Sunday, October 3, 2010

Denali Open Season Ends 4-OCT-2010

Tomorrow marks the end of Denali's open season. Hundreds of millions have been spent on the Denali and the TransCanada open seasons, hopefully not in vain.

Three years down the road from passing the Alaska Gasline Inducement Act the world has changed a lot, mostly in ways that should make any sane person run like hell from this project - The international economy tanked, the price of oil and natural gas plummeted, and $6/MMBTU shale gas looks like it's here to stay. The pipeline contenders have experienced a wide range of fortunes over the past three years:

TransCanada - Continues to execute successful pipeline projects in North America like the Keystone pipeline - moving heavy Canadian petroleum products to the lower 48.

ExxonMobil - Earnings hit by declining commodity prices but now they are a big player in shale gas via acquisition of XTO. ExxonMobil is also adding Alaska Gas reserves by the bit up at Pt. Thomson. LNG, Shale Gas, Alaska Gas - it's all earning for ExxonMobil - they play to win.

ConocoPhillips - CEO James Mulva "re-evaluating the Alaska project in light of a glutted natural gas market" according to one report, followed by "Oh no - really we stand by the project" statements - I think the first story is closer to the truth, the re-eval will start next week.

BP - The Macondo blowout has cost BP at least $20billion and there's talk of a pull out from Alaska. It's unclear if a crippled BP brings anything positive to the table.

There's also some good news out there:

The shut-in price of Shale Gas seems to be holding at $6/MMBTU - I view that as solid base that will contain the Shale Gas glut.

The commodity price pendulum cuts both ways - Oil and Gas are cheap right now but STEEL is cheap right now. Engineers are cheap too and there are few major projects mopping up the excess - but watch out for the "recovery" when commodity prices recover.

Interest rates are out of this world cheap - Now is the best time in 30 years to fund a mega project.

I expect the pipeline project to continue sideways for at least the next year. Expect talk of project consolidation in the near term.

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