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Vol. 12, No. 12 Week of March 25, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Enbridge says gas a must

Tells legislators North America supply-demand balance 'extremely fragile'

By Kristen Nelson

Petroleum News

Canadian pipeline company Enbridge told the Alaska House Resources committee March 14 that the North American supply-demand balance for natural gas is “extremely fragile” and that Alaska North Slope gas is needed.

Doug Krenze, Enbridge vice president gas transmission and development, said people have forgotten that two years ago hurricanes destroyed a lot of facilities in the Gulf of Mexico resulting in loss of a “significant amount of production” and leading to concern about a possible natural gas shortage over that winter.

Two warm winters followed, and that “very, very fragile supply and demand balance” in North America has been forgotten, he said.

“If we have a cold winter I’m here to tell you, we may very well be seeing schools shut down if it’s a colder than normal winter,” Krenze said. “And that’s one of the reasons there’s a real sense of urgency that we need to get this project to get some legs and get some traction.”

There’s another issue, he said. That gap until Alaska gas comes online was supposed to be filled with liquefied natural gas.

But will LNG be a dependable source of natural gas to fill that gap?

Krenze said LNG is a global commodity and LNG owners are looking for the highest price market and that isn’t in North America. LNG facilities are operating at less than a 50 percent load factor, he said, and the combination means there isn’t going to be as much LNG as was expected and the market is going to be more volatile and North America will be unlikely to be able to compete with Europe in the winter.

If the Alaska project doesn’t move soon, and with LNG less of a supply than expected, the demand for natural gas will be destroyed “and demand will move offshore and go somewhere else.”

Alternative energies — coal and nuclear — “will get lots of legs and we’ll see lots of competition. It will become harder and harder to justify moving this project forward and … the demand for natural gas ultimately will moderate.”

$15 billion in capital projects

In addition to its oil pipelines, Enbridge has some 10,000 miles of natural gas gathering and transmission lines, Krenze said, and is involved in a number of joint ventures, including the Alliance and Venture pipelines, which together move some 2.6 billion cubic feet a day of natural gas. Enbridge almost moves some 2.5 bcf a day of natural gas in the Gulf of Mexico in joint ventures, “so we manage and operate close to 5 billion cubic feet a day of gas.”

Krenze said Enbridge has $15 billion worth of new capital projects the company will construct in the next seven to 10 years, “primarily associated with the growth in tar sands.”

To provide the workforce for those projects, he said, Enbridge will be “recruiting and training workers that can work with the contractors, both from Alaska and Canada” and implementing state-of-the-art project management processes.

When these projects are complete, “Enbridge will have the most recent state-of-the-art experience in managing and completing major cross-country natural gas pipelines,” as well as benefiting “everybody by the training of the staff that’s going to be required for the Alaska pipeline also.”

Enbridge concerned about gas

But would Enbridge apply to build the Alaska gas pipeline under the Alaska Gasline Inducement Act?

“Unless we could come together with a producer consortium, we as one of the major North American natural gas companies are not going to spend our time or take the risk to go through this process and then three years after we have a license from Alaska, go to an open season and have nobody commit for any capacity on the open season after we’ve spent hundreds of millions of dollars,” Krenze told the committee.

The problem, Krenze said, is that Enbridge believes that “for a pipeline project to proceed … we think the producers have got to play a key role in this project.”

As for AGIA, Krenze said Enbridge has looked at the bill, and while the intent seems to be that the producers would ultimately come to the table, Enbridge thinks the producers should be “at the table sooner, rather than later.”

“The pipeline project’s a pipeline project,” Krenze said. “The issues that need to get resolved are those between the state and the producers. Once that gets resolved the pipeline project moves ahead very rapidly.”

The producers are needed because of the creditworthiness, but for them to come to the table, he said, “they’re going to want to have control, cost control over the project, because they’re going to bear the risk of the cost overruns.”

“I can tell you sincerely that I would recommend the state to get the producers back to the table, try to resolve and reach your compromises on the issues that are still to be resolved, because until those compromises and issues are resolved and there is agreement, the pipeline is going nowhere.”

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