Significant change in market needed to save Alaska natural gas line: U.S. official at Platts Energy Podium

Source: Platts

The U.S. natural gas market is going to have to change dramatically for pipeline developers to salvage their plan to ship gas from Alaska to the Lower-48 states, a key federal official said today at the Platts Energy Podium.

"It is going to take a big turnaround in the market, no doubt about it," Larry Persily , federal coordinator of Alaska Natural Gas Transportation Projects, said at the newsmaker event in Washington, D.C.

TransCanada and ExxonMobil have been working with state and federal officials on plans to build a $40 billion , 48-inch-diameter pipeline from the North Slope to the Canadian border, where Canadian pipelines would carry gas to the Lower-48.

However, shale gas development has dampened U.S. demand for the gas, and North Slope producers BP, ConocoPhillips and ExxonMobil met with Alaska Governor Sean Parnell last week to discuss alternatives to the project, including a pipeline to a new liquefied natural gas (LNG) export project.

After the meeting, BP CEO Bob Dudley and ConocoPhillips CEO Jim Mulva said the LNG project seemed to be a better way to get the gas to market, casting growing doubts on the viability of the pipeline.

On Tuesday, Persily acknowledged that the pipeline's future hinges on the producers. "It is going to take concurrence of the three producers. They are the ones that control the vast majority of the leased acreage, the production coming out of there. They are the ones that are going to have to sign 20-year firm shipping commitments on the pipeline worth more than $100 billion ."

Persily said he thought the project had a 50-50 chance of being constructed by 2020. "I haven't given up on the project. ... What it would take is the companies believing the market is there at a sufficient price."

He also noted that there are key benefits to building the pipeline instead of the LNG project. The Alaska Natural Gas Pipeline Act provides federal loan guarantees for the pipeline, and $21 billion worth of guarantees are currently authorized, he said. The law also allows for accelerated depreciation for the pipeline and an enhanced oil recovery investment tax credit for the gas treatment plant, which together are worth more than $1 billion in tax savings, he added.

"All that applies if you build a pipeline to move gas to the Lower-48. If it is an exclusively export-only line, unless federal law is changed, you don't get those benefits," Persily said.

Meanwhile, the United States Deputy Interior Secretary David Hayes , also speaking at the Podium event, said the U.S. is working to give Shell an answer on the company's plans to drill several exploratory wells this summer in Alaska 's Beaufort and Chukchi Seas.

Hayes, who was appointed by President Obama to chair an interagency task force on Alaska energy development, said meetings at both a secretarial and staff level are being held regularly on Shell's plans.

"We are committed to give them a timely up or down," Hayes said.

The Interior Department has already given conditional approval to Shell's exploration plans for the Beaufort and Chukchi. But the company has yet to submit applications for individual permits to drill specific wells, Hayes said.

Hayes also said Interior will not budge on a condition that Shell end its drilling program about 38 days short of the time the company had requested. Hayes said the time was needed for the drilling of a relief well in the event of a blowout.

A recording of the Hayes-Persily session is available via podcast at this link: You may be asked to complete a one-time-only cost-free Platts website log-in if you haven't filled one out previously.

Sponsored by Platts, a leading global energy, petrochemicals and metals information provider, Platts Energy Podium provides an ongoing forum for prominent newsmakers and the press to address important energy and environmental issues.

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