Oil giants make push for pipeline in Congress
Published Monday, April 21, 2008
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Stumble It!WASHINGTON — The North Slope’s two biggest oil producers were on Capitol Hill last week pushing their plan to build a $30 billion pipeline to carry Alaska natural gas to markets in the energy-hungry Lower 48.
Doug Suttles, president of BP Alaska, and Jim Bowles, chief executive of ConocoPhillips’ Alaska operations, met with members of Alaska’s congressional delegation Thursday, following meetings the day before with the Federal Energy Regulatory Commission.
Suttles said the Denali Pipeline, as the project has been named by the partners, has been well received by lawmakers and federal officials, who see in it partial relief for the rising energy costs afflicting the nation.
The pipeline would deliver 4 billion cubic feet of gas per day to the Lower 48 market, or about 8 percent of the nation’s daily demand.
“I don’t usually use this word, but I’m excited,” Sen. Ted Stevens, R-Alaska, said. “This is going to put an impetus on the pipeline to make this a project that everyone will be talking about by the end of the year.”
ConocoPhillips and BP say they have the experience and capital necessary to kick-start the pipeline, which has for three decades been one of Alaska’s dearest economic development dreams.
State officials, who are considering a competing proposal by pipeline giant TransCanada, welcomed the ConocoPhillips-BP announcement but said more information was needed to properly evaluate the proposal.
“There are a number of details that are as yet unknown that will ultimately determine whether this is good for the state or not,” said Marty Rutherford, deputy commissioner of the Department of Natural Resources.
Alaskans will be able to see firsthand the commitment on the part of BP and ConocoPhillips as initial design and cost-estimate work on the project gets under way this summer, Suttles said.
Previous negotiations on the pipeline have broken down over the need for fiscal concessions from the state, which the companies maintain are necessary to get shareholders to approve investing the tens of billions of dollars the project will ultimately cost.
Bowles said the difference between where the companies were last year and where they are today comes down to the issue of how much they should pay the state in taxes and royalties for commercializing the gas.
“What ConocoPhillips submitted last year was a proposal (for) ... some discussions we had hoped to enter into with the state on a fiscal framework,” he said. “What we’re doing today is entirely different — the project’s started and we’re actually doing pre-steps to an open season.”
Gov. Sarah Palin’s administration has said it is willing to consider fiscal changes, but only after the companies provide more detailed cost estimates.
“What we’re doing today is moving out on the project without any type of requirement from the state,” Bowles said. “We will come back at some point in the future, as the governor has suggested, and see if we can have a discussion on fiscal framework. But it will be after we have better data on the pipeline.”
In 2001, the pipeline was estimated to cost about $20 billion. Bowles said that number is closer to $30 billion today.
Despite the administration’s tough stance, Bowles and Suttles said they understand Palin’s reasons for pushing for greater competition in the pipeline process.
“The governor’s process has clearly kept a spotlight on it and her,” Suttles said. “She’s clearly committed to doing this, and so are we and a lot of people.”
Investing in the pipeline
Under the ConocoPhillips-BP plan, the companies would stretch a 48-inch diameter pipeline from Prudhoe Bay to Alberta, Canada. From Alberta, the gas would be shipped through existing pipelines to Lower 48 consumers or, if necessary, a new pipeline to Chicago could be constructed.
The pipeline would follow the existing trans-Alaska oil pipeline corridor from the North Slope to Fairbanks, where it would split off alongside the Alaska Highway to Alberta.
ConocoPhillips and BP have promised to spend $600 million during the next two summers to get the project to open season — when gas producers have the opportunity to bid on capacity in the pipeline.
The companies say they will begin field work on the Alaska side of the border and meet with aboriginal groups and other stakeholders in Canada this summer to scope out potential stumbling blocks.
The Tanana Chiefs Conference has already received a contract to conduct right-of-way studies on its land around Fairbanks.
The partners also plan to begin hiring staff for their Anchorage headquarters.
Sen. Lisa Murkowski, R-Alaska, said she left her meeting with Suttles and Bowles “feeling good about the future of the state.”
“This is more than talk,” she said. “There are real things that are happening on the ground that should give the people of Alaska hope for the future of the state.”
The state stands to earn billions of dollars from taxes and royalties on gas production once the pipeline is completed. The project would also inject thousands of construction jobs into the state economy at a time when the nation as a whole is suffering a downturn brought on by the mortgage crisis.
