The Alaska Contractor - Summer 2008

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What will it take to build a gas pipeline? BY NANCY ERICKSON A menagerie of concepts and engineered drawings of a pipeline that would someday move North Slope natural gas to markets have been stacking up in corporate boardroom file cabinets for decades. Now with two proposed pipeline projects in the works, Alaskans might just realize their long-held economic dream. But not any time soon. Both TransCanada Corp. and the combined forces of ConocoPhillips and British Petroleum have proposed similar gas lines that would stretch approximately 2,000 miles from Alaska’s Prudhoe Bay east into Canada, through the Yukon Territory and British Columbia, connecting to Alberta’s gas line grid. From there, gas could be shipped to the continental United States through existing pipelines or if needed, an additional line could be constructed extending into the Midwest. The large-diameter pipeline is estimated to move approximately 4 billion cubic feet per day of natural gas to markets, about 6-8 percent of daily U.S. consumption. TransCanada was the sole successful bidder in a stateled effort to build a pipeline under Gov. Sarah Palin’s Alaska Gasline Inducement Act, or AGIA, which passed the Legislature last year. The fate of its project awaits the nod of Alaska legislators who convened in a 60-day special session June 3 to consider whether to grant the Canadian pipeline company the license plus half a billion dollars in incentive cash to begin the process of taking a pipeline to fruition. The joint venture of BP and ConocoPhillips announced their Denali Pipeline Project in April and plans to spend $600 million in planning and field data collection over the next three years with the milestone of beginning an “open season” before year’s end 2010. The two oil producers hold leases on approximately twothirds of the North Slope’s prodigious 35 trillion cubic feet of gas. Exxon holds another third, with some minor holders, as well. Part of any pipeline construction, open season is a crucial process during which the pipeline company seeks customers to make long-term, firm commitments to ship their gas through the pipeline. “No shipper, there’s no pipeline. That’s the market test for the project,” said Steve Rinehart, press officer for BP Exploration in Anchorage. Executives of BP and ConocoPhillips have pledged to move forward with their $30 billion project whether or not TransCanada is issued a license to proceed. “We’re starting. We’re off,” said Rinehart. “Our train has left the station.” Company executives feel it’s worth gambling at least $600 million to bring their proposal to open season, and then to the Federal Energy Regulatory Commission, FERC. “The North American market is hungry for Alaska’s natural gas,” stated Angus Walker, a senior vice president and head of BP Alaska’s gas line team. “Our focus is on creating an efficient project at the lowest cost so as to successfully attract shippers who want to transport gas from Alaska’s North Slope to market. We believe our project offers the most promising opportunity to do that.” Can both pipeline projects move ahead? For now they can. But only one will be built. TransCanada is proceeding under AGIA with the hopes of getting state approval and the incentive cash to proceed through open season. The Denali Project is moving ahead through open season on its own. If both proposals continue beyond open season, it could put the federal regulatory commission in a position to decide which gas line project gets a certificate to build and operate, said Larry Persily, a former associate director for Oil, Gas, and Renewable Energy; Commerce and Transportation in Washington, D.C., under the Palin administration. “FERC does not want to be the decision-maker,” he said. “They would much rather see the market decide rather than them.” Joe Balash, special assistant to Gov. Sarah Palin said the market could conceivably result in a “settlement” project that combines or merges the two applicants. “The ambivalence of FERC, combined with their desire to not decide, will put pressure on both sets of parties to resolve their differences cooperatively,” he said. Natural gas 101 Natural gas is a fossil fuel often found mixed with oil and water and produced from reservoirs deep in the earth’s surface. Prudhoe Bay’s reservoir is between 8,000 feet- and 9,000 feet deep, according to Rinehart. According to the Natural Gas Facts Web site, 57 percent of U.S. households heat with natural gas. It is currently the nation’s fastest growing energy source, with demand forecast to increase by approximately 22 percent by 2030.
Aerial shot that shows the scope and scale of Prudhoe Bay, which holds about 25 trillion cubic feet of gas, the main reserve that would underpin a gas line project. The facility in the foreground is Flow Station One, operated by BP. The United States imports the largest amount of natural gas in the world, according to a March 2008 paper from the Energy Information Administration, Office of Oil and Gas. In 2007, the U.S. received 99.8 percent of its pipeline-imported natural gas from Canada, with the remainder coming from Mexico. Natural gas cooled to minus 260 degrees Fahrenheit becomes liquid natural gas, or LNG. Liquefying natural gas reduces the volume it occupies by more than 600 times, making it a more practical size for storage and transportation. Gas produced from wells in Cook Inlet near Anchorage is liquefied and exported to Japan. Consumers in the Anchorage area and some parts of the Kenai Peninsula also enjoy the benefits of natural gas from Cook Inlet wells. But supplies are dwindling. A nitrogen fertilizer plant on the Kenai Peninsula was forced to close its doors last fall due to lack of natural gas, the highest cost component in the production of ammonia at the plant. Gas line for Alaska Constructing a gas pipeline in Alaska has been discussed since the first North Slope oil lease was sold more than 40 years ago. But time and again, plans were shelved when financial experts evaluated costs versus benefits and didn’t like the bottom line. Oil prices topping $138 a barrel in June may have prompted a new interest in a gas pipeline, Persily said. Speaking as a private citizen, Persily said building a gas pipeline has previously never penciled out, but now appears feasible. “Will it happen before a meteor strikes the earth? I think eventually it will happen, but I don’t think it will hap-
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8005 Schoon St. Anchorage, AK 99518
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HOMER WATER TREATMENT PLANT PROJECT
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The Alaska Contractor - Summer 2008

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