Alaskan Pipeline May Not Be In Service Till 2010

A natural gas pipeline from Alaska to U.S. markets is not likely to be in service until the end of this decade, according to Dick Oliver, head of upstream operations for BP.

The pipeline, which could carry up to 4 billion cubic feet per day from the Prudhoe Bay field to Alberta, faces several obstacles, experts say. Natural gas prices are low, the cost of building the pipeline is enormous and the line would have to run about 2,100 miles. "We're not going to have a gas line until the end of the decade or thereabouts," Oliver said at a meeting with analysts in New York.

"It might be in 2008, but it's perfectly likely in 2009 and it could be in 2010," he added. Alaska producers BP, Phillips Petroleum Co. and Exxon Mobil are studying a $15 billion to $17 billion plan to ship their gas along the Alaska Highway through the state and Yukon and into Alberta.

At prices in the middle of the normal boom-and-bust natural gas price cycle, the pipeline "is not a very good project at all," said BP Group Chief Executive John Browne.

A competing project that would ship up to 1 billion cubic feet a day south from the Mackenzie Delta reserves has jumped to an early lead and could be in service by 2007 or 2008.

In January, Imperial Oil Ltd., Shell Canada Ltd., Conoco Inc. and ExxonMobil started work on applications for the Mackenzie Valley Pipeline. The C$4 billion proposal has the support of most aboriginal groups along the route. They would have one-third ownership.

BP and its partners have emphasized repeatedly that costs and regulatory hurdles must be reduced if their project is to ever materialize. "It probably does need something from the government to reduce the risk of what is a very large project even for companies the scale of BP", Browne said. He said relief measures could include changing depreciation rules, tax credits or establishing guaranteed floor prices for the natural gas traveling through the line. "It's unlikely that we're going to ask for fiscal relief, but I hope that one day we might be offered it," he said.

Alaska Gov. Tony Knowles unveiled last week a proposal to slice $1 billion off the pipeline cost by using tax-free bonds issued by state-owned Alaska Railroad under an obscure federal law.

The Prudhoe Bay field contains 35 trillion cubic feet of proven gas. The distance from markets and the lack of a system to transport the gas has kept it stranded for decades on the North Slope. Oil producers use the gas primarily to enhance oil recovery from aging fields.

As a byproduct of oil production, the companies pump up about 8 billion cubic feet of natural gas daily - equivalent, BP and Phillips officials have said, to national consumption in Canada, Japan or Great Britain. The producers re-inject the gas into oil reservoirs to build pressure there.

With natural gas demand projected to increase significantly in the United States in the future, producers are eager to profit from the enormous gas reserves of Alaska. But BP is not willing to build the pipeline at any cost. "It must be built to produce returns that do not degrade the average returns of BP," Browne said.