Resource Development Council

TransCanada optimistic, looks to

open season for gas line this spring

TransCanada told lawmakers in Juneau in early February that its joint Alaska gas pipeline project with ExxonMobil is right on track, despite skepticism by some in Juneau surrounding the economic viability of the project, given rising costs and competition from other gas suppliers in the Lower 48.

“It’s our view as a pipeline sponsor that it is viable, but it will be up to the customers to decide their own views in the initial open season,” said Tony Palmer, TransCanada’s Vice President, Alaska Development.

TransCanada filed its open season plan with the Federal Energy Regulatory Commission in late January. The plan covers two options that are part of TransCanada’s Alaska Gasline Inducement Act application: a pipeline from the North Slope to Alberta and one from Prudhoe Bay to Valdez. Both options include access to North Slope gas for Alaskans, a gas treatment plant on the Slope and a pipeline from the Point Thomson field.

Cost estimates range from $32 billion to $41 billion for the Canadian project and $20 billion to $26 billion for the all-Alaska line. The latter option does not include costs for liquefaction facilities or ships, which would be the responsibility of the shippers.

While cost estimates for both options were higher than anticipated, better commercial terms are expected to save shippers $500 million a year in tariffs. TransCanada said either option would be completed by 2020.

In the open season, which will begin in May and run through July, TransCanada will solicit bids from producers for long-term space commitments on the pipeline for shipping Alaska gas south. The Canadian option would carry as much as 4.5 billion cubic feet of gas a day.

Meanwhile, a rival project proposed by oil and gas producers BP and ConocoPhillips is preparing for its open season later this summer. Both open seasons could help determine whether there is sufficient demand for a pipeline to move forward. There is widespread concern that producers will not make the firm offers necessary to secure financing for the project. Companies that bid in the open season for either project are expected to include many conditions and contingencies for shipping their gas, including reasonable and predictable fiscal terms.

Palmer said TransCanada will work to resolve by the end of the year conditions it has the ability to solve and will leave it up to the Legislature to address fiscal concerns.

A gas pipeline project is vital to Alaska’s long-term economic future, but in recent years technological breakthroughs in tapping huge shale gas deposits in Texas, Louisiana, Pennsylvania and elsewhere have left some questioning whether Alaska gas is needed. Skeptics wonder how energy companies can afford to spend $40 billion for an Alaska-Canadian gas pipeline and get a sufficient return on their investment when enormous shale gas deposits and a weak economy are likely to keep gas prices in the basement. They note that the Lower 48 may now have a century’s worth of gas.

But not everyone believes the Alaska gas pipeline project is in jeopardy. Proponents note shale gas is expensive to produce and faces environmental challenges and opposition from some local communities. Moreover, both private and government sources point out that U.S. energy markets could see a significant shift in the new decade toward increased natural gas utilization, especially if it is mandated by new federal or state laws.

Governor Sean Parnell is optimistic about a gas pipeline, saying the demand for clean-burning natural gas will only grow as the nation reduces emissions to address climate change. Energy officials in his administration believe shale gas concerns are overblown and that there will be sufficient demand for Alaska gas over the long term.

Ed Kelley, a gas analyst for the energy consulting firm Wood Mackenzie, told the Wall Street Journal in late January that it is important to remember Alaska gas is “not competing with shale gas now, it’s competing with shale gas 10 to 15 years from now.”

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