ConocoPhillips Goes to Work on Gas Pipeline Project

This week ConocoPhillips announceD they would start field work on the Alaska Gas Pipeline. This announcement came on the heels of a meeting with Governor Sarah Palin on Sunday night.

The Governor released a statement saying that ConocoPhillips is partially right, but put off the idea of further pipeline discussions with ConocoPhillips. Palin believes that the project can be scoped piecemeal - first the gas line via the AGIA process then fill the line with gas.

Some analyst think the Alaska Gas Pipeline and the Mackenzie pipeline in the Northwest Territories have waited too long and will lose out to competition from overseas LNG.

That may be true, but ConocoPhillips needs the pipeline, in part to offset crude oil production cost at their $15 Billion oilsands project in Canada. For ConocoPhillips the Alaska Gas Pipeline is part of a bigger picture.

Natural gas is required to upgrade the oil sand bitumen. Canadian natural gas production is in decline so Alaskan natural gas is one key to the future development of Canadian oil sands.

ConocoPhillips needs heavy sour Canadian crudes to feed refineries designed to process Venezuelan crude. This report by the Energy Information Agency (EIA) explains the dependence of ConocoPhillips on Venezuelan imports.

Another report by the Government Accountability Office (GAO) assesses the impact of future crude oil supply disruptions that may be caused by Venezuela.

Progress On North Slope Gas Project

Great news this week on the Alaska Natural Gas Pipeline project.

ConocoPhillips vice president of Alaska North Slope gas development Brian Wenzel, and ConocoPhillips Alaska President Jim Bowles announced that ConocoPhillips plans to get to work on the gas pipeline.

Fairbanks New-Miner State Reporter Stefan Milkowski reports that ConocoPhillips will spend up to $40 million this summer doing field work necessary to get the project off the ground.

In a press release by ConocoPhillips Wenzel says "Despite the lack of progress with the State of Alaska, as an initial step ConocoPhillips will continue its planning and contracting efforts in preparation for a route reconnaissance and environmental studies starting in June 2008,” “It is important that we take advantage of this summer field season and keep this project moving ahead.”

ConocoPhillips is the #1 producer of Alaskan Oil and has the most to lose if the pipeline project fails.

In other good news ExxonMobil has announced plans to supply Fairbanks with liquefied natural gas (LNG) . The LNG will be produced on the North Slope and transported by truck to Fairbanks.

Looks like North Slope Gas can be developed without the AGIA afterall. It's all about making progress.

Alaska Gas Pipeline Exxon LNG Point Thomson

The Alaska Gasline Inducement Act (AGIA) is creeping along at a glacial pace.

The Alaska Gasline Port Authority is still making it's case for an all Alaska gas pipeline and LNG port before lawmakers.

Meanwhile ExxonMobile will enter into court ordered talks with the State of Alaska to discuss development of natural gas resources in the Point Thomson unit.

This meeting will discuss plan number 23 or number 24. An indication of the State's ability to effectively negotiate an oil and gas production deal.

Lawyers, double digit plan numbers and meetings at the courthouse don't get projects built. Sound economics, good rates of return on investment, good engineering and hard work do.

LNG Project Too Risky for BG Group

BG Group deemed Alaska gas pipeline project too risky for bid


BG Group is the largest importer of liquefied natural gas (LNG) to the United States. This week David Keane, BG Group vice president for corporate and policy affairs explained why his firm did not submit a bid under the Alaska Gas Inducement Act.

In a nutshell the oil and gas business is a business. Keane gave several reasons but the chief reason was the uncertainty of the LNG selling price. LNG sells for a premium in Asia, and there is no guarantee the export licenses would be granted to export Alaskan LNG to Asia.

Without an export license qualified companies can't justify an Alaskan LNG project because they would not be free to ship Alaskan LNG to the highest bidder.

The current value of LNG ranges from $19/MMBTU in Japan to less than $8/MMBTU on the Gulf Coast. At the high end of the price range a Alaska Natural Gas Pipeline would almost build itself!

In retrospect the Alaska Gasline Inducement Act (AGIA) offer of a $500 Million inducement is was extremely naive. The can-do firms like ConocoPhillips, BG Group, and TransCanada don't want or need a big check. These are competent firms that know how to earn revenue. They have thier own list of "must haves" that the AGIA process managed to avoid.

All the discussion can be boiled down to economic certainty. $500 Million may sound like a whole lot of money, but it would evaporate if you engaged in the business of selling 4.5 Billion cubic feet per day of natural gas at a loss.

Will the Feds Bring Clarity to Alaska Gas Debate?

A year ago the Alaska Gas Inducement Act (AGIA) law passed with a wide margin of support.

Today critics of the AGIA are coming out of the woodwork. Halfway through the public comment period the process seems unlikely to produce a project as envisioned by the AGIA.

As this opportunity seems to slip from Alaskan Lawmakers hand what are the chances the the Feds may step in? And how?

Energy Secretary Spencer Abraham thinks the path is clear to build a pipeline but worries that the project cost will escalate.

Drue Pearce, The federal coordinator for the Alaska gas pipeline says the federal government could assume control of the project if Gov. Sarah Palin's AGIA process fails.

TransCanada is also lobbying the federal government. They are reacting to critics who label theTransCanada proposal "conditional", they call it "conceptual ideas".

At any rate the dialog and process is starting shift from Alaska back East to Washington.

More Calls to Reconsider All Alaska Gas Pipeline

This week former Alaskan Governor Walter Hickel sent a letter to current Governor Sarah Palin stressing the importance of reconsidering the all Alaska liquidfied natural gas (LNG) proposals.

The two all Alaska proposals include the Alaska Gasline Port Authority proposal, and the Sinopec ZPEB proposal.

Sinopec ZPEB carries so much political baggage it's hard to believe that Hickel is seriously suggesting that the State of Alaska give the Chinese firm another bite at the apple.

The Port Authority has already called for reconsideration in a January 10th letter.

Governor Sarah Palin has responded to Hickel and agrees that her team will evaluate the potential of a tidewater LNG project. From her frame of reference a tidewater LNG project would probably follow the AGIA process by exploring the vaguely worded TransCanada LNG option.

The TransCanada proposal includes wording indicating that TransCanada is willing to "consider offering gas treatment and transportation services from Prudhoe Bay to an LNG terminal should shippers commit sufficient volumes to support such services in the initial binding open season".

That's a lot of conditions one upon the other. But once again all roads lead back to the producers and sooner or later the State of Alaska will have to strike a deal that meets their investment rate of return criteria.

TransCanada Defends Proposal

TransCanada continues to provide explanations and clarifications as the Alaska Gas Inducement Act (AGIA) public comment period nears the halfway point.

This week TransCanada provided an official explanation concerning concerns of potential liabilities from a defunct partnership know as the Alaska Northwest Natural Gas Transportation Co., or ANNGTC.

The lengthy (121 page) response includes a copy of the ANNGTC partnership agreement. TransCanada contends that partners withdrew from the partnership and have no rights regarding the current TransCanada AGIA claim.

The ANNGTC partnership included MidAmerican Energy. MidAmerican decided against entering the AGIA process and a bitter MidAmerican CEO David Sokol wrote a strongly worded letter to Alaska Governor Sarah Palin explaining the decision.

For the sake of getting the gas pipeline built, let's hope the former partners don't rise from the grave to muddy the waters.