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Issues: Jobs, steel, taxes, TransCanada AGIA license won’t stop Denali gas pipeline, BP and Conoco tell Anchorage chamber; Canada, steel, taxes all need to be worked Kristen Nelson Petroleum News
What about Exxon? What about TransCanada? What about Point Thomson gas? You’ve overcharged to ship on the oil pipeline, why would we want you to own the gas pipeline? What about taxes on the gas? What about steel?
And when will you be taking applications for jobs and contracting?
That’s a sample of questions Angus Walker of BP and Brian Wenzel of ConocoPhillips got from a full house at the Anchorage Chamber of Commerce April 28 following an overview the two gave of Denali — The Alaska Gas Pipeline. BP and ConocoPhillips announced April 8 that they would partner on a pipeline to take Alaska North Slope natural gas to market. This was an opportunity for the Anchorage business community to get questions about the project answered, and most of the presentation, following a short overview, was focused on questions and answers.
On the pre-open season money issue, Walker, BP Exploration (Alaska)’s senior vice president, gas and midstream, said the companies have been asked why they plan to spend $600 million in the next 36 months to reach an open season. He said the answer is, “that’s how much money we think it will take to do the job properly.”
The entire project, Walker said, includes gas transmission lines on the North Slope; the gas treatment plant to remove and reinject carbon dioxide, some 12.4 percent of North South gas; the large-diameter high-pressure pipeline from the North Slope to Alberta; and, if necessary, a line to Chicago, although it may be possible to use existing pipelines.
Wenzel, ConocoPhillips Alaska’s vice president of ANS gas development, said the $30 million set aside for job training, in-state gas needs studies and an infrastructure upgrade needs study is necessary because those items are “foundational” and work on them needs to get started.
Both companies have a long history of Alaska hire, train, buy and build, and that won’t change, Wenzel said. Training needs to get started sooner rather than later so that in addition to training, folks will be able to get out and get experience before they are needed for the Denali pipeline project.
The in-state need study is required for the Federal Energy Regulatory Commission process, Wenzel said, and will help facilitate gas for shipment for in-state use.
Infrastructure upgrades will be needed to move freight. Wenzel said there are numerous areas along some of the highways where the road needs to be straightened or widened. There are some 18 bridges that need to be strengthened or replaced, he said, and a number of areas where the companies want to increase the pipe-handling capabilities of ports to handle the big joints of pipe that the project will require.
Exxon, Point Thomson Asked if the project could succeed without the participation of ExxonMobil, Walker said ExxonMobil has been invited to participate, but that BP and ConocoPhillips will move forward by themselves. As for state participation: “We’ve always recognized in the past that there are advantages to state participation in a project of this nature,” he said, and are open to having that discussion with the state.
Can an open season be successful without Point Thomson gas?
Walker said Point Thomson is about 25 percent of known North Slope resources. “It’s clearly a vital part of any pipeline and therefore with the Point Thomson leases being in question it causes us great concern as we move forward to open season.” He said that without clear title to the Point Thomson gas that gas can’t be committed in an open season, “therefore it puts at risk the open season itself.”
Asked about the value of TransCanada’s data and are there negotiations with TransCanada, Wenzel said TransCanada is focused on the process under the Canadian Northern Pipeline Act while Denali will move forward under the Canadian National Energy Board regulatory process. Wenzel said the NEB process is the preferred regulatory process today.
He said the companies are not in negotiations with TransCanada, but are interested in participation by other parties including TransCanada if they can resolve some of the other issues associated with their application.
As for the special session of the Alaska Legislature the governor has called for June — at which an Alaska Gasline Inducement Act license for TransCanada might be up for approval, if the administration recommends awarding an AGIA contract — Walker said BP and ConocoPhillips have committed to move Denali forward “regardless of whether … an AGIA license is awarded; whether it’s awarded or not we will move forward with this project.”
Gas pipeline vs. oil pipeline There was a pointed question about tariffs: Since the Alaska Supreme Court has found the trans-Alaska oil pipeline owners overcharged the state’s shippers to ship oil through the producer-owned oil pipeline, why should Alaskans be in favor of the producers owning the gas line, the two were asked.
Walker said gas pipelines are regulated by FERC, so the tariff “will be subject to the regulation of one of the most senior regulatory bodies in the United States.” He said that should give everybody who’s proposing to ship comfort.
Wenzel said for companies like ConocoPhillips and BP with upstream rights, there is an advantage to aligning the interests of the pipeline builder with the pipeline shipper. Companies that ship gas, he said, “are going to pay for the cost of the pipeline. … It’s actually the shippers who have aligned interests with all of us here in Alaska in terms of keeping the cost of that pipeline as low as possible,” he said, because “the lower that cost to build pipeline the higher value of this gas you receive … in Alaska.”
When will new hires occur? The companies have said they expect to have 150 employees at Denali by the end of the year.
Where will those employees come from — how many will be new hires and how many reassignments from BP and ConocoPhillips, the two were asked.
Wenzel said initial staff will be seconded from BP and ConocoPhillips to staff management level positions. Initially those employees will be seconded from BP and ConocoPhillips in Alaska, but Denali will “also go around the world to find expertise,” he said.
However, as numbers climb to the maximum 10,000 during construction, more and more will be hired from outside the companies.
And as for opportunities for young people, Walker said all skills will be required. “It is such a large massive engineering, construction project that I don’t think there’s anybody on this planet that’s got a particular skill that wouldn’t find it somewhere on this project.”
Will there be competition for workers with the Alberta oil sands projects?
Wenzel said the hope is that Denali will be able to use labor from some of those Canadian projects “if we can’t find the resources we need in Alaska.” But it’s impossible to predict the schedules of all those large projects, he said, and “clearly if they’re on top of each other it’s going to be a real resource drain — but if by chance they work out such that we can actually utilize some of their workers in addition to all the ones we can train here,” that would be a plus, he said.
As for contacting Denali for employment or contact opportunities, Walker said Denali will publicize that information as soon as the team is mobilized and the company is set up. He said they are “committed to make sure people know what opportunities are out there.”
Taxes and fiscal issues; what about steel Asked what a fair tax system would be, and if taxes would have to be locked in and for how long, Wenzel said ConocoPhillips and BP are “involved as pipeline developers” and that role has to be separated from that of “gas extraction right holder.”
He said there are issues outstanding, and both companies — and others — have said it’s important that the tax system for gas be clear and predictable. “We don’t feel we’re there today,” Wenzel said.
The difference today, he said, is that the companies are “going to work those issues in parallel” with putting people on the ground.
Walker noted that fiscal issues “have been much debated in the past.” He said the companies hope that moving the project forward “will take some of the pressure off and actually allow the right people to sit down at the right time and work this one out.”
The project will require 5 million to 6 million tons of steel, Walker said, about 30 percent of the supply of high-grade steel the world can manufacture over a three-year period. Buying that much steel is going to require “a fair amount of strategic thinking,” he said, adding that probably “one of the very early pieces of work that Denali LLC needs to do is working with the steel mills, the manufacturers around the country and the world and establish how can that quantity and quality of steel be sourced in the right way.”
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