OTTAWA (Dow Jones), Apr. 9, 2010
BP and ConocoPhillips' Denali Alaska gas pipeline project said Wednesday that the cost to build a natural gas pipeline from Alaska's North Slope into Canada would be $35 billion.
The cost estimate removes some of the uncertainty about the viability of the project, which is competing head to head with another pipeline project by Exxon Mobil Corp. and TransCanada Corp. Denali also is striving to be competitive amid an oversupply of natural gas in North America.
Denali's $35 billion estimate compares with an estimate between $32 billion and $41 billion for the Exxon and TransCanada's rival project. Both projects are 1,700-mile pipelines initially created to carry up to 4.5 billion cubic feet of gas per day from the Alaskan frontier into Canada's pipeline system. From there, much of gas would be shipped south in the U.S.
"It's clear there's only going to be one project off the North Slope of this scale and size," Denali President Bud Fackrell said during a press conference Wednesday. "You're going to need all the major producers involved in that project, because they hold the leases for the gas. Obviously you're going to need the state of Alaska involved in that project as well."
Fackrell said Denali's owners were open to taking on additional partners, but they couldn't join with TransCanada and Exxon because they agreed to be bound by the state's Alaska Gasline Inducement Act (AGIA), which BP and ConocoPhillips oppose. AGIA gives $500 million in matching funding for any gas pipeline if it meets a production schedule. Under AGIA, the Alaskan government also reserves the right to regulate taxes on the producers. The Denali owners wanted an agreement to freeze tax rates for the producers for several decades.
In a subsequent press conference, Alaska Governor Sean Parnell said the two projects were moving closer together, despite the companies' comments.
"They're posturing. It's negotiating," Parnell said.
Speaking about the pipeline companies' "open seasons," where gas producers are solicited for future contracts, Parnell said, "For the first time we've got an open season on Alaska gas ... and now we have two open seasons that are overlapping."
"To me, that's positive progress," he said for an eventual pipeline.
Parnell said the state could reach a financial and tax agreement with the companies after they had come to terms on a single project.
Denali plans to run its open season to sign up shippers between July and early October. Exxon and TransCanada's pipeline begins its open season in May.
Both projects are years away from completion; Denali said it expects to begin construction, which would take several years, by 2016, and TransCanada said its project could begin shipping gas by 2020.
Both companies are also considering options for a shorter pipeline that would move the gas to a liquefied natural gas terminal in the port city of Valdez, Alaska -- if producers preferred that over an overland route.
Copyright (c) 2010 Dow Jones & Company, Inc.
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