Regulators: Gas line delays may kill project

Buyers may opt for long-term deals from foreign suppliers

Posted: Tuesday, July 11, 2006

JUNEAU - Energy regulators on Monday released a report that said delays to an Alaska natural gas pipeline could cripple the project by forcing North American customers to make long-term deals to buy imported gas.

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Alaska holds 13 percent of North America's natural gas reserves and a pipeline could provide 5 percent of the United States' gas supply by 2025.

The market for the gas should be there: U.S. demand is expected to go up by 23 percent by that time, while production in the Lower 48 states is expected to increase only by 7 percent.

However, billions are now being spent on expanding the nation's capacity to receive the cheap liquefied natural gas imports expected to start flooding North America over the next few years.

And with the future uncertain for Alaska Gov. Frank Murkowski's pipeline deal with the three oil companies, the window for Alaska gas may be closing, the Federal Energy Regulatory Commission's report to Congress said.

"Gas buyers in the Lower 48 are more likely to enter into long-term LNG contracts if there is no substantial progress on building an Alaska pipeline," the report reads. "And, the longer an Alaskan pipeline is delayed, the more strength is gained by the proponents of LNG."

BP PLC, Exxon Mobil Corp. and ConocoPhillips estimate it will take 10 years for design, permitting and construction of an Alaska gas pipeline, putting the earliest operational date at 2016.

Federal permitting for the Alaska pipeline can't get started until the Legislature authorizes the deal Murkowski negotiated with the three oil giants that would own the pipeline along with the state.

State lawmakers from both political parties have said the governor's proposal for tax and royalty terms gives away too much to the oil companies, and Murkowski's opponents in this year's gubernatorial race have called on legislators to reject the deal.

Lawmakers return to Juneau on Wednesday to once again consider legislation that would legitimize the proposed contract and a related change to the state's oil and gas production tax structure. They did not pass either bill the last time they met in June.

Signing Murkowski's contract does not guarantee the pipeline will be built; the three companies can choose not to sanction the project for about four years after the contract is approved.

While there is uncertainty surrounding Alaska's gas, there is none about LNG's future. FERC has approved 11 new LNG terminals since 2003 and an expansion of another terminal. That would give the nation the capacity to receive 28.6 billion cubic feet of imported LNG each day.

Ten additional LNG sites have been proposed, along with expansions at three existing terminals, for an additional 16 billion cubic feet per day.

By comparison, Alaska's pipeline would pump about 4.5 billion cubic feet per day to Alberta, Canada, or Chicago.

But it won't happen if delays drive the project's costs up, federal regulators say. The cost of the pipeline project was estimated at $20 billion a couple of years ago; now estimates are high as $25 billion.

"Any further delays may serve to make the Alaska gas pipeline uneconomic in comparison to LNG imports," the report reads.

The FERC report is similar to the message U.S. Sen. Ted Stevens, R-Alaska, delivered to state lawmakers last week. Stevens told a Senate committee that the Legislature had to stop bickering and pass the legislation this year before LNG takes over the market completely.

FERC spokesman Bryan Lee said he knew of no contact between Stevens and FERC officials about the new report before Stevens' appearance in Anchorage last week.

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