Mythbuster - Larry Persily

He may not get his own reality TV show busting Alaska Gas Pipeline Myths, but here's a link to Larry Persily's ideas about myth's surrounding the Alaska Gas Pipeline. Larry Persily is the Federal Coordinator for the federal coordinator's office for the Alaska natural gas pipeline. Here's a summary of the myths he debunks:

Myth: Shale gas has destroyed the market for Alaska gas.

Myth: The Lower 48 doesn’t need Alaska’s gas.

Myth: It would be better to export Alaska’s gas because gas prices are higher in Asia.

Myth: Well, then we should export our LNG to the U.S. West Coast.

Myth: We don’t want to let Alaska’s gas go through Canada, or let it be siphoned off to meet Canadian needs.

Myth: The EPA is our enemy.

I can't say that I agree 100% with Persily, but he is on the right track. Shale gas can not defeat Alaska Gas. Earlier this month he made this presentation called "What will it take to get a gas pipeline?" His reasoning makes good sense and I applaud his efforts to build consensus and momentum.

Annual Energy Outlook

The U.S. Department of Energy’s Energy Information Administration (EIA) has release the Annual Energy Outlook 2011 (LINK). The Globe and Mail (LINK) calls the report an "Energy Fantasy Land" The Alaska Gas Pipeline is no longer a feature in the AEO base case:

The Alaska natural gas pipeline, expected to be completed in 2023 in the AEO2010 Reference case, is not constructed in the AEO2011 Reference case. This change is a result of increased capital cost assumptions and lower natural gas wellhead prices, which make it uneconomical to proceed with the project over the projection period.

What's behind the demise of the Alaska Gas Line? Shale Gas of course, abundant, cheap shale gas:

The annual average natural gas wellhead price remains under $5 per thousand cubic feet through 2022, but it increases thereafter because significantly more shale wells must be drilled to meet growth in natural gas demand and offset declines in natural gas production from other sources. As the shale gas resource base is developed, production gradually shifts to resources that are somewhat less productive and more expensive to produce. Natural gas wellhead prices (in 2009 dollars) reach $6.53 per thousand cubic feet in 2035, compared with $8.19 in AEO2010

EAI projections show Alaska gas dwindling to oblivion by 2035:I think Jeff Rubin of the Globe and Mail has it right - this is a Fantasy Land forecast, but it's a happy fantasy with cheap oil and cheap gas for decades. I'll offer this forecast: 2011 will see the return to $100/bbl oil and natural gas prices will climb out of the ditch and skyrocket to $5.00/MMBTU.

Shale Gas Watch

I always look forward to Chesapeake's investor presentations (Dec 2010 Link), there's always some good insight to the world of shale gas. These presentations are chocked full of data and I found the table on page 14 instructive:It shows that you really have to keep a lot of rigs working to stay in the shale gas business, i.e. one in five gas rigs in the U.S. is a Chesapeake rig. Next, the data on page 15 shows the Chesapeake has tripled it's rigs drilling for liquids because $4/MMBTU gas at Henry Hub won't pay the bills.

Page 21 presents a graphic declaring "de-emphasizing natural gas"

I relate this info to make the point that the shale gas business is not risk free or cost free and I don't think shale gas can be produced at a cost that threatens the Alaska Gas Pipeline. I'm still a firm believer that the biggest threat to the Gas Line is long term tax rate uncertainty.

One Step Closer to an Arctic Gas Line

Canadian Federal Regulators have approved the Mackenzie Pipeline:

Vancouver Sun Link
Vancouver Sun Project timeline
CBCNews Link
Financial Post: Mackenzie Pipeline: A nation-builder
Bloomberg : Link
Canada’s National Energy Board report LINK

LNG for Japan

While Alaska ponders the world moves on. Yomiuri Shimbun reports that Russia and Japan are closing a deal for a 5 mmtpa LNG plant in Vladivostok on the Japan Sea.

The plant would begin operation in 2017, and produce more than 5 million tons of liquefied natural gas (LNG) a year, informed sources said Friday. The Vladivostok project will allow Japan to procure a significant amount of LNG from Russia's eastern Siberia region, thereby helping stabilize Japan's energy supply, the sources said.

Indications are that the Japanese side, which includes the Economy, Trade and Industry Ministry and major trading house Itochu Corp., would sign a construction feasibility survey contract with Russia's state-run gas company Gazprom by the end of the month, according to the sources, who spoke on condition of anonymity.

Russia has been interested in Japan's cutting-edge gas plant technology to enhance its Far East oil and gas development infrastructure. Japan, for its part, wants to diversify its LNG suppliers, many of which are currently in Southeast Asia, they said.

The Vladivostok plant capacity is roughly equal to the proposed Kitimat LNG plant. Both plants are about 15% of the size of a possible, though not probable Alaska LNG Valdez facility. The proposed Russian plant will be fed by the Khabarovsk-Vladivostok pipeline:

Kitimat LNG

Is liquefied northern gas shipped to overseas markets a viable project? These guys think so.

From the Calgary Herald:

CALGARY - Apache Corporation has applied to become Canada's first exporter of liquefied natural gas, setting in regulatory motion a new outlet for an over-stocked, under-priced resource.

The largest independent oil and gas producer in the United States filed for a 20-year licence to export super-cooled gas from a proposed terminal in Bish Cove, British Columbia, according to subsidiary Apache Canada Friday.

The Kitimat project is worth following for unit cost comparison to the Valdez Alaska Gas Pipeline alternative.

Running Late

The AP and the News-Miner reports that TransCanada's gas line negotiations are running late:

TransCanada Corp. says it may not meet its target of securing binding agreements by year's end for a major natural gas pipeline in Alaska, but the company remains optimistic about the prospects for its project.

TransCanada spokesman James Millar told The Associated Press on Tuesday that officials are pleased with negotiations with gas producers so far, but the process is complicated and takes time. In spite of an official's earlier stated target of having precedent agreements by year's end, he said TransCanada's concern is less on an arbitrary clock and more on ensuring that negotiations are undertaken prudently.

He said it's too early to say whether there will be a need for another open season, during which gas producers are courted and shipping commitments are sought.This does not sound promising.

It's like watching paint dry.

Three Mega Projects

In addition to the Alaska Gas Pipeline two other projects have caught my eye recently; the Susitna Dam and the Donlin Creek Mine.

The dam is important in that it can displace power generated by gas or coal, the mine is interesting in that it may become a large user of gas. Of course none may be built in the next decade. What do you think? See the poll on the right>>>

I have some questions, if you have the answer please post a comment (1) How far upstream of the dam with the reservoir reach, i.e. is there a summary of impacted creeks - I've know some great fishing spots in that drainage and I'd like to know what creeks are impacted.

(2) How much gas could the mine demand - I'd like to understand the demand in terms of take off from the bullet line or Cook Inlet production. Thanks in advance.


Photo: Me fishing in the Susitna drainage, undisclosed location, arctic grayling in hand and some bug life. Photographer: my buddy Bill.