Pipeline delays too costly, officials say

Speakers at oil, gas symposium stress need for urgency

Posted: Tuesday, September 19, 2006

ANCHORAGE - Proposed natural gas pipelines from Alaska's North Slope and Canada's MacKenzie Valley have been stymied by chronic setbacks and both projects risk missing a crucial window of time to materialize, officials said Monday.

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"The cost of delay on the two projects is huge," Brendan Bell, the Northwest Territories' minister of Industry, Tourism and Investment, told an audience in Anchorage. "There's an urgency. It's imperative that we get these projects moving and we take advantage of this window."

Bell was among the speakers kicking off the 2nd annual Alaska Oil & Gas Symposium. The two-day event is focusing on challenges facing the $25 billion North Slope pipeline and touching on the $7.5 billion MacKenzie pipeline in the Northwest Territories.

The MacKenzie line, in regulatory review, would pump 800 million to 1.8 billion cubic feet of natural gas a day. The North Slope pipeline - still in negotiations with producers - would provide up to 4.5 billion cubic feet a day to a gas hub in Alberta, Canada, continuing to U.S. Midwestern markets. That line could be expanded to carry as much as 6 billion cubic feet daily.

Officials Monday warned that further delays in the projects could mean paying higher prices for limited materials. The cost of steel, for example, has shot up 150 percent, according to Bell.

"And steel is 20 percent of the cost of pipeline," he said. "Over budget, behind schedule."

Instead of seeing the pipelines as competitors for steel and a tight labor force, proponents in each region should stand together against an expected flood of foreign liquefied natural gas from gas fields around the world, officials said.

"It's ridiculous to assume Canadians are obstacles to our project. They're not. They're our friends. We can be successful together," said Alaska Natural Resources Commissioner Mike Menge.

Sealing a deal for the Alaska pipeline is increasingly important as oil reserves diminish on aging fields in the North Slope, Menge said. That includes Prudhoe Bay, the nation's largest oil field, which is partially shut down because of corrosion problems.

But state legislators balked at a contract with Exxon Mobil Corp., BP and ConocoPhillips submitted by Gov. Frank Murkowski before he lost his re-election bid last month. Legislators, who have said the agreement was too favorable to the companies, twice rejected bills related to the contract.

Any gas pipeline effort would fail, Menge said, without a full alignment of interests and expectations based on economic reality.

"The proposal we put out on the table may not be the best proposal but the replacement proposal is going to have to compete with the same economic interests," he said. "Whatever ends up being the project will have succeeded because of the fact that it's economic."

Menge said he has little tolerance for "people who throw roadblocks" into the works.

"There are those who have suggested we attempt to force the oil companies to sell their gas, take them to court," he said. "I'm not sure that's the right way to go ... but it certainly does not create an alignment of interests."

The Alaska Gasline Port Authority, which proposes building a natural gas pipeline to Valdez, sued BP, Exxon Mobil and ConocoPhillips over their refusal to negotiate the sale of North Slope gas for its pipeline. A federal judge dismissed the claim this summer.

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