ConocoPhillips seeks incentives for Alaska pipeline

ConocoPhillips wants to bring more natural gas to the Lower 48 from Alaska to help meet an expected growing demand -- but the nation's largest oil refiner also wants Congress to guarantee it won't lose its $ 20 bn investment if gas prices plummet in a volatile market.
"It would be the largest private sector project that's ever been tackled," John Lowe, executive vice president of Houston-based ConocoPhillips, said of the company's proposed 3,600-mile pipeline from Alaska's North Slope into Canada and then to the US Midwest. "That's not typical for us."

The Senate has included $ 18 bn in federal loan guarantees for the pipeline project in its proposed energy bill, unlike a subsequent House version that includes $ 18.7 bn in incentives for oil and other gas development and a mix of tax and financial breaks intended to promote traditional fossil fuel industries.
ConocoPhillips says if the incentives it seeks are passed in the final version of the energy bill, the company can obtain necessary permits and build the pipeline within 10 years. The company said that would provide a steady flow of natural gas that would satisfy 5 % of US demand, which is expected to jump by 33 % in the next 10 to 15 years and outstrip the domestic supply by 2020. A recent Energy Information Administration report said US natural gas reserves are down 61 % compared to a year ago.

But the company won't do it without the financial guarantees, which officials say wouldn't kick in unless a sharp drop in gas prices would otherwise force ConocoPhillips to absorb losses.
"We don't need an incentive in every case. We're just asking for it in a low-price environment," Lowe said. "The US needs this gas and we need to do everything we can do to get this project approved. If there's no legislation, unfortunately there will be no project."

Natural gas, unlike oil, is largely a regional business. Nearly all natural gas used in the US comes from North America. Transporting gas from new sources will require expensive infrastructure at a time when volatile gas prices discourage new exploration and production, said Michael Zenker, senior natural gas researcher for Cambridge Energy Research Associates.
The pipeline proposal has been mulled for more than 30 years as Alaskans considered how to tap into an estimated 35 tcf of gas and transport it from Prudhoe Bay to markets. As proposed, the pipeline would stretch south alongside the 800-mile Trans-Alaska Pipeline System to Fairbanks, then veer east into Alberta. From there, natural gas would move to the Lower 48 through an expanded Canadian pipeline or through an additional new pipeline to Chicago, said Joe Marushack, vice president of North Slope gas for ConocoPhillips.

The company says it would transport 4 bn to 4.5 bn cfpd of natural gas and boost reserves by 20 %. Some gas producers, including Apache, have complained that a government subsidy for an Alaska project puts other gas-producing states at a disadvantage. Michael Economides, a University of Houston professor of petroleum engineering and a long-time critic of the ambitious proposal, said it is too expensive compared to other options to meet increasing demand.
"It's like voodoo economics all over again," Economides said. A CERA report released in January also said the cost means that "smaller, more easily digestible projects will continue to slowly push back the time at which this project might get under way."