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Consultant says Arctic gas faces a long road ahead
Gary Park For Petroleum News
Battling higher construction costs, a drawn-out regulatory process and accelerating development of liquefied natural gas are all extending the timeline for tapping into Arctic gas in North America, according to an energy consultant.
While not ruling out the prospects of gas pipelines from the Arctic, Gerry Goobie, a principal with Purvin & Gertz, told a Calgary pipeline conference the Alaska and Mackenzie Delta projects have been delayed.
“But they will come on,” once they can overcome fierce competition, he said.
“Hugely capital-intensive projects are very difficult,” Goobie said. “We’ve seen that in the oil sands, with various upgrader and mining projects … and the same problem will be there for Arctic gas.”
Apart from the capital cost and regulatory problems, he said Arctic gas will have to compete with domestic North American gas and what Purvin & Gertz expects will be a “significant amount of LNG coming to North America to meet even slow growth in U.S. gas demand.”
Asian markets are already well-supplied with liquefied natural gas, meaning the anticipated surplus supply will be chasing new markets, including North America, Goobie said.
Technically feasible He described Arctic gas development as technically feasible, but “economically uncertain and much, much too expensive,” opening the way for LNG to displace the Arctic as the largest source of incremental supply, he said.
Goobie said there is no reason for North American customers to show any favoritism to Arctic gas, or any other form of domestic supply.
He said consumers in the U.S. Northeast “don’t care whether gas is coming from the Arctic or LNG. They just want cheap gas and that’s the issue.”
“If Arctic gas is going to be successful, it has to capture market share and it has to be cheap. That’s not easy if you’re spending $20 billion or more to build a pipeline.”
He put the Mackenzie gas project in a state of limbo because of a review process that has “gone on forever,” adding that even if the application got approval today the proponents would be unlikely to embark on construction.
Although the Canadian government has lately been taking steps to move the MGP ahead, it may be a case of “too little, too late. … It’s just taking much too long and is much too expensive” at more than C$16 billion, Goobie said.
To be viable, the MGP would need significant government participation, including tax and royalty incentives and infrastructure investment, he said, noting that the only reason Newfoundland entered the oil-producing age was because of considerable government involvement.
Government money required Goobie said he was “very pessimistic” about what will emerge from the Joint Review Panel process, scheduled for December, when the environmental and socioeconomic findings are released.
He predicted that will likely “throw the (MGP) into another lengthy legal and regulatory quagmire and frankly that really has the potential to sink the thing.”
Answering a question, Goobie suggested the U.S. and Canadian governments could see the Alaska and Mackenzie projects as a chance to stimulate the economy, but doubted that the governments could overcome the “almost insurmountable” social and aboriginal obstacles.
If governments want the projects to proceed they will have to “pour endless amounts of money over many years” into Arctic gas development, he said.
For now, however, the “regulatory process still has a long way to go and it’s going to take a long time to get there,” Goobie said.
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