Given the billions of dollars that are being invested to import liquefied natural gas (LNG) into the United States, Alaska runs the risk of being “marginalized” as a source for gas supplies to meet domestic demand, FERC said Monday in its second report to Congress on the progress being made on an Alaska gas pipeline.
“Gas buyers in the Lower 48 are more likely to enter into long-term LNG contracts if there is no substantial progress on building an Alaska pipeline. And the longer an Alaska pipeline is delayed, the more strength is gained by the proponents of LNG,” the Federal Energy Regulatory Commission said in its latest update on the progress of the Alaska line, which the agency is required to submit to Congress every six months under the Energy Policy Act of 2005. FERC filed its first report with Congress in February (see Daily GPI, Feb. 3).
“Alaskan gas is not the only option available to the Lower 48. Twenty years ago, Alaskan gas would have been in competition only with other North American gas production. Now, Alaskan natural gas production will also face competition from low-cost production in LNG-exporting countries across the globe,” the Commission told Congress.
The International Energy Agency reports that, through the year 2030, more than $250 billion will be invested worldwide to develop LNG infrastructure. This includes $97 billion for liquefaction, $69 billion for shipping and $85 billion for regasification. At the same time, it reports there has been a decline in investment required per unit of LNG produced, which is expected to continue as technology progresses.
In contrast the cost of an Alaska gas pipeline, which initially was pegged at $18-$20 billion, is now running as high as $25 billion, according to the FERC report. “Any further delays may serve to make the Alaska gas pipeline uneconomic in comparison to LNG imports,” it said.
“For Alaska to be a meaningful part of the natural gas supply mix of the U.S. in the coming years, action needs to be taken now” by Alaska Gov. Frank Murkowski and the state legislature. But at best, if the draft contract that was negotiated between Alaska and the Producer Group (ExxonMobil, BP and ConocoPhillips) in February were approved by the Alaska legislature under the Alaskan Stranded Gas Development Act, “gas would not flow in significant quantities to the Lower 48 prior to 2016,” the Commission told Congress.
An Alaska pipeline could face significant problems and risks from competing pipeline projects, such as the $7 billion Mackenzie Gas Pipeline Project in Canada, the agency said. “Industry reports indicate that there will not be enough pipeline-grade steel available to construct both projects at the same time. Similarly, there could be a shortage of the skilled labor force required to build two technically challenging Arctic projects of such magnitude at the same time.”
The producer-sponsored Alaska pipeline project, which is considered the front-runner project, would add roughly 1,800 miles of pipe to already existing infrastructure for delivery of North Slope natural gas to markets in the Midwest and West. The overall length of the system, including the already constructed segments, would be about 3,500 miles. Two other Alaska gas projects have been proposed — the Alaska Natural Gas Transportation System and the Trans-Alaska Gas System, an LNG export project — but Alaska is only negotiating with the North Slope producers.
If the producer-sponsored pipeline is built, “gas flow from the Alaskan North Slope is expected to be 4.5 Bcf/d, a not inconsiderable amount. However, this amount pales in comparison to recent [LNG] infrastructure activity at the Commission.” Since September 2003, FERC said it has approved 11 new LNG terminals in the Lower 48 that have a total redelivery capacity of 20.6 Bcf/d. The agency also has approved an expansion of an existing LNG terminal and an expansion of an approved (but not yet in operation) LNG terminal, totaling an additional 2.2 Bcf/d of deliverability.
When combined with the nation’s existing deliverability of 5.8 Bcf/d, there is the potential for 28.6 Bcf/d of deliverability from LNG, according to FERC. In addition, there are 10 new LNG sites that have been proposed to the Commission with a total delivery capacity of 11.5 Bcf/d and pending expansions for about 4.6 Bcf/d at three LNG terminals (existing and approved), it said.
Although facing stiff competition from LNG, FERC reported that “significant progress” had been made on the development of an Alaska gas pipeline since its February report to Congress. For starters, an agreement on the components of a draft contract between the state of Alaska and the Producer Group (BP, ExxonMobil and ConocoPhillips) has been reached, and is being reviewed by the Alaska legislature.
Second, a federal agency memorandum of understanding has been executed among 15 federal departments and agencies, which establishes a cooperative project management framework for the approval of an Alaska gas pipeline. And President Bush last month nominated Drue Pearce, senior advisor to the secretary for Alaska Affairs at the Interior Department, to be federal coordinator for the Alaska gas pipeline projects.
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