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Vol. 15, No. 15 Week of April 11, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Denali line at $35B

If shippers don’t commit to 85% of capacity, LNG, smaller line possible

Kristen Nelson

Petroleum News

Denali—The Alaska Gas Pipeline filed its open season plan with the Federal Energy Regulatory Commission April 7, and has tagged the price of a gas treatment plant and the gas pipeline from the North Slope to market at $35 billion in 2009 dollars.

Denali President Bud Fackrell said in a press briefing that the company expects FERC approval of the plan; with that approval Denali would begin an open season July 6 and conclude it in early October.

TransCanada and ExxonMobil have received FERC approval for an open season for their competing pipeline which will run May through July.

Fackrell said Denali believes “we have a really high-quality design and project execution plan,” underpinned by an investment of $140 million and more than 600,000 hours of work.

“Backing that up are decades of Arctic and mega-project and pipeline experience,” he said.

“This is an enormous undertaking with significant risk” in both the marketplace and in the project execution; Fackrell said Denali has “constructed our commercial offering such that we’re not asking the shippers to take on unreasonable risk.”

The project will terminate at Blueberry Hill in Alberta, he said, providing shippers with the opportunity to move gas on to market on three major outlets out of Alberta — the Spectra, Nova and Alliance pipelines.

The estimated tariff from the gas treatment plant to Alberta is $2.67 per million Btu in 2009 dollars, and when the costs are escalated to reflect when the line will be built that comes out to roughly $3.25, Fackrell said. First gas is projected in 2020.

Mainline, GTP expandable

Kris Fuhr, Denali’s vice president for the mainline, said the technical team includes experienced employees and contractors, and the plan is built on work the owner companies, BP and ConocoPhillips, have done in more than 30 years of looking at monetizing Alaska gas.

“We have people that have managed and delivered projects on the Alaska North Slope; we have people that have worked in other Arctic regions around the world; and we have folks that have delivered mega projects in frontier basins globally,” Fuhr said.

The project includes a one-mile 60-inch transmission line from Prudhoe Bay and a 62-mile, 36-inch line from Point Thomson to the GTP; these will be conventional aboveground lines, he said.

The mainline will be a buried 48-inch line designed to deliver an annual average of 4.5 billion cubic feet per day of gas and expandable with added compression to 5.6 bcf a day.

Roberto Reichard, Denali’s vice president for the gas treatment plant, said the GTP will be a world-scale modularized plant, with four trains, designed to produce 4.5 bcf a day of sales gas into the mainline and expandable to 5.8 bcf per day “with the addition of one more train.”

Distinctive commercial offering

Scott Jepsen, Denali’s vice president for business services, said the company “has created a distinctive commercial offer that we believe will be attractive to potential customers.” He said the open season “has been crafted to make it possible for a broad group to participate as foundation shippers.”

Foundation shippers must meet Denali’s creditworthiness standards, have a net worth commensurate with their commitment and commit for at least 20 years during the initial open season, Jepsen said, but “there is no minimum volume requirement to be a foundation shipper,” which the company believes “will make it possible for smaller leaseholders, explorers, end users and possibly the state to participate as foundation shippers.”

Denali will be “shouldering some of the project risk” by asking for a minimum term of 20 years but taking its depreciation over 25 years, “taking the risk that we can recover the remaining 20 percent of our capital from late-life shippers over the remainder of the project’s life,” Jepsen said.

And, “subject to FERC regulations, Denali will not propose that existing shippers subsidize expansion shippers,” he said.

Options

Jepsen said that if Denali does not receive commitments of at least 85 percent of the design capacity at open season, the company has “provided a framework for customers and Denali to work together to consider a scaled-down project, a pipeline to an LNG facility at a location of interest to customers” or time to gather additional shipping commitments to allow the original project to proceed.

Fackrell said he thinks the biggest hurdle Denali faces going into open season is that “we know that there are several factors that shippers have talked about that aren’t resolved.”

Two are “in our own front yard,” he said: State of Alaska taxes, which shippers have talked about “for many, many years;” and the fact that the Point Thomson field is in litigation and “we don’t know if the shippers will bid that field or not bid that field.”

The third issue, Fackrell said, is will Alaska gas be “able to complete in the gas market in the Lower 48 — what’s the gas price going to be and how can we compete heads up?”



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