Oil producers propose building pipeline

Governor receives proposal to bring natural gas to Lower 48

Posted: Friday, December 17, 2004

ANCHORAGE - Alaska's three largest North Slope oil producers are proposing to build a pipeline to bring North America's largest natural gas reserves to the Lower 48.

ExxonMobil Corp., ConocoPhillips and BP own Alaska's natural gas.

Gov. Frank Murkowski said Thursday he received a joint proposal Wednesday from the companies after months of sometimes intense negotiations.

"For the first time ever, the producers have made a proposal to build a natural gas pipeline," the governor said. "We finally have a concrete proposal from the producers who hold the gas leases."

The project is a top priority, said BP and ConocoPhillips. ExxonMobil did not immediately return a call for comment.

"We have provided the state with a comprehensive fiscal proposal for the Alaska gas pipeline project," said Dave MacDowell, BP's Alaska gas spokesman. "Our goal is to reach agreement with the state so a fiscal contract can be approved, ratified by the legislature during the upcoming session and signed into law by the governor."

ConocoPhillips spokeswoman Dawn Patience also said the project is key.

"We are encouraged by the progress in our negotiations," Patience said. "We hope the legislature will help us move forward."

Murkowski said the proposal covers the entire project, estimated to cost $20 billion.

The North Slope has an estimated 35 trillion cubic feet of known gas resources, and perhaps 100 to 200 trillion cubic feet yet to be found. North Slope producers currently reinject the natural gas that comes with oil production back into the ground where it can be recovered.

The pipeline would extend from the North Slope to Fairbanks, and southeast to Alberta, Canada. From there, it would go to the Chicago area.

It could deliver an estimated 412 billion cubic feet of natural gas a day for decades to North American markets, MacDowell said.

"Alaska gas represents one of the largest undeveloped resources in BP's portfolio. We are keen to get that gas to market," he said.

The North Slope producers' proposal contains a provision sought by the state - ownership in the pipeline.

"State ownership of part of the pipeline is a consideration in the proposal," Murkowski said.

MacDowell said BP is supportive of the idea.

"We are actively discussing state equity ownership in the pipeline itself," he said.

While refusing to disclose details, the governor was clearly excited by what he saw in the proposal.

"This is the foundation under which we are going to build a gas pipeline. It is not a conversation piece anymore. It will happen," Murkowski said.

The proposal does not prevent the state from negotiating with other interested parties.

BP, ConocoPhillips and ExxonMobil spent $125 million on a joint feasibility study in 2001-2002. It concluded that the economic risks were too great to the companies.

The project, however, gained fresh momentum when Congress promised loan guarantees for 80 percent of the pipeline's cost, and also gave developers other tax breaks as well as promises of less burdensome permitting requirements.

In order to move forward into the $1 billion permitting phase, certain things must be in place, including an efficient and clear regulatory process with the federal government and Canada, and a clear fiscal contract with the state, MacDowell said.

"We are in the midst of a fiscal contract negotiation with the state of Alaska as we speak," he said.

MacDowell said the companies also are looking at technology to reduce project costs. Under consideration is the use of high-strength steel, more powerful trenching equipment and automatic welding.

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