Pipeline companies defend need for Alaska's natural gas

TransCanada joins governor, competitor in confronting critics

Posted: Friday, June 19, 2009

Low natural gas prices don't pose a threat to a long-awaited Alaska natural gas pipeline, a top official with TransCanada Corp. said Thursday.

David J. Sheakley / Juneau Empire
David J. Sheakley / Juneau Empire

"That's the nature of the gas business - the price goes up and the price goes down," said Tony Palmer, vice president for Alaska development with the Alberta-based company, in a meeting with the Juneau Empire's editorial staff.

TransCanada knew when it began the process that natural gas prices fluctuate, Palmer said.

TransCanada is partnering with Alaska to develop a 1,700-mile, $30 billion pipeline to ship Alaska's natural gas to the U.S. Midwest. The pipeline effort's critics doubt its eventual chances of success, and question whether there is enough demand for the gas in the Lower 48.

Last week, the Wall Street Journal noted North America's current natural gas glut, which it said threatened the pipeline's viability.

"Among the most serious questions it faces is whether the Alaskan gas is even needed," it reported.

TransCanada is working together with Exxon Mobil Corp., one of the state's three big natural gas lease holders, on its pipeline, developed under the Alaska Gasline Inducement Act.

A competing pipeline, Denali, is being developed by BP PLC and ConocoPhillips Co., the other two big leaseholders.

Denali spokesman Dave MacDowell said despite today's low natural gas prices, his company also expects a pipeline to be viable.

"We wouldn't be doing what we're doing if we didn't believe there was a place for Alaska gas in the North American market," he said.

Denali spent $55 million developing the pipeline last year, and plans to spend 50 percent more this year, MacDowell said.

Gov. Sarah Palin, who championed the AGIA legislation that's apparently reinvigorated the pipeline effort, faced questions about demand for Alaska gas last week from CNN's Wolf Blitzer, who cited the questions raised by the Journal.

Given the long life of the project, Palin called the Journal's focus on the current price of the fuel "short-sighted," and deflected an assumption that market conditions would stay put.

"Demand for natural gas is increasing," she said. "In fact, by 2030 we'll probably see about a 40 percent increase in demand for natural gas."

This week, a top executive at Enbridge Inc., a Canadian pipeline competitor, publicly doubted that there would be enough demand for Alaska gas, given the pipeline's expense.

TransCanada's Palmer disputed the numbers behind the rival company's analysis. He said Enbridge said gas would have to sell for $5 per million BTU's to be profitable, but TransCanada predicts they can be profitable at $2.76, and expects higher prices in the future.

"I have seen no forecasts that the price of gas will be $3 in 2018," Palmer said.

Palmer said he expects construction of the pipeline to begin in 2014 and for it to enter service in 2018.

As of Thursday, the benchmark price of gas in the Lower 48 was $4.18, less than half the peak prices of a year ago.

"There's no question the price of gas today is very low," Palmer said.

As prices plummeted, gas exploration companies quit drilling for new reserves, Palmer said, meaning North America is consuming its gas reserves faster than it is being replaced. That's likely to drive up prices in the future, Palmer said.

• Contact reporter Pat Forgey at523-2250 or by e-mail at patrick.forgey@juneauempire.com.

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