Alaska Now Has 2 Gas Pipeline Proposals

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JUNEAU — For decades, Alaska has unsuccessfully pursued a pipeline project that would ship natural gas to U.S. markets to power homes and business. After years of failure and frustration, suddenly there are a pair of viable proposals on the drawing board.

Two of the world's largest oil companies unveiled plans Tuesday to jointly develop a multibillion dollar pipeline to be anchored Alaska's energy-rich North Slope.

Britain's BP PLC and ConocoPhillips, based in Houston, said they plan to spend $600 million in the first phase of the project over the next three years, beginning this summer. The project's cost estimates exceed $30 billion.

Meanwhile, the state is also reviewing a proposal by TransCanada Corp., which submitted its application for a state-backed license in November. Only one is likely to survive the competition in a pipeline race that has the attention of state and federal lawmakers.

"With uncertainty surrounding our ability to meet future natural gas demand, and the potential for more exploration in Alaska as a result of constructing the pipeline, this project is vital," said U.S. Sen. Pete Domenici of New Mexico, the top Republican on the Senate Energy and Natural Resources Committee.

Tuesday's announcement represents the first visible steps toward pipeline construction on a project that hit a dead end during a legislative stalemate two years ago.

"It is great news for Alaska that companies that control well more than 60 percent of the North Slope's natural gas are now committing themselves to move ahead to build a gas pipeline," said U.S. Sen. Lisa Murkowski, R-Alaska.

"This should give utilities in the Lower 48 and suppliers worldwide some confidence in planning on Alaska's gas getting into America's market by about 2019, which is probably the most important ingredient in making sure that Alaska's gas is not replaced by an imported liquid natural gas," she said.

The project also has long-term implications to North America's energy needs by potentially helping homeowners and business owners with soaring heating and fuel costs in years to come.

"This is not an announcement to build a plan; this an announcement to start the project," said Doug Suttles, president of BP Exploration Alaska Inc. "Before the year is out, we will have over 150 people working on it. What I would say is, 'Watch, just watch.'"

The pipeline would eventually move about 4 billion cubic feet of natural gas per day to markets, about 6 percent to 8 percent of daily U.S. consumption, the companies said.

Interest comes at a time when natural gas has become an increasingly valuable source of energy, with U.S. natural gas demand growing about 1.5 percent a year for two decades since 1986.

With so many regions in the continental U.S. off-limits to oil and gas development, Alaska's gas line could help met American demand by shipping trillions of cubic feet of gas to market.

No timeline was announced for construction and completion, but the companies have said it would be at least 10 years before gas begins to flow.

The plan, dubbed "Denali — The Alaska Gas Pipeline," is to deliver natural gas via a 2,000-mile pipeline from the energy rich North Slope in Alaska to Alberta, Canada.

Gas can then go into an existing pipeline system, or if necessary, BP and ConocoPhillips said it could build an additional 1,500-mile pipeline to U.S. markets.

"There are multiple ways of bringing gas into the Lower 48 from Alberta," said ConocoPhillips' Brian R. Wenzel, vice president of gas development. "We'll look at existing network capacity and look at costs. We've got to keep those options open."

Two years ago, former Gov. Frank Murkowski settled in principle with BP, Exxon Mobil Corp. and ConocoPhillips on fiscal terms — taxes and royalties — for producing the North Slope gas.

The deal would have frozen oil taxes for 30 years and gas taxes for up to 45 years for the three major oil companies, but it did not guarantee a pipeline would get built.

The Legislature would not vote on it because lawmakers believed it was too much of a giveaway to the energy industry. That prompted then newly elected Gov. Sarah Palin to chart another course, while refusing to continue negotiations the oil companies.

Palin introduced the Alaska Gasline Inducement Act — or AGIA — early in 2007 as a means to stimulate competition among oil companies as well as the independent pipeline companies.

Palin said Tuesday's announcement by BP and ConocoPhillips illustrates how AGIA stimulated competition.

ConocoPhillips first submitted the current plan on its own to Palin's gas line team in November, when applications for a license were due.

But ConocoPhillips' proposal was outside the bid requirements of the state's new law, passed by the Legislature last May. The company billed it as an alternative to AGIA.

ConocoPhillips, the North Slope's largest oil producer, however, still wanted to negotiate a long-term fiscal package covering taxes and royalties on natural gas production.

Palin wouldn't budge. In January, she turned down the ConocoPhillips proposal, saying such a deal could deprive the state of its regulatory powers.

ConocoPhillips eventually decided to move forward on its own and began talks with BP to become a partner.

The companies and Palin said Tuesday reprising talks on taxes and other terms can wait.

"It's just too important a project for it not to move forward," said Angus Walker, a senior vice president with BP. "So what we do is we keep the project on track, which everybody wants, and we deal with those issues parallel to the project without slowing the project down."

For now, the North Slope remains a collection of declining oil producing fields, currently at about 731,000 barrels a day.

Meanwhile, large amounts of natural gas come to the surface when oil is pumped from the state's large-but-dwindling oil fields. But that gas isn't sold, it's reinjected back into the ground to help companies produce more oil and stem an annual petroleum decline that is currently about 6 percent. Slightly more than 7 billion cubic feet a day of gas is pumped into the ground, according to a recent Energy Department North Slope report.

A North Slope gas line has been discussed since oil first moved down an 800-mile trans Alaskan pipeline in 1977.

The prospects gained momentum these last several years with natural gas futures currently trading in the mid-$9 range per 1,000 cubic feet.

The first phase of the pipeline project involves field work this summer and securing long-term commitments from gas companies to send gas down the pipeline.

Much of that commitment is likely to come from BP, ConocoPhillips and Exxon Mobil Corp. The three companies hold leases to nearly 35 trillion cubic feet of North Slope gas.

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