10/05 16:10
Alaska Natural-Gas Pipeline Plan Revived by Record U.S. Prices
By Terence Flanagan
Anchorage, Alaska, Oct. 5 (Bloomberg) -- BP Amoco Plc, Exxon Mobil Corp. and Phillips Petroleum Co., optimistic that natural gas prices will remain high, are reviving proposals to build a pipeline through Canada to deliver Alaskan gas to major U.S. markets.
Alaska is estimated to have enough gas to supply all U.S. needs for at least five years, state officials estimate. A pipeline has not been built because gas prices weren't high enough during the past two decades to justify the expense.
In September, gas on the New York Mercantile Exchange rose to an average $5.14 a thousand cubic feet, the highest monthly price since the contract's inception in 1990 and more than double the level of the previous 10 years. The hot market for gas has oil companies sounding confident about the prospects of a project that would cost an estimated $10 billion.
``We fully expect Alaskan gas getting to North American consumers well before the end of the decade,'' said Robert Malone, BP regional president in Los Angeles.
Still, no firm commitments to construction have been made, and the 1,500-mile pipeline faces formidable obstacles.
Low prices ended plans for a pipeline in the 1980s, and support would wane if two or three mild winters push gas prices down, said Fadel Gheit, director of research at Fahnestock & Co.
Valdez Remembered
Environmentalists would be expected to oppose construction because of concerns about harm to arctic plants and animals, and Exxon Mobil's involvement. In 1989, the Exxon Valdez crude-oil supertanker hit a reef and spilled about 11 million gallons of oil into Alaska's Prince William Sound, fouling the water and 1,500 miles of shoreline and killing fish, birds and other animals.
``We've seen the history of spills, corrosion, and pollution'' from Alaska's oil business, said Melinda Piece, senior Washington lobbyist for the Sierra Club.
Oil companies say they will move forward because more gas, the cleanest-burning fossil fuel, is being consumed as environmental rules tighten and a booming U.S. economy raises demand for electricity, heating fuel, and plastics and chemicals made from gas.
``Gas demand in the U.S. is forecast to grow 50 percent over the next 10 to 15 years,'' said Kevin Meyers, chief executive of Phillips Alaska Inc., a unit of Phillips. ``For this project to lose momentum, the industry will have to be convinced that things will be very different from that.''
Huge Reserves
A pipeline would be profitable if gas stays at or above $3, analysts say, and many industry observers expect prices to remain that high. Phillips, BP and Exxon Mobil likely would be the first to commit, with smaller companies that drill in Alaska or Northwest Canada joining later, Meyers said.
Phillips, the sixth-biggest U.S. oil company, and Exxon Mobil, the world's largest publicly traded oil company, each own 36.3 percent of Alaska's Prudhoe Bay gas field. London-based BP, the third-largest investor-owned oil company, owns the rest. The field is estimated to hold 80 percent to 85 percent of Alaska's known petroleum reserves.
Estimates of total Alaskan reserves are about 35 trillion cubic feet. The fields haven't been evaluated for years, though, and actual reserves are probably at least four times current estimates, said Ken Boyd, director of Alaska's Oil and Gas Division.
That's enough gas to supply U.S. demand for five or six years, according to studies cited by Alaska Governor Tony Knowles. The U.S. is the world's biggest energy buyer, consuming about 27 percent of global gas output. It used 21.8 trillion cubic feet last year, up 14 percent from 1990, BP's statistics show.
Canada Weighs In
Any pipeline likely would run south from the North Slope to southern Alberta, where it would connect with a line that ends in Chicago. Building and maintaining it would result in transport costs of about $2 a thousand cubic feet, Gheit said.
The pipeline would cross a variety of terrain, including the frozen plains known as tundra, virgin forests, and mountain ranges populated with caribou, bears and moose.
With the future of such scenic and wild territory at stake, environmental and legal hearings would take six months or more, Gheit said. Construction would last at least two to three years.
The three U.S. companies aren't the only ones proposing a project. Robert Pierce, chief executive of Foothills Pipe Lines Ltd., told a U.S. Senate committee last month his company could build a line from Alaska that would deliver gas by 2006. Foothills is owned by TransCanada Pipelines Ltd. and West Coast Energy Inc., Canada's No. 1 and No. 3 pipeline operators.
Anadarko Petroleum Corp., one of the largest U.S. oil explorers that doesn't also have refining operations, is betting millions of dollars that a pipeline will go through.
The Houston-based company plans to start drilling for gas in two parts of Alaska by early 2002 in hopes that a pipeline will be built by 2008. ``The country needs gas from the Arctic,'' Chief Operating Officer John Seitz said.
Expensive Alternatives
Oil companies have other options for Alaskan gas besides shipping it by pipeline, though the alternatives aren't low-cost.
Gas can be shipped by tanker if it's cooled to minus 256 degrees Fahrenheit. The cooling process is expensive because it requires specialized ships and processing plants. Asian countries use liquefied gas when cheaper sources aren't available.
Plants that turn gas into synthetic crude oil also have been proposed. Exxon Mobil and Atlantic Richfield Co., which BP bought in April for $31.8 billion, both have considered gas-to-liquids plants for Alaska.
Significant projects have not been built because gas-to- liquids plants become uneconomical when oil prices drop below much below $20 a barrel, a level seen less than two years ago.
Still, oil companies say all options for exploiting Alaska's reserves are under consideration.
There's enough gas in Alaska ``to support multiple projects,'' Exxon Mobil's Bob Davis said |
