Alaska gas line viable despite soft market

Consumption of natural gas declines in United States, increases worldwide, says economist Mark Finley in presentation of BP report

Wesley Loy

Anchorage Daily News

U.S. natural gas consumption has declined for two consecutive years, but that doesn’t necessarily mean chances for an Alaska gas pipeline are diminished, a BP economist said Sept.6.

While nothing is guaranteed, the long-term outlook is that the country — the world’s biggest natural gas user — will need to tap all available sources, including Lower 48 production, imports as well as Arctic gas, said economist Mark Finley.

Finley, of Washington, D.C., has been traveling the world briefing reporters, industry groups and others on the annual “BP Statistical Review of World Energy.”

The review is a respected, data-packed guide to supply and demand for major energy sources including oil and gas, coal, and nuclear and hydroelectric power. BP, which runs the largest U.S. oil field at Prudhoe Bay, has produced the review for 56 years.

Among the report’s findings for 2006:

• World oil consumption grew by less than 1 percent, the weakest growth since 2001. The lower demand was largely in response to high crude oil prices peaking well above $70 a barrel.

• World natural gas consumption grew by 2.5 percent, close to the 10-year average, but U.S. gas consumption declined for the second year in a row.

• U.S. gas production rose by 2.3 percent, the strongest gain since 2001. The growth was due to recovery from hurricane-related outages in the Lower 48, as well as more rigs drilling for gas, Finley said.

Alaska politicians again are trying to entice oil companies or other firms to build a pipeline to carry the North Slope’s vast gas reserves. The gas in the Prudhoe Bay oil field has been stuck in the ground since its discovery more than 30 years ago; and there’s nearly nine times that much that has either been discovered and not developed because of no market or is expected to be discovered, says the U.S. Geological Survey.

The most likely option, many energy companies say, is a pipeline costing $20 billion or more that would run southeast off the Slope into Canada to as far as Chicago.

But the staggering scale, cost and risk of such a project have long precluded it from happening, despite the best efforts of a succession of governors and occasional spikes in gas prices. Gov. Sarah Palin has invited potential builders to submit proposals by Nov. 30 to build a line and lock up a package of financial incentives from the state. A few firms, including pipeline giant MidAmerican Energy, have said they will submit proposals by that date.

U.S. market weakness could be temporary

Alaska gas has competition from alternative energy sources that industrial users and power utilities can switch to, Finley said.

One major competitor is coal, of which North America has a great deal. Coal is a highly polluting fuel and carries antipollution costs in some countries, but technological advances could clean it up. And recently, coal demand has surged due to bargain prices.

“The lesson of the past few years is, cheap beats dirty,” Finley said.

Another worry for Alaska gas pipeline backers has been the threat of rising imports in the form of liquefied natural gas, or LNG. Energy companies are building, or have proposed, numerous North American ports for receiving LNG shipments.

But while LNG shipments globally rose by a strong 11.8 percent in 2006, U.S. imports declined slightly, Finley said.

The apparent weakness in the U.S. gas market could be temporary. For one thing, weather is a big factor for gas demand, and last year’s warm weather helped demand, Finley said.

—Petroleum News contributed to this report