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Gas prices, availability, now and then Alaska Oil & Gas Congress hears pessimistic, optimistic views on future for Arctic gas; told it can’t be highest-priced commodity Kristen Nelson Petroleum News
Natural gas prices are low and supply is plentiful. What does that mean for a proposed Alaska gas pipeline which could begin shipping gas in 2018?
The 5th Annual Alaska Oil & Gas Congress, held in Anchorage in mid-September, provided perspectives from a number of speakers on the future of a North-Slope-to-market gas pipeline.
Tom Irwin, commissioner of the Alaska Department of Natural Resources, said he hears from naysayers that the price of natural gas is too low.
But that is the price now — we’re not selling the gas now, he said.
Gas will go to market in 2018 and markets fluctuate, he said, referring to an Energy Information Administration report indicating that EIA expects there will be room in the market for Alaska gas when it arrives.
He was one of several speakers to note that while there is a lot of shale gas there are also water quality issues in the western United States that could impede shale gas production, which requires use of fresh water.
Fiscal issues Irwin referred to calls to deal with fiscal certainty issues now — to make revisions in the state’s tax on natural gas in the 2010 legislative session. He said that would be giving away the state’s value before the facts are known, facts which will come out in the first open season for a gas line scheduled to end in July 2010.
To those who say the gas should be shipped out of the state as liquefied natural gas, not on a pipeline to the Lower 48, Irwin said the Alaska Gasline Inducement Act allows for an LNG option, and TransCanada, which won the AGIA license, is designing for both routes.
“The market will decide,” Irwin said.
He also responded to calls for Alaska gas for Alaskans now, because of the length of time the main line would take, saying the size of this project takes time and the project must be designed right.
We’ve never been this close to getting Alaska’s gas to market, Irwin said, with major companies — TransCanada and ExxonMobil on the AGIA project and BP and ConocoPhillips on the Denali project — spending real dollars. It is real progress, he said, and Alaska, as a responsible resource owner, is also spending Alaska’s dollars to make the project happen.
Get it moving Gerry Goobie, managing consultant with Purvin & Gertz, an energy consulting firm, said the world is not going to wait for Arctic gas. To be successful, he said, the project needs to get moving, because consumers are not concerned about Arctic gas, but about where they are going to get the next cheap molecule of gas.
Because gas is a commodity, cheap is the issue for gas molecules, he said.
Goobie said it was important to keep costs down in a gas project because natural gas is a commodity.
“You don’t want to be the high-cost producer in a commodity market.”
On the economy, Goobie said Purvin & Gertz thinks the world will get back to long-term supply and demand over the next couple of years, but he said energy markets are getting conflicting messages right now and that makes long-term forecasting very difficult.
There is too much gas available and prices are too low to support drilling, but the low prices will spur demand, he said.
The collapse of drilling in the past year will impact prices going forward.
Goobie said recent supply growth has come from shale gas development, with conventional gas production appearing to be in structural decline which high drilling rates in recent years failed to overcome.
He called the potential for shale gas enormous but also said major resources are needed to fracture the shale gas wells, which he said are expensive to drill, but will produce for a long time.
While there are cost and environmental issues, Goobie said much shale gas is right under population areas so it doesn’t have to be moved thousands of miles.
Feasible but uncertain “Arctic gas is technically feasible but economically uncertain,” Goobie said, and alternative sources of supply are large and could capture the market if there is a delay in developing Arctic gas pipelines.
Competition between different energy supplies will be fierce, he said, and if Arctic gas is going to compete, the cost must be controlled.
He said the Mackenzie and Alaska pipeline projects continue to slip, and called Alaska LNG difficult but possible. He said he doesn’t personally believe LNG from Alaska is the best economic solution, but said it is perhaps the quickest and most practical solution.
But, he asked, where would you sell Alaska LNG? And don’t expect East Asian prices — which have been high for LNG — to be sustained, he warned.
The regulatory angle Drue Pearce, federal coordinator, Alaska Natural Gas Transportation Projects, called Alaska’s natural gas the “it fuel” of today’s global economy.
