Alaska Natural Gas Pipeline may be a reality in 2020

Natural gas from Alaska's North Slope may finally find its way through Alaska and Alberta Canada via a 1,700-2,000 mile long natural gas pipeline by the year 2020. if required, a 1,500-mile long pipeline from Alberta to Chicago would also be built. Like anything else of this magnitude there are pluses and minuses. I'd love to see that natural gas power our cars and fleet vehicles in the lower 48 and be used to produce electricity. However, I would hate to see some of it used to make a barrel of oil from Alberta's tar sands.

Right now, there are two competing proposals to build a pipeline to Alberta with costs ranging between $32 billion and $42 billion. The proposed pipelines would be the first to tie into natural gas fields on Alaska's North Slope. As you might expect, both U.S. and Canadian oil and natural gas giants are involved in these projects since the pipeline will run through Alaska, Canada and then the northern part of the U.S.:

Alaska Natural Gas Pipeline

Two proposals are being looked at: 

  • TransCanada and Exxon Mobil's Alaska Pipeline Project and 
  • ConocoPhillips and BP PLC's Denali Project 

These are competing proposals and only one will probably be built. That's because many wonder whether there will be enough North American demand to warrant both Arctic pipelines, especially with huge volumes of natural gas flowing from shale gas reservoirs in Canada and the lower 48 U.S. states.

The projects have been on the drawing board for many years. That's not surprising given the $32-42 billion price tag. Costs keep rising as time passes, Keep in mind that the neither the U.S. or Canadian governments are financing these projects. The proposals are strictly the domain of the private sector which is how natural gas pipelines are financed and built in the U.S. and Canada. To get an idea of the scale of this project, take a look at the facts and figures of proposed Denali Project. You will be overwhelmed by the scale of this project.

A lead time of 2020 may seem like a long to time to build this project. However, one of the proposals will traverse over 1,700 miles just to get gas to Alberta Canada. A second option may take gas to Valdez Alaska where it will be liquefied and then transferred to national and international markets. Personally I don't favor the Valdez option even though the distance to get the gas there is about one half of the Alberta Canada leg. That's because I dislike the idea of American natural gas being sold to Asia when we need it in North America. Currently there is a liquefaction natural gas plant in Valdez and liquefied natural gas is shipped to Japan.

If we build it will they come?
With this much money at stake it is not surprising that the sponsors of both projects are starting to look at how interested companies are in using the proposed pipelines. I call this the "If we build it will they come use it?", but energy specialists call this an "open season." The project sponsors will provide information about what they want to charge to transport gas via the pipeline. This is analogous to a toll on a highway, except ths highway is a 48 inch pipe. Potential natural gas shippers aka the companies getting the natural gas out of the ground will be allowed to state their interest in making long-term commitments to reserve capacity on the pipeline. Then Canadian and U.S. energy regulators will size up the projects and let people know what they think.

In the end, the open season will give both groups an idea of what proposal to build or whether to delay building indefinitely. I think everyone will probably pool their money and expertise to reduce the overall risk. That's because the shippers and the sponsors are one and the same. About 4.5 billion cubic feet of natural gas per day would flow under the Alberta option or 3 billion cubic feet per day under the Valdez option if the project is built.

As I said earlier, the energy regulators in the U.S. and Canada will not be actually building the project. However they will approve what companies will pay to transport them natural gas using the pipeline and also issue the construction permits. The latter allows the pipeline sponsor the right to take property using the right of eminent domain in State Courts. This is done in highway projects also so there's nothing new here.

The companies also assume the risk of putting up the money and not realizing a return on their investment. It will take years to recoup a $32 billion - $42 billion investment. During that time, natural gas from the the North Slope will compete with natural gas from the Rocky Mountains and Gulf of Mexico.

The State of Alaska will also see some benefits besides additional jobs and taxes. Both options are expected to provide opportunities for Alaska communities to acquire natural gas from the pipeline from a number of off-take connections. Wow! Now that's a novel idea. Too bad that people who are trying to build interstate power lines can't provide similar benefits to States along the powerline route.