Companies examine degree of interest in gas pipeline

TransCanada and Exxon Mobil Corp. have delivered their open season plan to determine how much interest there is in an Alaska Highway natural gas pipeline.

TransCanada and Exxon Mobil Corp. have delivered their open season plan to determine how much interest there is in an Alaska Highway natural gas pipeline.

The plan also asks producers whether they would prefer to ship straight from the North Slope to the Port of Valdez, where the gas would be liquified and transported to overseas markets by ships.

If the open season plan is accepted by the U.S. Federal Energy Regulatory Commission, TransCanada and Exxon Mobil will begin their open season at the end of April.

The 90-day open season is used in the pipeline industry as a tool to get firm financial commitments from companies who want to secure space on the pipeline to ship their product.

“It’s early days, but these days are progressing constructively,” Ron Sumanik, acting director of the Yukon’s oil and gas sector, said this morning. “Overall, we are pleased to see the project proceeding to this phase and we look forward to the outcome.”

Asked to comment on the economic viability of North Slope natural gas in today’s market conditions, Sumanik said on any given day, one can find differing opinions on the subject.

“There are various opinions out there as to whether this gas is needed in the market by 2020,” he said. “TransCanada and Denali is certainly of the mind there is good reason to progress this project at this time.”

Denali – The Alaska Pipeline Project was formed by BP and ConocoPhillips in order to put together a competing bid for the rights to build the Alaska Highway pipeline.

Denali vice-president Scott Jepsen said this morning from Anchorage that as a pipeline company, Denali doesn’t sell gas but provides producers with a means of getting their product to market.

Once the open season is complete, he said, all the parties will have a better idea of what the issues are, if any.

Jepsen emphasized the open season is not a process of determining the level of interest in a pipeline, but rather an exercise to obtain binding commitments from gas companies to buy room on the pipeline for hundreds of millions of dollars.

Denali announced early last month it would be in a position to deliver its plan for open season to the U.S. federal regulator for review this April.

Once the 90-day open season is complete, releasing the results could either be quick or drawn out, depending on whether there are issues which need to be hashed out between the pipeline company and producers, Jepsen explained.

Unlike TransCanada and Exxon, Denali will not be submitting a proposal for a pipeline to Valdez, but still could in the future if producers indicated they were interested.

In the open season process, the pipeline companies provide producers with estimates on their cost of construction and other project costs so that producers can see what they’re buying.

TransCanada and Exxon Mobil indicated Friday the cost of building the 2,737-kilometre Alaska Highway pipeline from Alaska’s North Slope to Alberta would run between $32 million and $41 million.

A decade ago, the cost estimate was pegged at $20 million, but was increased to $26 million several years ago.

The cost of the 1,287-kilometre pipeline from the North Slope to Valdez was estimated in Friday’s announcement at $26 million.

TransCanada indicated neither pipeline would be ready before 2020.

Ralph Glass, a industry consultant with Calgary’s AJM Petroleum Consultants, said this morning the shift in the natural gas market in the last two or two and half years has pushed North Slope gas off the table.

Shipping North Slope gas down an Alaska Highway pipeline is not viable, and most likely neither is the Valdez pipeline, he said.

Glass said just a few years ago the attractiveness of North Slope gas was growing as North American reserves were on the decline while thirst for cleaner burning fuel was on the increase.

But in the last couple of years, the entire market place has changed with significant advancements in technology which have flooded the market with new reserves of natural gas, he said.

Today, natural gas was selling for $5.13 US per 1 million British thermal units. In June 2008, it peaked at above $13 mm BTU.