Report: Alaska pipeline too costly for now

12/23/2010 12:00 AM

12/23/2010 12:04 AM

JUNEAU, Alaska — Federal analysts believe it will not be economical to build a major natural gas pipeline in Alaska for at least 20 years, according to a recent report by the U.S. Energy Information Administration.

The study looks at domestic energy markets through 2035 and cites higher construction costs and lower natural gas wellhead prices, in 2009 terms, as making a line uneconomical during that time frame. The report represents what agency analyst Joe Benneche calls its "best guess at what a likely outcome is."

Two pipeline companies, Alberta, Canada-based Trans Canada Corp. and Denali-The Alaska Gas Pipeline, are pursuing proposals to bring gas from Alaska's prodigious North Slope to North American or overseas markets by about 2020. Cost estimates for the various options have ranged from $20 billion to $41 billion for a longer line that would extend into Canada.

TransCanada is working with ExxonMobil Corp. to advance a line and getting up to $500 million in support from the state to do so as part of then-Gov. Sarah Palin's signature Alaska Gasline Inducement Act. Denali is working with BP and ConocoPhillips.

Benneche said Wednesday that projections call for the average wellhead price in the Lower 48 to improve to the point where a project would make financial sense around 2033. Following construction, a line could be in service by 2036 or 2037, he said.

"It's not like we took it out" of the total energy picture, Benneche said.

For years, Alaskans have hoped for a pipeline as a way to help shore up revenues from declining oil production, create jobs and provide a more reliable source of energy. Gov. Sean Parnell has expressed optimism for a line's prospects, given that TransCanada and Denali are now negotiating with gas producers, seeking to secure shipping commitments.

It's widely believed that only one pipeline will be built, if one is developed at all. Officials have said they'll have to weigh factors such as long-term gas prices, supply forecasts and tax rates in the state in evaluating moving forward.

"The big decision is going to be up to the companies," said Larry Persily, the federal coordinator for Alaska natural gas pipeline projects.

He said the report doesn't worry, or surprise, him. For example, its projections do not include potential changes in federal law or to regulations governing, for example, shale gas that could drive gas demand and make Alaska gas more attractive, Persily said.

A TransCanada spokesman didn't immediately return a call Wednesday. A Denali spokesman was out of the office.

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