Reduced Demand for Alaska Gas

Canadian tar sand projects demand lots of energy - energy that could be supplied by Alaska gas (more info here).

The downturn in oil prices has the Canadians rethinking their expansion projects - Here's the latest regarding Shell (LINK):

Shifting sands (Times Online Robin Pagnamenta, Energy and Environment Editor 10/31/08)

— Canada's oil sands industry is under pressure as high costs, plunging oil prices and turmoil in global financial markets trigger a wave of project delays

— This month alone, projects worth more than C$40 billion (£20 billion) have been postponed

— Petro-Canada, one of the largest players, is deferring a C$10 billion investment decision on a new bitumen processing plant

— Suncor Energy, another big player, is postponing by one year the construction of a C$20 billion upgrader plant, which turns bitumen into a more easily refinable, synthetic crude.

Canadian Tar Sands Utilization

One of the main drivers for the Alaska Gas Pipeline is the development of the Canadian Tar Sands.  This link details the outlook for pipelines and refineries downstream of tar sands (LINK).

By Lindsay Sword, Wood Mackenzie

Supply of Canadian oil sands products will increase by 2 million b/d between 2007 and 2015; half of this growth will be in Canadian heavy crude blends. A recent study shows that the export pipeline infrastructure and US refinery capacity will be able to handle forecast additional supplies of Canadian crude during 2007-15. Planned export pipeline infrastructure should keep pace with forecast additional supply of oil sands products to 2015; export pipeline capacity will increase by 2.1 million b/d. Current capacity tightness should be resolved once expected new pipelines start up in 2008 and 2009. By the end of 2015, spare capacity will reduce, suggesting the need for additional export capacity shortly after 2015. Refinery projects targeting Canadian heavy blends that we expect to proceed are aligned with our forecast of additional supply: Canadian heavy blends supply will increase by 1 million b/d by 2015, and projects that are planning on processing heavy blends will increase by 1.1 million b/d.

A quick math check - It takes 1,200 cubic feet of gas to produce a barrel of tar sand oil -   So to produce 2.1 million barrels of tar sand oil, you would need about 2.5 BCF/day.  That's more than twice the volume of the MacKenzie pipeline and a little more than half the capacity of the proposed Alaska Gas Pipeline.