Both Alaska natural gas pipeline projects have now set dates for their open seasons, the quest for customers to commit to filling a proposed line with natural gas.
Denali, a joint venture of BP and ConocoPhillips, announced Jan. 12 that it will file its open season plan with the Federal Energy Regulatory Commission in April and — subject to FERC approval of the plan — conduct its open season beginning in July.
The TransCanada-ExxonMobil project will file its open season package with FERC at the end of January and begin its open season in May. TransCanada committed to a schedule as part of its application for a state license under the Alaska Gasline Inducement Act.
Denali has said it would hold an open season in 2010, but Denali President Bud Fackrell’s statement that the company would file its open season plan with FERC in April was the first specific date the company has provided.
Filing for an open season is a step in getting financing for a line, since financing is based on agreements from shippers to pay for space in a line, so-called ship-or-pay contracts.
Open season dates are significant but holding an open season does not mean a line will be built. The pipeline has to receive bids for enough volume to justify building the line and additional open seasons may be required. The pipeline also has to negotiate and sign precedent agreements with potential shippers after the open season closes.
“The results of the open season will provide an understanding of shipper requirements, which will be important as we consider our next steps,” Fackrell said.
Successful open season the goalFackrell said Denali’s objective is to have a successful open season, but “we are concerned that shippers may hesitate to make the financial commitments needed to support the project due to issues outside of Denali’s control.”
Those issues are the increased gas supply in the Lower 48, the legal status of leases at the Point Thomson field and “the lack of a long-term fiscal regime for North Slope gas production,” he said.
Fackrell said Denali’s potential shippers have said publicly that resolution of those issues “will be important in their decisions” to make the multibillion-dollar commitments necessary to move the project forward.
Fackrell said in a November report to the Legislature that work to estimate the cost of the pipeline and the gas treatment plant was “nearing completion.”
He also said in November that Denali had “initiated pre-open season discussions with potential anchor shippers and is formatting its open season plans.”
The company’s willingness to commit to an April date to file its open season package with FERC is based on work the company has accomplished.
“Our engineering and cost estimating work has progressed to the point we feel we’ll be ready to start our open season in April,” Denali spokesman Dave MacDowell said in an e-mail.
He said Denali’s plan is to have a commercial offering that is attractive to customers, based on the $130 million in work Denali has done. A successful open season — with commitments from shippers — “will enable the project to move forward,” MacDowell said.
TimelinesAlaska Gov. Sean Parnell welcomed the news that the Denali open season process would start in April.
“Denali’s move marks another milestone as competition drives the parties closer together,” Parnell said in a statement.
The governor also said the announcement by Denali puts the open season for the TransCanada-ExxonMobil and the BP-ConocoPhillips Denali projects “in sync.”
“Though there remains a long road ahead, this is good news for Alaska.” he said.
Denali said it has invested $130 million in the project over the past 20 months, primarily in field work, engineering and stakeholder engagement. The company said the work underpins “a robust project plan and cost estimate.”
Denali’s proposal is to deliver more than 4 billion cubic feet of natural gas per day from the North Slope to markets in the Lower 48, Alaska and Canada.
The company’s schedule for the open season starts with submittal of an open season package to FERC in April, followed by a 60-day public comment period. Once FERC approves the bid package, there is a 30-day public notice, and then, in July, the 90-day open season begins.
The Denali schedule shows one to two months to sign precedent agreements after the end of the open season, then posting of open season results and filing copies of the precedent agreements with FERC.
Shipper concernsIn its November report to the Legislature Denali discussed its concerns about the natural gas market at some length.
It said emergence of new sources of unconventional gas and the potential for import of large volumes of liquefied natural gas have “the potential to change the perception of the long-term market for North American natural gas.”
The competitiveness of natural gas delivered from the North Slope is an issue because of reduced demand and growth in supply from shale gas and LNG imports, the company told legislators.
It also said that one of the few publicly available long-range natural gas price forecasts — from the U.S. Department of Energy’s Energy Information Administration — “does not represent a consensus view of the market.”
“Ultimately, it is the shippers who will assess the economic viability of the pipeline based upon their own proprietary market perspectives as they determine whether or not they are willing to make the multibillion dollar, multiyear commitments that will be required to finance and construct the project.”
The company also told legislators that recent natural gas price volatility and the potential for new supplies highlight “the market risk potential shippers face.”