NATURAL GAS:

Focus turns to financing as energy giants release road map for pipeline 'mega-project'

A consortium of energy industry companies is moving forward with preliminary plans for an 800-mile natural gas pipeline in Alaska, despite estimates that the project's price tag could range from $45 billion to possibly more than $65 billion.

In a letter to Gov. Sean Parnell (R), executives from three oil companies and a Canadian pipeline firm emphasized that they need more favorable financial ground rules for producing energy in the state before they can build the expensive pipeline.

"[A] healthy, long-term oil business, underpinned by a competitive fiscal framework ... is required to monetize North Slope Gas resources," BP, ConocoPhillips, Exxon Mobil and TransCanada said in the letter.

"The producers look forward to working with the state to secure fiscal terms necessary to support the unprecedented commitments required for a project of this scope and magnitude."

Describing the pipeline as "a mega-project of unprecedented scale and challenge," the companies released a timeline and work plan for evaluating and building the project. But they warned that the schedule could be delayed by "fiscal terms, regulatory and permitting delays and legal challenges."

The letter comes at a time when Parnell and the energy industry have been pushing the state Legislature to slash the taxes that companies must pay when extracting oil from state lands.

The governor has proposed cutting the industry taxes by $2 billion a year. So far, however, that measure has been blocked by a bipartisan coalition of state senators who contend the dramatic revenue cuts would quickly deplete the state's budget surplus (EnergyWire, Sept. 20).

In response to the energy companies' promise to move forward with pipeline planning, Alaska Sen. Lisa Murkowski (R) called on state officials to back economic policies that encourage the companies to invest in the pipeline.

"While the producers have agreed on a roadmap, without economic terms to make such a huge undertaking feasible progress on a pipeline will quickly hit a roadblock," Murkowski said in a statement.

Parnell and Murkowski have been drumming up interest in Alaska's natural gas in trade missions to Japan and South Korea.

The energy companies' progress report to Parnell cements an agreement that the firms reached early this year to combine two competing natural-gas pipeline projects that were aimed at moving natural gas from Alaska's North Slope to the lower 48 states.

The current project focuses on piping the fuel to export terminals in south central Alaska for export to foreign markets. The companies are considering proposals to include five in-state gas "off-take points" to give state residents access to lower-priced natural gas.

In recent years, residents of Fairbanks and interior Alaska's small rural communities who rely on fuel oil to warm their homes have watched their winter heating bills soar as the price of oil climbed. They objected to the energy companies' original pipeline proposals that focused on shipping natural gas out of Alaska.

Sen. Mark Begich (D-Alaska) praised the companies for rallying behind the alternative project. He promised to "help prospects for a shorter line directly to a hub like Fairbanks, where it could then make its way to outside markets. The project is critical for Alaska and the future of natural gas."

In their letter to the governor, the companies said the pipeline is likely to use 1.7 million tons of steel and employ up to 15,000 people during construction. A permanent workforce of 1,000 people would be needed once the pipeline is in operation.

Alaska officials say the North Slope contains 35 trillion cubic feet of natural gas reserves, along with an estimated 200 trillion cubic feet of undiscovered, technically recoverable resources. Currently, companies that find natural gas while drilling for oil in the Prudhoe Bay region reinject the fuel into the ground because they have no way to bring it to market.

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