“We’re looking now at certainty that we’re going into a period of real development,” Stevens said. “I think that changes the dynamic of the Alaska economy.”
ConocoPhillips and BP expect it will take three years to reach open season. Assuming enough gas is committed to the pipeline, the next step would be to apply for certification from U.S. and Canadian regulators, a process that is expected to take an additional two years.
At the moment, Bowles and Suttles have their bosses’ approval to each spend $300 million on the project. Before construction can begin, though, they will have to get the OK of each company’s board of directors — a bridge they plan to cross once they’ve received certificates from FERC and Canada’s National Energy Board.
“At that point, you actually have permission to build the line and you can go to sanction,” Suttles said. “You know you have customers — shippers that will bring gas to it — and then you move to construction when a massive amount of money is spent.”
Gas would flow down the pipeline beginning in 2018 if the project stays on its current timeline, Bowles said.
Filing the pipe
ConocoPhillips and BP combined hold rights to about two-thirds of the 35 trillion cubic feet of proven gas reserves on the North Slope. The companies say, like other potential shippers, they will commit their gas to the pipeline once it’s shown to be economical.
“Obviously, we have a lot of confidence we’re going to get there or we wouldn’t be spending $600 million, but we need to go through that step,” Suttles said. “We have to create a schedule, we have to create a cost estimate and convert that to a tariff.”
FERC will determine the tariff based on the cost of the pipeline and the amount of gas it transports and other factors. More gas means lower shipping fees, which will benefit the state and explorers with gas to get to market but no ownership in the pipeline.
The owners of the pipeline also stand to benefit from lower tariffs. However, since they would essentially be paying themselves, some administration officials question whether they would seek the lowest possible shipping rates in an attempt to discourage competition on the North Slope.
“FERC has some really clear (antitrust) rules about how you have to separate your shipper role and your pipeline role,” Suttles said. “I don’t anticipate that will be a problem.”
The companies likely are basing their tariff estimates on 35 Tcf of gas shipped over a 20 year depreciation schedule, though the cost of building the line could be recouped over a longer period.
“I think the 35 Tcf we have now is enough to get this project moving,” Suttles said. “Ideally, over the life of this project, there will be more gas coming. But there’s enough gas to fill the pipeline for the first 20 years.”
Federal geologists estimate the North Slope contains as much as 200 Tcf of as yet undiscovered gas.
“Our challenge right now is to do the proper work, give people confidence at open season that this is going to be a good project and that there’s a tariff which will generate a good return for gas owners,” Suttles said.
Circling tiger
Exxon Mobil remains the biggest question mark surrounding the ConocoPhillips-BP proposal.
The partners believe they have the financial wherewithal and experience to build the pipeline without Exxon, but they still need the world’s largest energy company to commit its gas — a full one-third of the North Slope’s proven reserves — in the line.
“We’d like Exxon to join the project, but it’s not required. If they chose that it’s not the right thing for them to be in the pipe, that’s fine,” Suttles said. “We have the experience, we have the knowledge, we have the fiscal capability ... to do this.”
Bowles agreed that Exxon’s absence would no hinder the project in the early stages.
“While it’s important that we secure them as a shipper in the future, it’s not absolutely necessary that they’re in the pipeline project going forward,” Bowles said.
Even if Exxon doesn’t join the project, BP and ConocoPhillips still need to reach an agreement with the Irvin, Texas-based major on producing gas from the fields — Prudhoe Bay and Point Thomson — where they are co-owners.
“The practicality of having a successful off-take would be greatly enhanced if we had all of the owners aligned on how that gas off-take occurred into a pipeline,” Bowles said.
Point Thomson
The Point Thomson field presents its own unique challenge. Its 9 Tcf of proven gas reserves are crucial to a successful pipeline project.
However, the state is in the process of deciding whether to disband the 106,200-acre field and revoke the underlying leases held by Exxon, BP, ConocoPhillips and others for failure to develop. A decision from the Department of Natural Resources is expected by June.
“The Point Thomson gas is critical to this project,” Bowles said. “We have to know before we get to open season who owns that gas. It’s doubtful the project could move without that gas.”
Contact Washington correspondent R.A. Dillon at dcnews@newsminer.com.
Community Discussion
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Support the bullet line first - Alaskan's First! Read Wally Hickel's Sunday ADN Op-Ed
It's interesting that when an Alaskan opinion begins to coalesce to support something for our own good - here come the big-boys to create an alternative to divide us.
