Political opposition won't force BP to rule out an "over-the-top" gas pipeline until it has "aggressively" explored all options, said Brian Frank, president of Gas and Power Canada, a BP Canada Energy subsidiary. He told a seminar of industry executives in Calgary that BP and its North Slope partners are "working to see what (the offshore link) means for netbacks in Alaska. It is premature to preclude any options at this point."
While conceding the technical and regulatory challenges posed by an "over-the-top" pipeline, Frank pointed out that Prudhoe Bay is only 375 miles from the Mackenzie Delta by a direct link under the Beaufort Sea, giving that option the advantage of connecting the North Slope and Delta basins with one line.
He said the Delta volumes are still below the level needed to support a stand-alone pipeline along the Mackenzie Valley, but proven reserves of about 6 trillion cubic feet are too large to reject as a key component of any Arctic supply equation.
Frank said BP estimates that new northern volumes would be economic at sustained prices of about $3 per thousand cubic feet and has no expectation that prices will remain at $5.
But the feasibility study by North Slope producers, BP, ExxonMobil and Phillips Petroleum, will determine whether there is an economic project. He insisted the final pipeline decision must be based on the long-term view of gas prices and market fundamentals. In BP's view, Arctic gas must be able to compete with residual fuel oil and other fuel sources in the overall North American market, he said.
Frank noted that "demand destruction," resulting from fuel switching or plant closures, cost the U.S. market about 8 billion cubic feet per day of lost gas sales last winter and about 3 billion cubic feet per day is not expected to return.
Although not a partner in the Northern Gas Producers Group, comprising Delta gas owners Imperial Oil, ExxonMobil Canada, Shell Canada and Gulf Canada, BP still holds about 1 million gross acres in the Delta and plans to conduct a multi-well drilling program in the next several years along with Chevron Canada and Burlington Resources Canada.
Frank also predicted Alberta will evolve into a major North American market and futures hub once northern gas arrives in the province. He said Alberta could then become a major supplier for gas liquids to an expanding domestic and continental chemicals industry.
BP is conducting further studies to determine a cost-effective means of handling and redistributing Arctic gas from Alberta and is open to pipeline competition, but will not allow additional gas to be blocked behind pipelines out of Alberta, Frank said.