Now may be the time to revisit the prospect of accessing the Arctic region for new supplies of natural gas, or face the possibility that liquefied natural gas (LNG) projects may again pull the cord on a pipeline moving forward, according to a report issued Thursday by Standard & Poor’s Ratings Services (S&P).

Analyst Todd A. Shipman said that the long-term question for natural gas supply and the inherent credit questions will be where the gas is coming from to meet new demand.

“What is possibly the last major basin of natural gas supplies in North America that has yet to be exploited rests in the Alaskan and Canadian frontier,” said Shipman. “The gas reserves in Alaska’s North Slope and Canada’s Mackenzie Delta have been trapped or stranded, depending on your point of view, by economic and political constraints since they were discovered…in the 1960s.” Detailing the storyline that has played out on the proposed Arctic pipeline from Alaska and/or Canada, Shipman pointed out that it is unlikely that the pipe debate will be resolved anytime soon.

“Standard & Poor’s believes that political considerations will weigh as heavily as any of the…concerns, which makes predictions about which proposal will prevail very difficult.” Easier to foresee, he said, is that “eventually, some consortium will feel comfortable enough about the sustainable level of natural gas prices to proceed, and then the focus would shift to the competition to develop the pipeline projects to create greater take-away capacity out of Alberta.”

The credit implications of the huge new infrastructure needed would be manifold, said Shipman. “The effect on natural gas prices would be the most noticeable consequence of such a project, as the prospect of a large new source of gas could lower prices.” To justify construction, a sustainable price is required, he said, and “yet the act of construction itself could cause prices to drop below the necessary price level — a classic Catch-22.”

Ironically, he also noted that a decision to proceed with a frontier pipe also could kill or delay the plans other companies have to pursue liquefied natural gas (LNG) projects, “the other major hope for a significant new source for natural gas in North America. That is, if a major push into LNG does not do the same to Arctic gas first.”

For specific companies, said the analyst, “a frontier pipeline project would be so massive that a decision to participate in one could be a credit event for some of the smaller companies that could get involved.” However, the effect on any particular company would depend on the project’s strength, the size of the commitment and the nature of the project’s financing.

For more information on the report, visit www.standardandpoors.com.

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