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Alaska Gas Pipeline Are we there yet?

Alaska Gas Pipeline Are we there yet?. Larry Persily, Federal Coordinator – PNWER, July 17, 2010. We’re getting closer. Major North Slope producers and TransCanada have spent more than $400 million since 2001 Open seasons to judge shippers’ interest close July 30 and October 4

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Alaska Gas Pipeline Are we there yet?

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  1. Alaska Gas PipelineAre we there yet? Larry Persily, Federal Coordinator – PNWER, July 17, 2010

  2. We’re getting closer • Major North Slope producers and TransCanada have spent more than $400 million since 2001 • Open seasons to judge shippers’ interest close July 30 and October 4 • Could know results early 2011 • Meanwhile, Alaskans are getting more impatient • Alaska gubernatorial election Nov. 2 injects politics • And BP’s problems add to uncertainty

  3. Why so impatient? • Oil and gas discovered at Prudhoe Bay (1968) • Oil started to flow (1977) • Multiple gas lines failed due to costs, risks, politics • 1977 law banned producer equity (later reversed) • State and federal laws ban over-the-top pipeline route • Bouncing between LNG and pipe for 30 years • North Slope oil production down to one-third of peak • Alaskans want a local (cheap) gas supply

  4. Why so risky? • Construction overruns on $35 billion Arctic project • Steel prices, work delays, weather, lawsuits • Market price for natural gas • Low margins after high transportation costs • Competing gas supplies, such as shale • Uncertain state tax structure • Second-guessing by state utility commissions on long-term gas supply contracts

  5. There is progress • TransCanada/Exxon open season closes July 30 • ConocoPhillips/BP open season closes Oct. 4 • First time ever to test market for Alaska gas • TransCanada/Exxon includes LNG option • There will be conditions on the bids • Just like an earnest money offer on a house • Bids are confidential until precedent agreements • Agreements could come late 2010, early 2011

  6. Project schedules • Alaska Pipeline Project (TransCanada/ExxonMobil) • File with FERC fall 2012 to start environmental statement • FERC certificate summer 2014 • Start construction spring 2016; first gas fall 2020 • Denali (ConocoPhillips/BP) • File with FERC fall 2013 to start environmental statement • FERC certificate summer 2015 • Start construction spring 2016; first gas summer 2020 • Company timelines; nothing required by law • State license requires TC/ExxonMobil to file at FERC 2012

  7. Natural gas market • Pipeline to North America would feed into the largest natural gas market in the world • North America consumes 75 to 80 bcf per day • North America gas market three times the size of China, India, Japan, South Korea and Taiwan gas markets combined • But demand growth essential for Alaska project • Utilities need to love gas for power generation

  8. What would help • Fuel switching from coal to gas-fired generation • Growth in electrical power is the key • CERA: Power load 19 bcf/d 2009 to 35 bcf/d in 2030 • Even just replacing older coal plants would help • Promoting natural gas as transportation fuel • Congress: CO2; cap-and-trade; climate change • Shale actually could help by eliminating price spikes and getting utilities to think gas for long term

  9. The dreaded shale • Shale gas production 10% of U.S. supply last year • Growing across U.S. and Canada • Close to markets; easy to raise and lower production • Costs are coming down; drilling efficiencies • But water quality concerns (hydraulic fracturing) • EPA review under way; possible U.S. legislation • Shale gas will have its problems

  10. LNG a tough option • Competition from Papua New Guinea, Australia, Indonesia, Russia’s Sakhalin, Malaysia, West African nations, Qatar, Oman, Yemen • New projects totaling 16 bcf/d between 2009-15 • No shortage of Pacific options at tide water; no need for 800 miles of Arctic pipe • China looking to its own shale gas • China has pipeline options from Russia, Turkmenistan

  11. Role of federal coordinator • Coordinate federal permitting process so that it works for the project developer and the public • Ensure that no federal agency imposes unreasonable permit requirements on project • Provide information and assist project developer and the public during permitting, construction • Coordinate with state agencies • Coordinate with Canadian government agencies

  12. It’s not easy, but it’s possible • Open seasons will test market demand for gas • Shippers sign up and take on development risk • Long term, North America needs to burn more gas • Producers need to gamble on demand and price • At some point everyone needs to sit down and talk • Gas line to North America possible if right things happen and all parties willing to contribute

  13. Contact information: Larry Persily, Federal Coordinator - (202) 478-9755 lpersily@arcticgas.gov www.arcticgas.gov info@arcticgas.gov Thank you OFC Washington, DC OFC Anchorage, Alaska 1717 H St. NW, Suite 801 188 W. Northern Lights Blvd., Suite 600 Washington, DC 20006 Anchorage, AK 99503 (202) 478-9750 (907) 271-5209

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