Paula Dittrick
Senior Staff Writer
HOUSTON, Feb. 7 -- Further delay of the proposed Alaska gas pipeline to the Lower 48 could hurt project economics, the US Federal Energy Regulatory Commission said in a Feb. 1 report to Congress.
The report noted that prices of the types of steel to be used in the pipeline have nearly doubled since the project cost was estimated at $20 billion.
"If negotiations are not concluded soon, there is a chance that there will be insufficient time to conduct the required studies and field surveys in 2006," FERC said.
Two of three North Slope producers involved in the project, ExxonMobil Corp. and BP PLC, are negotiating fiscal terms with the state of Alaska. ConocoPhillips reached an agreement with Alaska last year (OGJ, Nov. 7, 2005, Newsletter).
BP and ExxonMobil told Oil & Gas Journal that a clear, durable fiscal contract with the state of Alaska is critical to the project.
"Without such an agreement, the risks associated with this massive project would be too great to attract necessary financing," BP said. "Hence, we continue to study cost-reduction opportunities, including the use of high-strength steel, automated welding, and other technologies."
ExxonMobil said: "This is a very complex arrangement involving the state taking an ownership position. It is important to get the right contract that will allow this massive project to progress successfully. The negotiations are well advanced on this complex agreement."
BP added that the pipeline project requires "thoughtful, prudent planning." It said, "It is widely recognized that schedule-driven or deadline-driven megaprojects often result in massive cost overruns. This would not be in the interest of Alaska, consumers, or the industry."
ConocoPhillips declined to comment on the FERC report.
The proposed gas pipeline would run more than 3,000 miles through western Canada to the US Midwest and carry 4 bcfd of gas from the North Slope.
In the 2005 Military Construction Appropriations Act, Congress provided an expedited regulatory review process for a pipeline to bring about 35 tcf of stranded Alaskan North Slope gas to market.
The 35 tcf is the latest US Geological Survey estimate of gas reserves in the central North Slope. The USGS estimates 37 tcf of undiscovered gas in the same area. All would be accessible to the proposed pipeline route (OGJ, Aug. 22, 2005, p. 20).
Contact Paula Dittrick at [email protected].
