EIA official says U.S. not counting on Alaska gas to meet rising demand

Gary Park

PNA Canadian Correspondent

United States gas consumption is likely to rise 48 percent by 2020, but Alaska gas isn’t being counted on to help meet that demand, said a senior official with the U.S. Energy Information Administration.

The EIA’s annual energy outlook doesn’t factor in a proposed pipeline from Alaska’s North Slope unless gas prices rise substantially, James Kendall, director of the EIA’s oil and gas forecasting and analysis division, told a Calgary conference March 4.

He said the EIA assumes gas prices will have to reach $3.50 per thousand cubic feet, and remain there for three to four years to make an Alaska Highway pipeline viable.

“The pattern of pricing is really crucial,” said Kendall.

He said the EIA expects demand will rise by 2 percent a year, despite last year’s slump of 4.8 percent due to the economic slowdown and a price spike of $10 MCF.

The bulk of the new supplies will come from the Gulf of Mexico and non-conventional sources, such as coalbed methane, Kendall said, adding that Canada is expected to meet about 15 percent of U.S. consumption, the same level as in 2000.

Robert Daniels, president of Anadarko Canada Corp., said the fall in gas prices over the past year is the result of a “perfect storm of low commodity prices.

“Demand will grow and that will support higher prices. We think gas prices will stabilize in the $3 range,” he told the conference.

The EIA report does note, however, that if U.S. economic growth is slightly higher, its forecast would increase to $3.65 per MCF — “in line with what many in the gas industry believe,” Ken Thompson told PNA March 4. Thompson is a former ARCO Alaska Inc. president and former head of global gas marketing for Atlantic Richfield. (See related sidebar.)

Thompson says EIA numbers faulty

Kay Cashman

“I believe the EIA likely used the (North Slope) producers’ capital cost estimates for determining the viability of North Slope gas as they have in the past and assumed a new, expensive line from Alberta to Chicago ($5 billion) in the total project,” Ken Thompson told PNA March 4.

A North Slope gas project “could be brought on stream commercially now with the lower capital costs” estimated by the pipeline companies, he said. (See chart. above.)

The biggest cost reduction, Thompson said, comes from TransCanada PipeLines Ltd.’s plans “to expand and/or loop existing gas pipelines to Chicago, California and the Pacific Northwest to move the additional 4 BCFD versus the producers’ very expensive proposal to build a brand new line from Alberta to Chicago.

“I doubt the expansion alternative was considered by the EIA,” he said. It makes more sense “than building a new, expensive grassroots line to transport the gas from Alberta to the Lower 48 market.”

Thompson pointed out that a pipeline company’s main business is building and operating pipelines. He believes the consortium of major U.S. and Canadian pipelines companies that wish to build a pipeline from the North Slope to Lower 48 markets can do so at a lower cost than the producers: “I have seen it happen,” he said.

Thompson remembers “unfondly” that in 1998-99 during the ARCO/BP merger discussions, “the EIA predicted the then low oil prices of $12 per barrel would continue for a few years, certainly not improving about $18 per barrel. A few months after that particular EIA price forecast, oil prices shot above $25 per barrel and have been averaging $20-25 per barrel … since then.

“So much for EIA accuracy in predicting hydrocarbon prices,” Thompson said.