By Rebecca Penty, Calgary Herald, January 6, 2012
TransCanada Corp., is in talks with Alaska's top energy producers on plans to export natural gas in liquid form by tanker, as its long-standing vision to link the state's vast quantities of northern gas with the North American pipeline system increasingly appears to be in jeopardy.
BP's Chief Executive Bob Dudley says LNG export is “the most economic” option for North Slope Alaskan gas, given the supply outlook for shale gas in the Lower 48. (Photograph by: REUTERS/Suzanne Plunkett/Files)
Two of three producers are publicly proposing an instate pipeline to a liquefied natural gas (LNG) terminal in south-central Alaska, joining the state administration in pushing for LNG.
Much is at stake in the development of some 35 trillion cubic feet of discovered and known gas in the Alaska North Slope's Prudhoe Bay and Point Thompson, though. The U.S. is supplying more of its own gas and Asian buyers are paying three to four times more for gas than customers in North America. Competing LNG export proponents are looking to open facilities along the British Columbia and U.S. Gulf coasts, while operators in Australia and Asian countries closer to key markets are already breaking ground.
TransCanada's favoured line to Alberta is "not off the table but it's moving toward the edge," said pipeline analyst Steven Paget of investment bank FirstEnergy Capital Corp.
"It does not appear to have much support at this time and time is running out."
The CEOs of BP PLC and ConocoPhillips Co., both signalled LNG is the "best" option Thursday at a business conference in Anchorage, following a two-hour meeting on gas development alongside ExxonMobil Corp., CEO Rex Tillerson with Alaska Gov. Sean Parnell, who requested the talk.
TransCanada has long committed to heed its customers' wishes and has been discussing the LNG idea with the group of three producers "for a couple of months," TransCanada vice-president of major projects development Tony Palmer said Friday.
"We've commenced negotiations but we're not at the finish line," Palmer told the Calgary Herald by phone from Anchorage, unwilling to discard the company's proposed pipeline to Alberta, but admitting the line is not backed by shipper commitments from producers.
"To have a successful pipeline project, you need a market and customers," Palmer said. "At the moment, we do not have the customers."
The 2,700-kilometre line to Alberta would carry 5.9 billion cubic feet of gas per day. The state required TransCanada to consider a line to an LNG facility, which the company proposed would be a roughly 1,300-kilometre, three-billion-cubic-feet-per-day line to Valdez. Details and costs would have to be revisited, Palmer said.
ExxonMobil, partnered on a land pipeline with TransCanada, said nothing is off the table.
"The parties are in early discussions and are considering an LNG export option as well as the pipeline option through Canada," ExxonMobil spokesman David Eglinton said in an email.
TransCanada gauged shipper support for both ideas in 2010. Neither was successful in booking commitments, but the company began pushing the pipeline to Alberta through the regulatory process.
Moving Alaska gas to Alberta would open large new supplies on the existing system. That would help TransCanada cure its struggling Mainline pipeline to Eastern Canada, which suffers from declining volumes that are forcing the company to attempt a contentious overhaul of the rates it charges shippers.
The company needs strong support from producers soon for the Alberta line to move forward. An October deadline to submit a regulatory application with the U.S. Federal Energy Regulatory Commission looms and TransCanada is required to make pre-filings soon. A decision needs to be made "over the next weeks," Palmer said.
A recent flood of shale gas production in the U.S. Lower 48 states has the energy industry largely ruling out a pipeline to move gas south.
Peter Howard, president of the Canadian Energy Research Institute, said a pipeline from Alaska to Alberta doesn't make economic sense.
"Is it dead? I'm not sure, but I don't think anybody's going to step in and put $30 billion on the table," Howard said.
BP CEO Bob Dudley told reporters Thursday that LNG export is "the most economic" option for North Slope Alaskan gas, given the supply outlook for shale gas in the Lower 48. ConocoPhillips CEO Jim Mulva said exporting natural gas to Asia is the "best alternative."
For Alaska North Slope gas to sell into North American markets, Howard has assumed producers would need to bring in $7 per thousand cubic feet of gas. With North American gas prices hovering at less than half that and forecasters betting shale gas supplies will increase, prices aren't expected to rise in the near term.
Various proponents have made attempts to build a land pipeline from Alaska's North Slope since the 1980s, while others started studying the feasibility of LNG export since the 1990s.
TransCanada began work on a land pipeline a little more than a decade ago and in 2009, partnered with ExxonMobil on the current project. Cost estimates have ranged from $30 billion to $41 billion for the endeavour, which has $500 million in state grants under the Alaska Gas Inducement Act.
ConocoPhillips and BP scrapped a rival pipeline in 2010 after an open season failed to win support.
Calgary Herald, with files from Reuters
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