She said that as she meets with members of Congress and leaders in the Obama administration she continues to be asked “what can we do to help?” Her response, she said, is that they need to make sure that legislation they pass does no harm to the project.
Pearce said the Office of the Federal Coordinator is in the process of developing a prototype geospatial information system along a 20-mile stretch of the proposed pipeline route at Atigun Pass and recently conducted a Light Detection and Ranging shoot along the pass. A prototype should be done in November and if that is successful a LiDAR system will be proposed for the 750-mile pipeline route from Prudhoe Bay to the Canadian border.
The system would provide the most consistent source of information and mapping for the project, she said.
“Using LiDAR technology to create a base map, the GIS will offer a range of existing documents, studies and research from private sector and government sources to create a Web-based data source that can be used not only by federal and state agencies involved in permitting the gas pipeline but also the public.”
Agencies now use different sets of data and systems to study the pipeline route and those data sets are not compatible, she said. The GIS-based system would remove inconsistencies and provide agencies use of the same GIS-referenced baseline data on faults, landslide hazards, wetlands and river crossings.
Pearce emphasized infrastructure requirements for pipeline construction noting that the Federal Energy Regulatory Commission’s latest report to Congress said it would be imperative to have infrastructure in place to stage manpower and materials for construction. Four to six years will be required to complete the work needed prior to construction, some $2 billion in projects, and the Alaska Legislature will have to fund those projects before they can be built.
“Every day, week, month, year that we wait to build the infrastructure adds major costs to the project and could eventually delay it,” Pearce said.
Merged cultures Mark Myers, the state’s AGIA coordinator, said the TransCanada-ExxonMobil project was moving forward in a very positive way.
Noting that he’d seen cultural issues between companies in his work in the private sector, Myers said he was “very impressed” with how the cultures of TransCanada and ExxonMobil have come together since ExxonMobil joined TransCanada in the Alaska gas line project in June.
It is a complex project with lots of complex issues, Myers said. The upcoming open season is a vehicle for commercial negotiations and he said: “It’s highly likely that open season bids will be conditional.”
Information which will come from the open season includes volume commitments and terms, as well as gas composition, he said.
On the issue of competition from shale gas, Myers noted that while shale gas is an important resource, it has a surface impact and since shale gas basins occur in areas of population growth where other people want to use surface resources there will be issues with surface impact of shale gas development. He was one of several speakers to note that western water use issues will also be an issue with shale gas development.
All resources have challenges, Myers said.
He characterized shale gas wells as labor intensive because they require fracturing and re-drilling because of steep production declines.
AGIA equals state participation Kevin Banks, director of Alaska’s Division of Oil and Gas, said the state has stepped up to provide energy to the nation and it is now up to the federal government to contribute.
He said the lack of a coherent federal energy policy has led to increased dependency on foreign sources of oil and an emphasis on cheap energy instead of conservation.
While U.S. crude oil production is declining, the gas resource is going to be a different story, with the import of gas a different game than the import of oil.
Banks said he hopes Congress will make intelligent decisions.
He characterized Alaska’s undiscovered conventional, nonconventional and hydrate gas resources as “staggering.”
While the Lower 48 has substantial shale gas, “not all shale gas is created equal,” Banks said. It will be a very important source of supply, but only the best shale gas has been developed and there will be constraints created by non-energy issues.
He said Myers had noted the surface-use conflict for shale gas development and said water is also an issue, with discussions in various conferences and in the environmental press about taking on energy development at the local level through conservation commissions and planning commissions.
With new federal legislation on climate control in the works, Banks said the state sees the potential of an uneven playing field in proposed legislation, which favors imported products because only embedded carbon dioxide is charged, not CO2 from products manufactured offshore.
The exploration and production effect could be felt at the wellhead as well as at the refinery, he said, and one ironic outcome could be penalization of an Alaska gas pipeline — moving clean natural gas — which could have to purchase allowances for compressors needed to move the gas.
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