May 2010 Vol. 237 No. 5

Features

Alaska Gas Pipeline Action Heats Up

U.S. regulators approved a plan by TransCanada Corp. to solicit interest from oil and gas producers in the multibillion-dollar natural gas pipeline the company and its engineering partner, ExxonMobil, want to build from Alaska to Canada and ultimately into the continental United States.

In January, TransCanada and ExxonMobil applied to the Federal Energy Regulatory Commission (FERC) for permission to build two potential Alaska gas pipelines.
The primary project would be a $32-41 billion, 1,700-mile pipeline from Prudhoe Bay to Alberta, Canada that would connect with TransCanada’s existing pipeline system that carries natural gas into the U.S. The other project would be an 800-mile pipeline that would ship natural gas to a port in southern Alaska where it would be liquefied for transport to Asia and other foreign markets. TransCanada and ExxonMobil plan to build one or the other project, based on which one gets the most interest from potential customers.

TransCanada plans to solicit interest from natural gas producers through an open season process, the plans for which FERC approved, with conditions, on March 21. As a pre-condition, FERC said TransCanada will have to immediately open its data room to allow prospective bidders adequate time to review “needed information,” such as costs and fees.

TransCanada plans to hold its open season for the Alaska gas pipeline projects between April 30 and July 30. The long-haul pipeline would ship up to 4.5 Bcf/d of natural gas and could be expanded to carry 5.9 Bcf/d.

Denali Open Season
TransCanada’s pipeline project competes directly with a pipeline planned by a joint venture owned by BP and ConocoPhillips called Denali. Denali – The Alaska Gas Pipeline LLC – filed its open season plan on April 7 with FERC. The filing outlines the commercial terms, technical plans, estimated costs and projected rates for the project.

The Denali Project consists of a gas treatment plant (GTP) on the Alaska North Slope, transmission lines from the Prudhoe Bay and Point Thomson fields to the GTP, and a mainline that will cross Alaska into Canada with its terminus at Blueberry Hill, Alberta. Also included will be delivery points along the route to help meet natural gas demand in Alaska and Canada. Denali’s cost estimate for the GTP and mainline is $35 billion (2009 US$). Denali expects the project to be in service in 2020.

“Since its inception in 2008, Denali has invested over $140 million and over 600,000 man-hours to significantly advance this project”, said Bud Fackrell, president of Denali. “Our commercial offer includes competitive transportation rates and at the same time recognizes the significant risk that both Denali and its customers will take.”

The Denali Project has been designed to deliver approximately 4.5 Bcf/d of natural gas to North American markets. The GTP at Prudhoe Bay will remove CO2 and dehydrate, compress and chill the gas in preparation for transport down the mainline. When completed, the GTP will be the largest facility of its kind in the world.

The mainline will consist of a 48-inch pipeline and 15 compressor stations, 6 of which will be in Alaska. The mainline will run approximately 730 miles through Alaska and 1,020 miles through Canada. Customers will be provided with multiple interconnecting pipeline options to transport gas to end markets in North America. Denali anticipates FERC approval and is planning to start its open season on July 6. The open season will last a minimum of 90 days. Denali will also hold a simultaneous open season in Canada.

Shared Gas Pipeline Proposal
The Alaskan government has been pressing TransCanada and Denali to combine forces to build one shared gas pipeline before the state makes a commitment on tax rates for Alaska gas production, which could give producers more confidence in signing onto the pipelines. TransCanada has said it has offered BP and ConocoPhillips equity stakes in the pipeline project, but that the companies haven’t expressed interest.

Denali, for its part, said it welcomes investors to its project.
To compete against the Denali project, TransCanada and ExxonMobil said they would cut tariffs for customers who sign up during their open season. The companies said the scheme would save customers $500 million a year over the 25-year life of the contracts.

TransCanada also has a license and financial backing from the state, obtained during former Gov. Sarah Palin’s administration. The license includes a 10-year guarantee that locks in tax rates for producers. But producers have said the 10-year term is too short, in part because it doesn’t match up with a pipeline commitment, which would likely be 20 years or longer. Denali’s project doesn’t have state backing.

The North Slope holds some 35 Tcf of known gas reserves and the state estimates there could be 215 Tcf of undiscovered reserves. By comparison, U.S. consumption in 2007 was just over 23 Tcf.