Alaska’s gas pipeline plans hit by downturn

Alaska’s efforts to drive interest in a natural gas pipeline to the rest of the US have been slowed by the triple hit to the industry from the economic downturn, plunging commodity prices and the credit squeeze.

It has had to push back to September a conference planned this month to urge the oil and gas industry to invest in the state’s large pool of natural gas as part of a broader effort to push forward a long-held plan for a $30bn pipeline to carry the energy to other states.

While the Alaska Natural Gas Tranportation Projects insists two competing proposals to build that massive pipeline, as well as in-state projects, are still on track, conference organisers recognised attendance would be hit.

Of the approximately 50 top petrochemical manufacturing companies targeted by the Alaska Natural Gas Development Authoritity, the majority expressed interest but were unable to attend because of travel restrictions or, in some cases, scheduling conflicts.

“As the conference approached, it became evident that with more time we could make more of an impact,” said Harold Heinze, chief executive of the Authority. “The rapidly changing landscape has necessitated some further research and planning.”

The conference was designed to encourage investment in the first access in more than a decade to a politically stable new source of high-value gasses – ethane, propane, butane, pentane and methane.

Next year, the two companies proposing to build pipelines out of Alaska -  TransCanada and Denali, a company owned by BP and ConocoPhillips – are to open bidding to secure customer commitments to use their competing pipelines. The conference was to build interest in that “open season”.

Commitments by those willing to invest in the 35,000bn cubic feet of proven natural gas and natural gas liquids will help decide which – if any – pipeline gets built. It only makes sense for one pipeline, up to 3,500 miles long.

Denali said it still plans to conduct open bidding for pipeline capacity next year, after spending $55m last year, on mostly project field work. This year, Denali will expand its work programme, doing preliminary engineering for a gas treatment plant and the main line, and focus on commercial activities and engaging potential customers.

“Denali’s current plans are refletive of the impact that low oil and gas prices are having on the industry,” the company said. “We will focus primarily on the work required to support a 2010 open season.”

TransCanada, too, says it will not let the downturn derail its efforts: “Our schedule has been unaffected by the economic downturn. The focus of this project is on the long term.” And by 2018, when the pipeline is expected to open for 25-50-year service, the company says, forecasts are for natural gas at $8 or higher, which make the project viable.

The only catch is that, for either Denali or TransCanada to build the pipeline, it must have commitments from companies to buy the natural gas. While that looked easy to get when competition for supplies pushed US natural gas prices as high as $13.50 per million British thermal units in July 2008, the price has since fallen to below $4, as the economic downturn has cut sharply into demand.

Many companies are scaling back projects and reducing staff.

“It’s a challenging time to get the parties together,” said Bill Popp, chief executive of the Anchorage Economic Development Corporation and conference chairman. “We have to remember that the decisions made to invest in this project are long term in nature and they go beyond these current economic times.”

Energy Source is no longer updated but it remains open as an archive.

Insight into the financial, economic and policy aspects of energy and the environment.

Read our farewell note

About the blog

Archive

« Mar May »April 2009
M T W T F S S
 12345
6789101112
13141516171819
20212223242526
27282930