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Marshall: pace of gas negotiations typical BP Exploration (Alaska) head suggests consideration of which project will have lowest netback, has best chance of being built Kristen Nelson Petroleum News Editor-in-Chief
Negotiations over an Alaska natural gas pipeline may seem to be taking a long time, says Steve Marshall, president of BP Exploration (Alaska), and BP shares the sense of urgency Alaskans have to see a gas project move forward.
But, based on BP’s worldwide experience, it sees the pace of the negotiations as “very typical,” he told the Alaska Support Industry Alliance Sept. 8.
“With worldwide projects, projects that are going to cost between 20 and 25 billion dollars, it’s far more important … to get it right than to rush into it.”
Marshall said he understands the frustration because the negotiations are taking place behind closed doors and “people can’t actually touch what’s going on.”
He said John Browne has shared BP’s view with President Bush and Vice President Cheney, “that the pace of these negotiations is very typical of what we’ve experienced in other basin-opening type infrastructure projects around the world.”
And, he said, while BP is not a pipeline company, it has invested where infrastructure is needed to open up basins. The Forties’ Pipeline in the North Sea, he said is such an example, as is the trans-Alaska oil pipeline and the Caspian pipeline from Baku to the Mediterranean.
“In many places around the world,” Marshall said, “we’ve stepped forward where others were not prepared to take on the risk…” Why a pipeline and not LNG? Marshall said BP has focused on a pipeline for North Slope gas because it does not believe a liquefied natural gas project is economic.
BP has looked at LNG and based on its experience in Trinidad believes it can build low-cost LNG facilities. It is investing in LNG in other places, but those places have gas at tidewater, he said. “They don’t have to build a pipeline to get the gas from the field to the terminal to liquefy it and put it on tankers.”
There is another gas issue that has come up, he said: “We don’t believe we’re in a race. We’re not in a race with LNG; we’re not in a race with Canada.”
The United States is the world’s largest natural gas market with demand growing at 1-2 percent a year, and projected to continue. The Lower 48 is going to need gas from all sources: Lower 48 domestic production, Canada, Alaska and LNG.
Marshall said BP believes a pipeline through Canada offers the best returns for both the producers and the state. Not looking for sweetheart deal He said BP is “not looking for a sweetheart deal (in negotiations with the state). We’re not looking for concessions. In my view sweetheart deals are not sustainable.”
What BP is looking for, he said, “is something perhaps we haven’t enjoyed on the oil side of the equation: … durability, certainty, simplicity, clarity.” Before BP invests its share of $20 billion to $25 billion, “we want to know what the rules are.”
And it’s not just rules, it’s also alignment.
On the oil side, “the state and the producers haven’t been aligned very well; in fact we’ve been significantly misaligned.” The state isn’t ever going to achieve “perfect alignment” with the producers, but “I think that we can get a lot closer,” Marshall said.
That is part of the attraction of state ownership in a gas pipeline. The state would take its royalty gas and sell it, and “all of a sudden that makes the state have to think about issues the same way we do. They come to the table, they’re inside the tent, they’re thinking and talking about tariff issues — they’re exposed to tariff issues. Much of the suspicion that gets leveled at us goes away because the state’s got a seat at that table.”
Marshall said alignment is key, and said BP has seen it between itself and contractors: “When we’re aligned, things just seem to happen.” Motivated to build the lowest cost line Marshall said he thinks the first question people should ask about a gas project is, “who’s motivated to build the lowest-cost, most effective gas line?” That is the project that will provide the highest netback on the North Slope.
“Is it the people that have got something at stake, skin in the game — the producers and the state” where if there are cost overruns, “it comes out of their hide?” A third party building the line, he said, could extract more from a higher-cost project.
While it’s easy to say the project is economic, he noted, when you are investing some $20-$25 billion and need returns over 30 years with take-or-pay contracts, there are a lot of considerations and a lot of risks: political, commercial, legal, construction and execution. “Which project has the right risk and reward balance?” he asked. “Who has the capability? Who has the knowledge? Who has the scale to execute a project of this magnitude? Which project will bring in the greatest returns over the next several decades?
“And indeed, which project really has a chance of being built?”
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