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Small vs. large in gas pipeline debate Other project hopefuls question Enbridge pitch for smaller Alaska gas pipeline Larry Persily Petroleum News Government Affairs Editor
Enbridge Inc. is in the minority among North Slope natural gas line proponents in its view that smaller is better when it comes to the project’s pipe size to Alberta, but there is agreement that existing takeaway lines could have a lot of excess capacity next decade to deliver Alaska gas across North America.
That available capacity could mean cost savings if Alaska gas can move to Pacific Northwest, Midwest and East Coast markets without building as much new pipe from Alberta, where the proposed North Slope line would enter the North America distribution system.
The first issue, however, is getting the gas as far as Alberta, something Alaskans have been waiting 30 years to see happen. The state may realize its dream in the next decade if North Slope producers and other companies such as Enbridge decide tight gas supplies and high prices justify the risky multibillion-dollar investment.
Enbridge, a Calgary-based pipeline and gas distribution company, believes there is less risk is building a 36-inch pipe to carry Alaska gas to Alberta than venturing into the uncertain world of 52-inch pipe. No pipe that large, pressurized at 2,500 pounds per square inch, has ever been built in North America, said John Carruthers, vice president for upstream development at Enbridge Pipelines Inc.
The major North Slope producers, however, favor a 52-inch line, capable of carrying 4.5 billion cubic feet of gas per day. Enbridge has proposed a single 36-inch line at 2.6 bcf, followed by a second 36-inch line if market demand and gas supply justify the expansion. It’s a trade between cost and risk The trade-off for building with easier-to-handle, easier-to-manufacture smaller pipe is a slightly higher tariff, Carruthers told the Alaska House Resources Committee May 6. The company estimates — and he made it clear it is only a preliminary estimate — that building twin 36-inch lines could add about a dime per thousand cubic feet to the tariff vs. constructing the Alaska line with a single 52-inch pipe.
“We are saying there is a competitive alternative,” he said.
But Enbridge also acknowledges it may not have the right answer, Carruthers said. “I would think you would want to seriously consider the others.”
BP Exploration (Alaska) Inc. has considered building a smaller line and believes larger is better to hold down the tariff, said company gas project spokesman Dave MacDowell. “Even 10 cents matters. Pennies matter.”
A dime more in tariff charges per mcf on a project carrying 4.5 bcf per day could mean $164 million a year in higher transportation costs and an equal amount deducted from the wellhead value of the gas. However, the higher cost of twin smaller pipes could significantly reduce the risk of construction cost overruns from being the first project to use 52-inch pipe, while also helping to lessen the concern of oversupplying the gas market in the early years.
BP and North Slope production partners ExxonMobil Production Co. and ConocoPhillips Alaska Inc. spent $125 million in 2001-2002 on engineering and designing a pipeline to move Alaska gas to market. That work focused on a 52-inch line for the economies of scale in moving a larger volume of gas. Producers prefer larger pipe “We believe a single, large-diameter pipeline is the most promising project,” MacDowell said in a May 18 interview. “Our focus is on identifying the project with the lowest transportation cost.”
“Certainly we don’t have the lock on good ideas,” he added. “We are willing to consider credible ideas that result in a lower-cost pipeline system.”
TransCanada Ltd., Enbridge’s cross-town colleague in the natural gas pipeline business, also favors a larger pipe, though not quite as big as the producers’ proposal. “We’ve been advocating all along that the 48-inch pipeline is the answer,” said TransCanada spokesman Kurt Kadatz.
TransCanada, which has said it will soon join the North Slope producers and Enbridge in submitting its own gas line project application to the state, already has 48-inch pipe as part of its Alberta system and its Canadian Mainline system that runs east to Ontario and upstate New York.
And TransCanada will have a lot of room in its pipeline systems to accommodate Alaska gas. “By around the neighborhood of 2012,” Kadatz said, “we would expect to see 3 bcf of spare capacity in our Alberta System.” The company’s Alberta System carried 11.4 bcf per day in 2002, moving gas to the Montana border and pipes that fed upper Midwest, Great Lakes and New England states and Canada’s eastern provinces. Westcoast, Alliance also available In addition to feeding TransCanada’s lines, Alaska gas could find markets through Westcoast Energy Inc.’s system that carries gas from Alberta and British Columbia to the Washington state border, Enbridge’s Carruthers said. He estimated the Westcoast line, owned by Duke Energy Co., could have 200 million cubic feet of available capacity by the time the Alaska line is in service next decade.
And the Alliance Pipeline, which last carried an average 1.6 bcf a day from British Columbia and Alberta to the end of the pipe near Chicago, could be expanded to carry an additional 500 million cubic feet, Carruthers said. Enbridge owns 50 percent of Alliance Pipeline.
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