Company: Alaska pipeline advancing despite economy

TransCanada official says project is moving forward as planned

Posted: Tuesday, January 27, 2009

Lawmakers worried about sinking prices for natural gas were told to take the long view when considering the economics of a pipeline tapping North Slope gas reserves.

TransCanada Corp. Vice President Tony Palmer, who is leading the company's effort to build a multibillion dollar Alaska gas pipeline, said the project is moving forward as planned despite the economic downturn that has depressed energy demand and prices.

"This project cannot swing with the wind of gas prices month by month. They need to look at what long term gas prices are, and is this project economic in those long term forecasts?," Palmer said following a presentation to the House Resources Committee on Monday.

Many forecasters believe gas prices are about bottomed out, Palmer said. Monday's price of $4.50 per million cubic feet is roughly a third of where prices were a year ago. Palmer said prices are more likely to average $6 or $7 per million cubic fee

Palmer said his company remains focused on factors that it can control: keeping construction and other costs down and staying on schedule, which will ultimately determine the cost of shipping the gas to market. If the cost of shipping remains under $3 per million cubic feet as planned and natural gas prices rise at least moderately, Palmer said producers and state government will do well.

On Friday, top energy analysts in Anchorage delivered a grim overview of gas markets to the Alaska Support Industry Alliance, representing industry interests.

They said the economic conditions are hammering industries that use natural gas, and that's driving demand and prices down.

Meanwhile they said competition could increase from development of other energy sources such as shale deposits and renewable energy in the Lower 48.

All those factors highlight the risk of investing in a pipeline that could cost more than $30 billion to build, they said.

Palmer said the gloomy forecasts are not impeding progress as the company moves forward to open season. That's when shippers will bid for space in the pipeline.

"We will have an open season in the summer of 2010 and I think at that time customers will look at gas prices not just at that time but forecast out to 2018 and beyond. That's what will drive their decisions," Palmer said.

The Calgary based TransCanada last year won an exclusive state license to build the gas line. It includes up to $500 million in state incentive money.

BP and ConocoPhillips are working on a competing proposal, called Denali. Lawmakers also planned to hear from Denali managers but the hearing was rescheduled after weather prevented them from landing in Juneau.

The pipeline would move 4.5 billion cubic feet of natural gas daily - or about 7 percent of the nation's daily demand. There are an estimated 35 trillion cubic feet of natural gas reserves on Alaska's North Slope.

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