We need to take care of Alaska first if we can. In any case we must ensure we have our domestic energy needs satisfied. If we neglect this, we'll continue to be a colony controlled by outside interests.
Can you imagine a stable, industry in our state? Folks telling us it will never happen only serves to make us think this is so.
Our state has just about all the resources we need to become a self-sustaining region. The price of energy won't go down, but we can sure make certain, that Alaska's costs are comparably reasonable. If we had our own instate supply of gas (wet liquids included) we could make products for domestic and export as Agrium has done for us on the Kenai Peninsula. We can continue to export a value added product, but it will be a product that we gave value to and from which our economy benefits.
Sending these valuable gas liquids to Alberta (I think they're great folks) may be a huge mistake. We'd be using our petroleum to make more petrochemicals. Not an efficient use of energy. Alberta needs to figure out how to recover their petroleum in a environmentally sound manner - they're not there yet.
Alaska needs a mixed energy portfolio. We could be developing and using our hydro, wind, wave, tidal and geothermal resources - then exporting our value added oil byproducts. The problem is this state lacks a vision of what our energy future is. The legislature and governor have thus far been negligent in getting an energy policy board instituted to help plan and foster our energy future.
There are private sector entities which are preparing to develop our renewable resources and we need to help guide them to maximize the benefits to Alaska. Southeast Alaska's renewables are being eyed by a renewable hungry North American market.
Our tidal, wind, wave and geothermal resources are huge and forces are moving to harvest them. BC Canada is planning to extend its electric grid to near Southeast, where it can interconnect with our Southeast towns. (Hyder is already connected, but isolated from Southeast by Wilderness Areas). When this happens then Katie bar the door!
We can't maximize benefits to Alaska if we're uninformed and attempting to play catch up when power developers arrive. We must be proactive to ensure we benefit from the coming energy boom. Our state must have an ongoing policy on energy development. Our legislators need a kick in the butt to get moving on mapping energy policy.
Joe Vogler was right...
...the BigDipper should have had a more strongly worded constitution, or it should have remained a territiory.
Territorial ^^^ is right on the bullseye.
Alaskans will be able to build our own independent statewide gasline network if we build an ethylene plant in Fairbanks pronto.
http://community.adn.com/adn/node/121779...
...don't just build a pipeline, build a miracle!
I think that Governor Palin is on the right track to make sure that Alaskans are taken of first before we export our wealth away again. We can't just export our gas without first taking care of people who are paying so much for their heating fuel, gasoline, diesel, aviation fuel, and propane. We need to demand that Senator Stevens, Murkowski, and Congressman Yound push for our Alaska needs before we send all of our natural gas resources somewhere else.
We need to build our own pipeline. We have enough Royalty Gas to push down OUR gas pipeline and GUARANTEE that we get gas to our communities across the state.
We have to stop thinking that we have to "export" all of our renewable and non-renewable resources before we add value to them. We send our salmon to Japan and China for value added processing, our timber, our minerals and most or our oil and gas are sent away also.
Alaska, wake up! We are being used as a raw material resource base to be exploited just like a subservient colony. That has to stop.
We must insist on our in-state use of our natural gas BEFORE we export it to Canada or anywhere else. If we don't take care of ourselves first, no on else will.
Don't you just love how the Big 3 oil companies refer to themselves as "owners" of AK's gas..
Territorial: You are correct that ALASKA has energy resources that everyone else wants. ALASKA GAS FOR ALASKA FIRST.
ConocoPhillips and BP understand that the Point Thomson gas leases MUST be developed or risk forfeiture back to the State. EXXON has not accepted this requirement to retain their leaseholder interest in the Point Thomson gas. In the high stakes poker game, TEXAS HOLD'EM it is time to "ANTE-UP or FOLD'EM".
ALASKA needs a quick resolution to the problem of tenant or tenants that will not abide by the terms and conditions of their lease agreements and contracts. Notice should be promptly served on EXXON to vacate the Point Thompson lease holdings. Then Alaska should advertise for a NEW tenant or tenants of the known gas field that will play by the rules of the game. "SHUFFLE THE DECK THE PLAYER IS OUT."
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This is all to circumvent the AGIA process...the timing proves it. Otherwise, why not 2-months ago or 2-months from now? No, it is quite clear to me that these are tactical maneuvers to circumvent the AGIA process.
