Which Pipeline Project is Best

Politicians make comments every day about which gas line is the right one to ensure Alaska’s future. They throw their support for one project over another based on what they believe will bring the greatest value to the state in the short term and the long term. Some may actually hold positions because they believe it is what the people want to hear, and holding that position may actually help to get them elected or reelected. Some have more experience than others in dealing with oil and gas issues and with gas pipeline issues specifically, but none of them have spent their careers focused on those issues.

The pipeline builders and the shippers, on the other hand, have spent their entire careers on oil and gas issues and have substantial experience in modeling the economics of various pipeline scenarios and in building gas pipelines. They don’t waste their time debating the politicians about which proposal is best. They are not engaged in a popularity vote, and they are not attempting to get reelected. They are focused on what they currently believe is the most economic way to bring North Slope gas to market. Sometimes different companies with differing asset bases come to different conclusions about the best way to bring North Slope gas to market.

The Alaska Pipeline Project, is proposed by TransCanada and ExxonMobil. Denali, the Alaska Gas Pipeline, is proposed by ConocoPhillips and BP. Both projects propose to transport gas from the North Slope of Alaska to Alberta, Canada with the potential of eventually transporting gas throughout North America. In addition the Alaska Pipeline Project proposes an alternative that would transport gas from the North Slope of Alaska to Valdez where it will be liquefied and potentially transported to markets in North America and the rest of the world.

Both projects will propose open seasons this summer. Both will provide tariff terms they hope will entice shippers to bid on their pipeline project. Both open seasons will help the pipeline companies and the state understand what the shippers currently believe is the most economic way to transport their gas to market. The conditional nature of these bids may also give the state perspective on what the shippers believe is required to make the project economic.

Eventually the three major producers will have to reconcile their differences for a project of this magnitude to move forward. Once the three majors reconcile their differences, TransCanada will be added to the equation if TransCanada can show they can bring added value to the table. What is noticeably absent from this discussion is AGIA. It can be considered an impediment to the above discussion, but it brings nothing to the table to assist the producers in reconciling their differences.

One thing AGIA may bring to the table is the ability to continue to move the project forward while the producers negotiate with each other. The state’s $500 million will be used by the Alaska Pipeline Project to continue to perform the tasks necessary to obtain a FERC certificate. In essence this gives TransCanada some additional clout in negotiating ownership and operatorship with the producers. By bringing TransCanada into the project they may increase the timing of completion of the project slightly or at least prevent additional delay.

So where does that put the state. For now the only thing the state can do is wait and watch. I still believe that a fair tax and fiscal stability are two of the issues that will eventually need to be addressed, but the open season will help all of us understand the perspective of the shippers.

I could suggest that we all need to keep our powder dry for a while. But this is an election year, and politicians and the public will need to argue the merits of the various proposals. It may help to get some elected over others, but it won’t change the outcome or success of the Alaska Natural Gas Pipeline.