Exploiting Alaska's North Slope natural gas reserves is feasible at a Henry Hub price of less than $3/MMbtu.
That's among the chief findings of an industry-sponsored study by Purvin & Gertz (P&G), Houston.
Most analysts currently project that US natural gas prices will average more than $5/MMbtu this year and probably next year, and many longer-range forecasts put the average at more than $3/MMbtu.
Generally, P&G found that ANS gas can be developed within a reasonable timeframe but that major challenges exist. The study, completed last fall but not made generally available until late last month, looked at key issues surrounding ANS gas development and explored and quantified various pipeline and nonpipeline market options for the gas. The analyst did not identify the study's sponsors.
Meanwhile, the National Governors Association, meeting in Washington, DC, late last month, approved a resolution supporting construction of a gas pipeline from Prudhoe Bay field along the route of the Trans-Alaska Pipeline System and the Alaska Highway.
Risks
Several factors contribute to the risks associated with the cost and timing of ANS gas development, P&G said. For example, multiple and overlapping jurisdictions are a major concern due to potential delays, costs, and uncertainty.
Political factors must also be factored into the equation, as evinced by Alaska's support of the TransAlaska-Alaska Highway pipeline route-even if there exists a shorter, more economic route to the continental gas grid, namely, across the Beaufort Sea and then along the Mackenzie River Valley in Canada's Northwest Territories, the analyst noted. "The main political drivers in Alaska are the jobs created from a construction boom, sizeable investment opportunities within the state, natural gas availability to local communities in central Alaska, more gas available for industrial development on Alaska's South Shore, as well as the fiscal impacts from development. Other jurisdictions have their own set of unique drivers."
The numerous stakeholder groups have different views on the various development options, and expectations of benefits are high, P&G said: "But all parties involved must remember that project developers can proceed only if development is economic. High location cost factors, market, and price risks, as well as project uncertainties and risks, are all challenges that need to be dealt with before financing and construction of projects proceed. The expectations of benefits must be kept reasonable in order not to destroy the economic viability of developing Alaska's North Slope natural gas resources."
Economic viability
Despite the many challenges, P&G believes that large-scale ANS gas development is plausible in a variety of scenarios for a market price of less than $3/MMbtu, in constant 2000 dollars, at an equivalent Henry Hub price.
The study also reaffirmed the analyst's assertion that natural gas from the Mackenzie Delta-Beaufort Sea region in Canada's far northern basins can be developed within a decade.
Development can be either synergistic or competitive between Mackenzie Delta and Prudhoe Bay gas, depending on the chosen pipeline route.
Governors' approval
The proposed pipeline route approved by the US governors would connect with other lines in Alberta to deliver gas to the Lower 48. It would be the largest private construction project ever undertaken in North America.
In December, the Western Governors Association passed a similar resolution. Alaska Gov. Tony Knowles sponsored both documents.
Knowles said, "This is the first national forum that is bipartisan and represents all 50 states, that is solidly behind not just the transportation of Alaska natural gas but selecting the route that's in the national interest. This is an important step forward and will answer questions about the broad base of support that we have, particularly in that it designated the Alaska Highway as the preferred route."
The governors also urged the federal government to endorse policies that increase the availability of North American natural gas at reasonable prices to residential, commercial, industrial, and electric generation consumers. WGA urged federal and state governments to permit access to their public-owned lands for natural gas exploration, production, or transmission, while protecting environmentally sensitive areas.
The Knowles resolution noted that Alaska's North Slope has the nation's largest single untapped supply of gas, with proven reserves of 35 tcf and estimated potential reserves of more than 100 tcf.
It noted that the US and Canada agreed in the 1970s to use the Alaska Highway route to move North Slope gas to the existing North American distribution system. Key rights of way and regulatory approvals for the project are still valid.
Knowles said, "Alaskans understand that if we are to meet the American market demand, where the need is the greatest and it is economically in our advantage, then the Alaska Highway is the right route. Construction of the Alaska Highway natural gas pipeline also opens other opportunities for the use of our gas, whether gas-to-liquids or liquefied natural gas. This pipeline does not oppose other alternatives, but in fact helps them."
The first meeting of Knowles's Gas Advisory Council, created to ensure that the state maximizes the benefits of a pipeline, occurred Mar. 1 in Anchorage (OGJ Online, Feb. 5, 2000).