Yay for sarah and tom irwin. Looks like losing the leases at point thompson, combined with competition from AGIA+ transcanada lit a fire under BP and conocophilips. Exxon doesn't want a pipeline because it will compete with their overseas gas interests.
for all you people that are so negative against the oil companies, why dont you push for all of them to leave the state. Last time i check the taxes from the oil companies only paid for 80+% of our state government income. Lets go ahead and kick them out and get a canadien company to run it. They dont pay any taxes in canada.(ha)
Ask the contractors in alaska who they would rather work for BP and Conocophillips or the company fron Canada.
Smell the roses people. We as residents of Alaska need to realize whoever bulds the pipeline, it will have no effect on the prices of any petroleum related commodity in the state of alaska. What company is going to do the best for the citizens of Alaska.
I hope our Government makes the right choice.
NO DEALS till after the 2008 ELECTION, that's when the playing field will be leveled, I hope. Political obligations or the appearance them will be at a minimum if the voters turn out like I know they will.
Patrick 2 - BP is a British company. Conoco is also a foreign company (Texas). Any contractor that has worked for either of those would much prefer any other alternative.
Yes, indeed we should let more time elapse by going down the AGIA path so we're even farther away from a gasline being constructed. Why do people believe that AGIA is sacrosanct? Do you realize that the Legislature could call themselves into special session and re-write AGIA? I'm not suggesting they will, but they could. Do you understand that the Legislature can not alter the TransCanada proposal in any way? Even if 98% is great, they are not allowed even 2%. If they were to choose to reject it, it would be like turning the clock back 6 months to a year.
Why is it not preferrable to have another option on the table? It seems like people's blind hatred for the oil companies clouds their judgement.
HeathEdward: You may construing the ALASKAN "attentive observation" for "blind hatred". The oil industry plays an important part of Alaska's economics. It is the constant pushing the bounds of tolerance by individual corporations or a particular industry association based on their corporate profits, with little regard to the needs of ALASKA, that gives rise to the confrontational atmosphere.
More than sufficient time has laps to fulfill contractual agreements regarding the north slope gas.
How many times has the State of Alaska been in litigation with the Major Oil Companies for over-charging down stream customers? How many times has Alaska had to seek judicial relief for the fair value of ALASKA'S oil? How long has ALASKANS been denied fair compensation for the EXXON Valdez disaster?
GOOD Corporate behavior and citizenship deserves recognition. BAD conduct deserves retribution. The choice is up to the individual, companies and corporations on how they will act. It is up to ALASKA to see if they will be part of the exciting future that is front of ALASKA.
Sounds like the game we all played as kids. "Dad said no, so lets go talk to mom". The state shut them down, so now they're trying to charm the feds.
Since we're essentially talking about trillions of dollars over the long haul, I guess we should expect this whole thing to get pretty messy. The big oil companies are not going to let this go easily. They can also drive up the cost of petroleum more by dragging it all out as much as they can. Kind of ironic, considering they created this whole crunch-rush for a natural gas line by raping us over the oil barrels to begin with.
Big Mike, i actually have contracted with both and had nothing but positive experiences. My point is that it seems a lot of people think the price of crude oil related commodities will lower if BP, Conoco, Exxon, etc are not in the playing field. This will not happen. I don't know the answer, but i am quite certain that having an outside company build a pipeline to transport gas owned by the big oil companies will not go well.
patrick2- I don't know get this concept that big oil owns our gas.
Territorial is a well informed individual, and for once I see more agreement on the issues than some previous editorial comments.
I agree that Alaska's needs need to be recognized first. I agree that this proposal was submitted timely, if not to undermine AGIA.
It was stated that the cost of a pipe 5 years ago would have been 20 billion, and just 5 years later at 30. AGIA, and other pressure (like losing rights to fields) tactics like these have hopefully promoted imminent action.
It is apparent to me that there are better informed individuals than I.
The input I could add is that does anybody remember "Flour-Northwest".
As a young adult I worked for a drilling company who basically paralleled the existing pipeline for its length, taking soil samples and tracking the route of the "so called gas-line" with all of the geological data required for the (then) proposed route. This was around 1980. The bridge at the Yukon River was designed for 4 pipelines.
I guess my personal suggestion is just to keep the pressure up, and avoid another 30 years of indecision.
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