First Open Season Begins

By Dave Donaldson

TransCanada and Exxon-Mobil on Friday formally filed their request to take the Alaska Pipeline Project to possible shippers to bid for space on the state-licensed project to take North Slope natural gas to market.   Called the Open Season process, the application is under review by the Federal Energy Regulatory Commission, open for public comment and will be released to shippers in about ninety days.

The TransCanada and Exxon-Mobil partnership is proposing  two options for shippers to consider and bid on – a seventeen hundred mile, four-point-five Billion cubic foot per day line to Alberta which would increase the supply of gas to the lower-48 and Canadian markets.   Or an eight hundred mile,  three Billion cubic foot line to Valdez where it would be liquefied for shipment to North American or international markets.   Either route would have an anticipated operating date in 2020.

Paul Pike,  Exxon’s senior project manager says the cost of getting the line into service has escalated since Alaska began its current push for getting North Slope gas to market — last estimated at twenty six billion dollars.

Current  Cost estimates for the project are in the range of 32 to 42 Billion U-S dollars – those are ’09 dollars – for the North Slope to Alberta options,  And in the range of 20 to 26 Billion dollars for the Valdez option.

The lines are Options – and TransCanada Vice President Tony Palmer says the developers will chose which route they will take after they hear back from possible shippers during the open season.   However,  he says the construction of both lines is Not an option.

We’ve got a proposed volume of 4.5 bcf a day for the Alberta option and three bcf or Billion cubic feet a day for the Valdez  option.  Combined that would be seven and a half Billion cubic feet a day.  I will tell you, we honestly do not believe there’s that much initial gas to flow into this pipeline,  so it’s an either-or.  We don’t think there is sufficient gas to deliver seven and a half bcf a day on a sustained basis for the project.

Despite the higher construction costs,  the FERC request reduces the tariff that would be paid by some shippers.  Palmer and Pike say they are making offers to initial applicants that could save shippers five hundred million dollars a year … for twenty five years.  They also say that an increased federal loan guarantee – from eighteen Billion dollars to thirty Billion dollars – would substantially reduce tariffs by reducing financing costs.  That proposal is currently pending in Congress.

The Denali Pipeline – combining resources from Conoco-Phillips and British Petroleum – will make its first application to federal regulators in April,  and spokesman Dave McDowell says TransCanada’s Open Season won’t have any bearing on their offer.

Denali is moving forward outside of the AGIA framework.  We’ve got our own project proposal, and our team is real strong.  We’ve got a great team with some of the biggest, world-class engineering firms on board, and we’ve been working hard to develop a cost estimate for this project.  So I’m real confident that we’re going to have an attractive commercial offering for our potential customers.

Exxon’s Pike –in an opinion shared by McDowell – cautioned that there are issues that possible shippers will consider that are outside the control of the Project – a foreseeable state tax structure and access to resources will be determined by interaction between  the state and producers – not the pipeline company.

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