce net imports to the U.S. to 60% from 62%, while boosting domestic production by 14%.

In a high-resource sensitive scenario, the agency projected ANWR production could add as much as 1.5 million b/d to total Alaskan production and reduce U.S. oil import dependence to 57%. In a low-resource sensitive scenario, ANWR production would drop to 590,000 b/d by 2015, with a decline to 510,000 b/d by 2020.

The EIA did not review ANWR gas resources, which it said are estimated to be about one-eighth the size of the region’s oil resources, and are not considered to have as “significant an impact” on U.S. energy markets.

The U.S. Geological Survey, however, has estimated technically-recoverable gas resources in ANWR to be between zero and 10 Tcf, with a mean value of 3.5 Tcf. An additional 2 to 5.5 Tcf of technically-recoverable gas is estimated to exist in ANWR as associated gas (gas found when drilling for oil).

About 35 Tcf of stranded gas assets have been found already in Prudhoe Bay and other areas of the North Slope. “These reserves would most likely be developed first if the infrastructure is developed to market North Slope natural gas” to Lower 48 markets, the EIA noted.

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