JUNEAU, Alaska — A massive plan to move natural gas from Alaska’s North Slope to North American markets will cost an estimated $35 billion, according to its planners, setting the stage for a high-stakes showdown with a competing pipeline project.
Details of the Denali project, a joint effort of ConocoPhillips and BP PLC, were released today in a filing with the Federal Energy Regulatory Commission.
Denali proposes a pipeline stretching more than 1,700 miles, with delivery points along the way to help meet gas needs in Alaska and Canada. It bills the project as “one of the largest private investments in the history of North America.”
Denali is competing with a proposal being advanced by Calgary, Alberta-based TransCanada Corp., and Exxon Mobil Corp., of Irving, Texas. That project, which has been promised up to $500 million from the state for eligible costs, has estimated its cost at $20 billion to $41 billion, depending on the route, with an option crossing Alaska and into Canada estimated at $32 billion to $41 billion.
TransCanada plans to begin courting gas producers and seeking shipping commitments as early as May 1 as part of what’s called an open season. Today’s filing by Denali sets up expected back-to-back open seasons, with Denali hoping to hold its own as early as July.
Both projects aim to be in service by 2020, with plans to deliver about 4.5 billion cubic feet of gas per day to North American markets via larger lines to Canada.
Which one will prove to be the more viable? Will either?
“No one is going to build two pipelines,” said Larry Persily, the federal coordinator for Alaska Natural Gas Transportation Projects. The question then becomes who gets on board with which project, and what will be needed to make a project more economical.
It’s already widely anticipated that bids made in the open season process will be conditioned, with companies wanting to negotiate with the state on long-range tax and royalty terms.
Earlier this year, Tony Palmer, TransCanada’s vice president of Alaska Development, said he believed the most effective way to move his project ahead was by forming an alliance with the state, Exxon Mobil, Britain’s BP and Houston-based ConocoPhillips, the North Slope’s current major players.
Denali, which is moving ahead without the state support TransCanada’s plan is getting, notes the risks involved. It’s seeking leeway to consider other options — a scaled-down project, an entirely different project, such as a line to a liquefied natural gas facility, or allowances to drum up additional support for the original — if it doesn’t get commitments for at least 85 percent of the line’s capacity at open season.
For years, a natural gas pipeline has been billed as a way for Alaska to shore up royalty revenues, since projections call for a continued decline in North Slope oil production. While oil’s still king here, estimates have put proven reserves of gas on the North Slope at 35 trillion cubic feet.
Debate has focused on how best to capitalize on that resource, but in recent months that debate’s also been colored by skepticism among some lawmakers, wondering if the idea of a mainline to North America is an idea past its prime, with other gas plays ahead of Alaska’s, and whether there will be sufficient demand beyond the next decade to make a major project succeed for all involved.
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