BP and ConocoPhillips decide to scrap Alaska gas pipeline project

May 18, 2011 12:00 AM

In the backdrop of energy major BP’s proposed alliance with Rosneft having fallen through, BP and ConocoPhillips have decided to scrap their planned $ 35-bn joint venture natural gas pipeline project in Alaska because of poor customer demand and bad project economics.
Through the joint venture project, named Denali, the two oil giants had proposed building a 1,700-mile (2,737 km) pipeline to transport about 4.5  bn cfpd of gas from Alaska’s oil and gas-rich North Slope to Alberta, in Canada.

The project could not secure financial commitments from gas producers on Alaska’s North Slope despite 18 months of negotiations. Denali also blamed low gas prices and strong domestic supplies of natural gas produced from shale rock in Texas and other parts of the US for the project’s cancellation.
Besides BP and ConocoPhillips, ExxonMobil is also a major producer in the area.

A similar joint venture project being implemented by ExxonMobil and TransCanada is, however, progressing well. That project, estimated to cost up to $ 41 bn, however, has a licence and financial backing from the Alaska government.
The BP-ConocoPhillips joint venture does not have state backing and hence is more vulnerable to natural gas price fluctuations.

Denali is also reported to have unsuccessfully sought more than $ 100 bn in financial commitments from Alaska gas producers to build the project.
“We cannot spend the billions of dollars necessary to advance the project unless we have binding agreements with shippers,” Bud Fackrell, Denali’s president, said. “Although we have been in discussions with potential shippers for nearly a year and a half, we have been unable to secure financial commitments necessary to advance the project,” he added.

Employees of Denali, consisting mainly employees from BP and ConocoPhillips, would return to jobs at their companies.
BP and ConocoPhillips have spent $ 165 mm and 760,000 man-hours on the pipeline project.

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