Needs May be Overcoming Obstacles

Alaska and Inertia: Synonyms?

By DAVID BROWN
EXPLORER Correspondent

Pipelines remain an important factor in Alaska's energy future.
Source: From Hieb, 2003, West Virginia Geological Society

Photo courtesy of Joint Pipeline Office

If you enjoy slow-motion movies, keep an eye on oil and gas development in Alaska.

While there's plenty of action, the pace of progress seems glacial.

Here's the big news.

• A long-anticipated, 3,500-mile Alaska natural gas pipeline is finally inching toward reality.
• More lease acreage will become available in the National Petroleum Reserve-Alaska (NPR-A).
• Several new offshore areas will open for petroleum development, including parts of Bristol Bay and the Beaufort Sea.

If things go right, new gas resources from NPR-A and other North Slope areas will feed a major gas pipeline for Canadian and U.S. markets.

The timeframe for all of this? Years and years.

And years.

Prudhoe Pipeline

Alaska's state government has identified a gas pipeline from Prudhoe Bay as its number one economic initiative.

"It's a huge revenue boost for the state government, on the order of $400 million a year," said Mark Myers, director of Alaska's Department of Natural Resources Division of Oil and Gas.

Economics argue for a 48- to 52-inch line, because tariffs are more efficient with a large-diameter line and high throughput, Myers said.

"Initial designs would look at shipping 4-to-4.5 bcf a day, expandable to 5-to-6 bcf through compression," he noted.

Those plans took a leap forward in October when Congress passed a measure streamlining the regulatory approval process and providing loan guarantees for a new Alaskan pipeline.

In June, a unit of TransCanada Corp. asked Alaska to resume processing its right-of-way lease application for the proposed Alaska Natural Gas Transportation System, said Rhea DoBosh, communications manager for the Joint Pipeline Office (JPO) in Anchorage.

JPO is a consortium of six state agencies and six federal agencies sharing regulatory responsibility for oil and gas pipelines in Alaska, primarily the Trans-Alaska Pipeline System (TAPS).

The state held a public review process on the TransCanada application in November and December, preparing for a final determination in 2005, DoBosh said.

Current plans call for a pipeline "most-likely" route extending south from Prudhoe Bay to Fairbanks and Delta Junction, following the current TAPS path.

It then would parallel the Alaskan Highway east into Canada, linking with existing gas shipping infrastructure in Alberta.

DoBosh said the application review process involves only state lands right of way.

"That would leave a few miles of right of way left to the Canadian border," she noted -- most of it private or Alaskan native land.

Estimated cost of the pipeline project is $20 billion, with the first gas moving through the system in eight to 10 years.

Doubts and Delays

Plans for the Alaska gas line barely crawled forward in recent years, largely because of economic concerns.

TransCanada already has announced it may convey its Alaskan right-of-way leases to another corporation or partnership in the event of a favorable decision.

"What TransCanada would like to do is to build the Canadian portion, and they'd like to have a partner for the U.S. part," DoBosh noted. "We're looking at $20 billion. That's a lot."

Two key pieces of legislation, one state and one federal, pushed the pipeline plan into higher gear.

Alaska's legislature passed a Stranded Gas Development Act in 1998, to encourage a pipeline outlet for stranded North Slope gas.

The act lessened financial risks for a pipeline project by reducing and delaying tax and fee burdens.

In 2003, Alaska strengthened and extended the measure.

TransCanada then filed its renewed application under the stranded gas act.

Congress added enabling legislation for an Alaskan gas line to its 2005 military construction appropriations bill.

In addition to authorizing the pipeline, Congress expedited the federal study, review and permitting processes.

It also provided loan guarantees that should lower borrowing costs for pipeline backers. The guarantee on project loans could reach $18 billion, or 80 percent of the total capital costs.

Congress lit a rocket under the Federal Energy Regulatory Commission (FERC), which was given broad authority on environmental and access matters for the proposed line.

FERC now expects to issue a decision in February on requirements allowing gas shippers access to pipeline capacity.

Several other companies submitted proposals for their own pipeline development plans, including MidAmerican Energy Holdings Co., an affiliate of Warren Buffet's Berkshire Hathaway group, and a consortium of North Slope gas producers.

Some observers view these alternative proposals as placeholders in political maneuvering over pipeline rights and construction plans.

However, the Alaska Natural Gas Development Authority has its own plan for an all-Alaska LNG project, including a gas line from Prudhoe Bay to Valdez on existing TAPS right of way.

But it's unlikely that two gas pipelines will be built, if future North Slope natural gas production can't secure the economic future of one.

Wanted: Gas Production

In addition to 36 trillion cubic feet of known gas reserves, northern Alaska may offer more than 230 tcf of technically recoverable, conventional gas, Myers said.

"You can add into that one of the real sleepers on the North Slope -- gas hydrates," he said.

The Prudhoe Bay area alone might hold more than 100 tcf of hydrates, a projected 20 percent economically recoverable, according to Myers.

Add up all the numbers, and a gas pipeline could have a life of "100 years, if you believe a significant portion of the resource can be recovered," he said.

Known gas reserves at Prudhoe Bay and Point Thompson alone would not support the economics for a major gas line, and the ANWR area isn't seen as heavily gas-prone.

That's turned industry attention to NPR-A, the 23.5 million-acre petroleum reserve just inside Alaska's northwest corner.

According to the U.S. Energy Information Agency, NPR-A contains an estimated 40-85 tcf of technically recoverable, non-associated gas and another 7-17 tcf of recoverable associated gas.

In June, the Bureau of Land Management issued a draft amendment to its land use plans for 4.6 million acres in the northeast corner of NPR-A.

ConocoPhillips and Anadarko discovered a stratigraphic oil play in the Alpine Field near that area, and have extended it onto NPR-A acreage.

A decision on opening the additional acres to leasing should come early in 2005, said Susan Childs, BLM project lead for the northeast NPR-A amendment.

BLM also will prepare a use plan for the southern/Colville River area of NPR-A, with a final record of decision likely in three to four years, she said.

"It's a slow process, but we're moving forward. We have a multi-use mission, so we have a variety of issues to consider to protect the environment," Childs said.

Two records of decision issued by the Interior Department in 2004 brightened the future for NPR-A oil and gas development.

In January, it ruled that all BLM-managed lands in the 8.8 million-acre northwest section of NPR-A will be available for oil and gas leases, although development of 1.57 million environmentally sensitive acres will be deferred for 10 years.

In November, the department approved ConocoPhillips' plans to build production pads for five Alpine satellites.

Two are on NPR-A acreage, two on native corporation land and one on state land. ConocoPhillips said development drilling at the two NPR-A sites could begin in 2008, if it can obtain all permits and clearances, leading to the first commercial oil production from the petroleum reserve.

Approval for initial production from NPR-A represents a small but symbolically important step, said H. Sterling Burnett, a senior fellow at the National Center for Policy Analysis in Dallas.

"It's not a wildlife refuge," he said. "It's not a national park. It's been set aside for 80 years to drill for oil and gas."

Five oil companies bid $53.9 million for lease tracts covering 1.4 million acres of NPR-A's northwest section in June.

Seven conservation groups filed a lawsuit to challenge the lease sale, seeking further environmental studies and controls.

"At the present time, with energy prices where they are, with the profound effect energy has on our society, we should be opening up these areas," he added.