Gas line cost goes up $10 billion --
ESTIMATE: Exxon Mobil pins the blame on global cost increases.
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By SABRA AYRES, Anchorage Daily News
Published: February 15, 2007
Last Modified: February 15, 2007 at 09:22 AM
JUNEAU -- The anticipated price of building Alaska's natural gas pipeline has risen dramatically from previous estimates, thanks to global cost increases in labor, materials and transportation, energy producers warned Alaska lawmakers Wednesday.
Contract talks last year estimated pipeline construction costs to be in the range of $20 billion if the state chose to build a pipeline that stretched through Canada and into the Lower 48. But a jump in steel, labor and other construction prices has driven that estimate to what could be "well into $30 billion," according to Craig Haymes, a representative from Exxon Mobil Corp.'s Alaska division.
"It's probably going to be in that 30s ballpark range," Haymes said during a House Resources Committee hearing. Other large projects worldwide have seen project costs increase 50 percent to 100 percent, he said.
Last year's contract negotiations with the state's three largest natural gas producers ended after former Gov. Frank Murkowski's proposed contract failed to come to fruition.
Gov. Sarah Palin, who took office in December, has said she plans to introduce legislation this year that would set new guidelines and incentives under which natural gas producers could approach the state with pipeline proposals. Palin said the legislation, if it passes, would level the playing field for interested parties and create a more transparent negotiation process.
But Exxon Mobil's top official, addressing journalists this week in Houston at an energy conference, hinted at frustrations with contractual changes to the pipeline negotiations under Palin's administration. Exxon Mobil, Conoco Phillips and BP were the only three companies involved in Murkowski's pipeline proposal.
"I don't really know where we are. I don't think it looks like Alaska knows where it wants to go, either," Exxon Mobil chairman and chief executive officer Rex Tillerson was quoted as saying.
Palin said the comment made Exxon seem uninterested in the "competitive, open and transparent" process her administration is working on.
"What bothers me is that Alaska tried it Exxon's way. The result was a contract that is not viable. It did not have the support of the public or the Legislature," she said in a statement. "We know exactly where we're going and have a plan to move forward."
At Wednesday's hearing, however, representatives from BP, Exxon Mobil and Conoco Phillips said they remained interested in working with the state and the new administration on furthering the development of a gas pipeline in Alaska.
The three said a producer-owned pipeline would be the best option for the state, despite the financial risks. As gas producers already operating in the state, the companies have obvious commercial incentives for wanting to get the gas to market as quickly as possible.
"For BP, the North Slope is the largest known but undeveloped resource in our portfolio, and frankly, we'd like to get rid of that idea," said David Van Tuyl, a representative from BP. "BP's future is directly linked to the future of the Alaska gas pipeline."
BP invests about $1 billion a year in the company's operations in Alaska, he said. The company's investments ensure its intention to continue working with the state, despite the projected cost increases, he said.
"Most mega-projects are exceeding sanctioned costs, and the Alaska project isn't just any mega project."
Van Tuyl said even if a deal was to be signed by 2008, natural gas would most likely not start to flow to market until as late as 2018. |
