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Providing coverage of Alaska and northern Canada's oil and gas industry
January 2008

Vol. 13, No. 3 Week of January 20, 2008

Good news for Alaska

Study expects 42% unused space in gas lines out of Alberta, B.C. by 2018

Gary Park

For Petroleum News

A natural gas pipeline from Alaska to Lower 48 markets holds the key to heading off a looming plight for the five export pipelines out of Western Canada, which could face 42 percent unused capacity by 2018, says a new study by the Canadian Energy Research Institute.

In a capacity outlook for Western Canada’s pipeline system, CERI suggests that using the spare capacity on both TransCanada and other export systems would require “significantly less contractual commitments” from shippers and offer toll savings compared with expansion of the Alliance pipeline from British Columbia to Chicago.

CERI said unused takeaway capacity out of Western Canada is currently 2.5 billion cubic feet per day or 83 percent utilization and could increase to 3.5 bcf per day or 74 percent utilization in 2012 and 6.9 bcf per day or 58 percent utilization in 2018.

The current export capacity from Alberta and British Columbia, to Canada, the U.S. Midcontinent, New England, Mid-Atlantic states and California and the Pacific Northwest is 14.98 bcf per day.

That includes 7.21 bcf per day on the TransCanada system, 2.77 bcf per day on Gas Transmission (owned by TransCanada), 2.18 bcf per day on the Foothills-Northern Border system (owned by TransCanada and ONEOK Partners), 1.63 bcf per day on the Alliance pipeline and 1.1 bcf per day on the Duke Gas system.

CERI said gas production in Western Canada “keeps going at near-record levels, despite operating at times like a rapidly quickening treadmill.

“And there’s plenty more to come down the pipe — from Canada’s Mackenzie-Beaufort basins, Alaska’s North Slope and Canada’s High Arctic.”

Oil sands expected to consume more natural gas

But the leading forecasters — CERI, the National Energy Board and Alberta’s Energy Conservation Board — agree there will be a significant increase in gas consumption in the Alberta oil sands, which CERI predicts could rise from 1 bcf per day to 6 bcf per day.

Coupled with a decline in conventional gas output, that would result in reduced deliveries to all Alberta export lines, except the Alliance system, the report said.

In addition, development of coalbed methane, LNG imports to Western Canada through Kitimat, British Columbia, and new deliveries from the Mackenzie Delta would add to supply availability, although these developments would be unlikely to reverse the declining trend, the researcher suggested.

Multiple markets for Alaska

CERI said shippers from Alaska would have access to multiple markets in North America, utilizing the existing infrastructure out of Alberta and beyond.

“It is difficult to quantify the value of access to multiple markets, but these connections would allow shippers to optimize floe direction, market deliveries, and, ultimately, product value,” CERI said.

Utilizing spare capacity on TransCanada’s Alberta system and associated export pipelines “would not only mean significantly less contractual commitments from the Alaska shippers, because of the minimal facility requirements, but would also offer the Alaskan shippers a 20-30 cent per thousand cubic toll saving compared with the Alliance expansion.”

The study said the same toll saving would be realized by current shippers from the Western Canada Sedimentary basin to eastern markets.

CERI estimated an Alaska Highway pipeline would cost C$14.5 billion for the Alaska section and C$16.4 billion for the Yukon-British Columbia portion.

Tariff estimated at $2.69 per mcf

The combined average transportation tariff for gas from Prudhoe Bay to Boundary Lake, Alberta, could be $2.69 per thousand cubic feet, assuming 4.5 bcf per day delivered to Boundary Lake.

The report estimated that carrying Alaska gas to Chicago on the Alliance pipeline would need C$2.6 billion for a connector pipe within Alberta and C$11 billion for incremental pipe and compression facilities along the entire system.

That would translate into a combined average transportation tariff from Boundary Lake to the Chicago area of US$1.61 per thousand cubic feet, CERI said.

In contrast, transporting Alaska gas to Chicago via TransCanada and Foothills-Northern Border pipelines could require C$1.8 billion for additional pipe and compression facilities, all of them in Alberta, resulting in a transportation tariff of C$1.30 per thousand cubic feet.

Peter Howard, CERI’s senior research director, told the Globe and Mail that “all things being equal, if the flows in the pipelines (from Western Canada) continue to decline then at some point in time it would be a concern for the pipeline companies and for the producers indirectly.”

Should the result be higher tolls that would further erode the economics of Western Canada’s costly gas industry, he said.






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