BP exec talks about pipeline

Companies still trying to come up with a workable project

Posted: Thursday, August 30, 2001

FAIRBANKS - Oil companies evaluating whether a natural gas pipeline should be built from the North Slope to the Lower 48 have not yet found a project that pencils out, a BP Exploration (Alaska) executive said this week.

"We're really at our peak period right now in terms of the studies," BP Vice President Ken Konrad told a Greater Fairbanks Chamber of Commerce audience Tuesday.

BP, Phillips Alaska and Exxon Mobil have been working on the proposal since December.

"A lot of studies are under way and very few are done," Konrad said.

The companies are the three major leaseholders of North Slope gas. They hope to have their studies completed by the end of the year and perhaps be able to start applying for pipeline permits in early 2002.

Konrad said crews are walking along the proposed routes. "They are looking for cultural resources, understanding river crossings and landowner issues," he said.

They are looking at the possibility of a line all the way to Chicago, he said. That means route issues as far away as Iowa and Illinois need to be considered.

The companies have pegged the estimated cost of a pipeline at between $15 billion and $20 billion.

Konrad noted that natural gas prices, which crested at an all-time high of $10.50 per million British thermal units in December due to low inventory and high demand, are now down to around $2.58, the Fairbanks Daily News-Miner reported.

"As we've seen in the past 18 months the laws of supply and demand cannot be repealed," Konrad said. "It's simply a reminder that we do need to have a cost-effective project."

Some analysts and executives have pegged a long-term $3 price as the bottom line at which a North Slope natural gas pipeline to the Lower 48 would be economic.

Ed Small, an analyst with the state-hired group Cambridge Energy Research Associates, said earlier this month that he expects to see a price recovery in the second half of 2002.

The current low prices should create both a drop in supply growth in the Lower 48 and an increase in demand, Small said.

Another factor in the evaluation of whether a project can work, Konrad said, is the companies' proposed federal legislation, which they say would provide needed regulatory certainties.

Some Alaska lawmakers worry the proposed legislation would grant an expedited permit process to any pipeline route, including the mostly Canadian "Over-the-Top" route that is widely condemned in Alaska.

They say the other pipeline route under consideration by the three companies - the Alaska Highway route - is already the subject of a streamlined process set out under a law from the 1970s.

The Legislative Joint Pipeline Committee is slated to meet in mid-September to fully consider the companies' proposed federal legislation.

Konrad said the draft bill is route-neutral because the companies are still studying both routes. "I think we need to do a better job of educating folks about what the legislation does and does not do," he said.

The "Over-the-Top" or northern pipeline route would ship the gas out of state while bypassing Interior Alaska.

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