Giving a nod to robust production growth from U.S. unconventional gas plays and depressed commodity prices, a new report out of Fairbanks, AK, raises doubts about the prospects of a long-haul pipeline to tap Alaskan North Slope gas for delivery to Lower 48 markets.

“If the continental U.S. has an adequate supply of natural gas or maybe even oversupply, the question must be asked: Would a North Slope gas owner be willing to sell gas into a saturated market and at the same time commit to pay the pipeline owner a guaranteed and unknown transportation fee on an expensive pipeline project?” the report asks.

The document is not alone in doubting the prospects for a gasline to serve the Lower 48. Last month while a TransCanada Corp. executive assured Alaska legislators that the current price of gas was not going to undermine the multi-billion-dollar Alaska gas pipeline project, producers BP Energy and ConocoPhillips warned a meeting of Alaska industrials that a host of factors, including lower natural gas prices, could affect pipeline prospects (see Daily GPI, Jan. 28).

However, the immediate concern of the report, which was released Thursday, is what to do about a shortage of gas for Alaska residential and industrial consumers as well as power generators. The report was prepared by the Interior Issues Council: In-State Natural Gas Distribution Task Force of the Fairbanks Economic Development Corp. The report, titled “In‐State Natural Gas Options Study,” analyzes proposed methods for delivering Alaska gas to Alaskans, from where that gas might come and how gas availability might address state energy and air quality concerns.

The report notes that each of the in‐state gas distribution proposals reviewed — ENSTAR Natural Gas’ bullet line, the Alaska Natural Gas Development Authority’s (ANGDA) spur line and Fairbanks Natural Gas’ trucked North Slope liquefied natural gas (LNG) project — faces challenges and do not, as stand‐alone enterprises, appear to satisfy Alaskans’ energy timeliness and affordability requirement. The report concludes that “each contains components that, if aggregated, could provide Alaskans with affordable energy and mitigate air quality issues in an acceptable timeframe.”

According to the report, the LNG option “would only be a solution for supplying gas to 1,100 customers; it would not reduce aggregate community energy costs or improve air quality within the next five to six years. The spur line “faces a major challenge in obtaining a timely gas supply for the Southcentral gas market,” the report said. “Several recent studies confirm there could be critical gas shortages in Southcentral as early as 2015.

“The ANGDA spur line is fatally flawed. It cannot deliver gas to the Interior that is simply unavailable from Cook Inlet.”

As for the bullet line proposed by ENSTAR, it “may have potential for delivering natural gas to Southcentral and Interior Alaska within the next eight years, but unanswered questions regarding its cost of delivered gas leave the viability of the project in question,” the report said.

There are six basins that could supply the gas-hungry Fairbanks region, two of which have been producing gas for at least 25 years. They are:

Last month Alaska Gov. Sarah Palin pledged to introduce legislation to enable completion of an in-state gasline within five years (see Daily GPI, Jan. 26).

The report recommends how policymakers can expedite the process and deepen the impact of gas through dedicated infrastructure expansion, minimization of costs to consumers and more broadly distributing the benefits of gas development. It calls for the state to fund the construction of an in-state gas distribution system. “This effort should accomplish the construction of an in-state bullet line from Cook Inlet to the nearest viable gas supply and the construction of a limited capacity North Slope LNG plant as expeditiously as possible.”

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