Demand for electricity re-energises 20-year old mega-gas project

Nov 27, 2001 01:00 AM

The vision of a booming demand for electricity has brought a large part of the North American natural gas pipeline industry together to revive a 20-year-old mega-project. It was the late 1970s when the US and Canadian governments first approved a consortium to bring gas from the North Slope in Alaska to markets in the lower 48 states.
That project foundered as gas prices sagged, but, the original pipeline partners - six US and three Canadian companies -- agreed to make a new approach to the Alaskan gas producers by the end of the year. A second gas project, a proposal by Canadian producers who own undeveloped fields in Canada's Arctic, is also hoping to launch a pipeline project this year.

After coming to terms with indigenous peoples in the north, the Canadian group hopes next month to begin preparing regulatory filings for a pipeline from the Mackenzie River Delta down the Mackenzie valley to the south. After years of quiet in the northern energy front, there is a very real prospect that gas from one project, or perhaps even both projects, could be flowing by 2008.
Certainly, politics has something to do with the change, especially the reactions to California's electricity problems and worries about security of supply, heightened by terrorism and problems in the Middle East. For the companies, however, long-term pipeline projects are driven by forecasts showing a nearly 50 % increase in US gas consumption by 2010.
The extra gas will largely be used to generate electricity, said Rocco Ciancio, spokesman for Foothills Pipe Lines, one of the three Canadian companies in the pipeline group that is preparing its pitch to the Alaskan producers. The pipelines' revived interest in moving Alaskan gas was propelled by gas spot prices, which hit $ 10.53 per mm Btu on January 2.

Other groups were already in motion, including the Canadian producers (led by Imperial Oil), which have large undeveloped gas fields in the Mackenzie River Delta. The North Slope producers -- ExxonMobil, BP and Phillips-- began their own study early this year to assess two routes: 1,800 miles running east under the Beaufort Sea from Prudhoe Bay to the Mackenzie Delta, then south, or 2,100 miles following existing roads through the Alaskan interior to Alberta. The higher prices are now a memory as gas has slid back to $ 2.50 per mm Btu, but the wheels on all three proposals continue to turn.
The pipeline group -- Canada's TransCanada Pipelines and Westcoast Energy (which together own Foothills) and affiliates of US companies Williams, Duke Energy, Sempra Energy International, Enron, PG&E and El Paso -- is planning a $ 9.7 bn project to carry 4 bn cfpd. It needs a price of $ 3 per mm Btu to be viable.

The North Slope companies produce about 8 bn cfpd of gas (a by-product with oil) in Prudhoe Bay, but reinject it into the ground. There is no way of getting it or the known reserves of 35,000 bn cf, let alone the potential reserves of 100,000 cu ft, to market. The preliminary results of their study, however, show a price of $ 3 per mm Btu and falls short of the 15 % return on equity target set in the study, said spokesman Curtis Thayer.
They want to ship more gas than the pipelines are proposing, requiring a bigger pipe, and believe the project will require not just the new northern pipeline, but expansion of the existing 1,800-mile system between Alberta and Chicago to handle the increased volume. All in, they have priced the laska route at $ 17.2 bn, and the Beaufort-Mackenzie route at $ 15.1 bn.
New technology or changes in project parameters could cut the cost, bridging some of the gap between the Foothills group and the producers. But the producers are also pushing governments to lower regulatory costs and bring more certainty to tax issues.

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