Cambridge Energy continues to see window of opportunity for Alaska North Slope gas

Economist Roger Marks tells committee state’s model indicates gas price more important to investors than capital costs

By Kristen Nelson

PNA Editor-in-Chief

There is a real possibility of Alaska gas being commercialized in the next decade, Ed Small of Cambridge Energy Research Associates told the Alaska Legislature’s Joint Committee on Natural Gas Pipelines in Anchorage July 17. But, he said, it is not a done deal and a sustained minimum price of $2.50 to $3 per million Btu is required.

And economist Roger Marks of the Alaska Department of Revenue told the committee that the state’s gas project economic model shows the price of gas has a larger impact on investors than capital costs.

Small said liquefied natural gas is a wildcard.

All four of the LNG receiving facilities in the Lower 48 — all on the East Coast — had been mothballed, he said, but two have been reactivated with the other two due to come back on line next year.

There are also proposals for new LNG receiving facilities in Baja to funnel gas north to the United States — and other possible West Coast locations, probably offshore, are being studied.

Room for Arctic gas in market

If Alaska sends 3 bcf of gas that would probably defer Mackenzie Delta gas and Mackenzie Delta gas going to market at 1-1.5 bcf a day would not preclude Alaska development, Small said, but it would have an impact, because 4 bcf of gas from Alaska and 1 bcf from the Mackenzie Delta would be enough to impact price.

State models gas projects

The state’s model, Marks said, indicates that the gas price is very important to investors: A very small gas price change has the same effect as very large capital cost changes. At a $14 billion cost, $3 for gas in Chicago and 4 bcf per day, he said, a project is barely economic. If the capital cost comes down to $10 billion, he said, the rate of return for investors goes from 10 percent (at $14 billion) to 13.6 percent. But if the price in Chicago goes to $4, the rate of return rises to 14.6 percent — and at a $5 price in Chicago, the rate of return rises to 18.3 percent and revenues to the state more than double.

Feds, not state, will regulate North Slope gasline

Petroleum News Alaska

Committee members fired a number of questions at representatives from the Federal Energy Regulatory Commission and the Regulatory Commission of Alaska. This is what they learned:

• If a molecule of gas in a pipeline is destined for another state, then all gas in that line is considered interstate even if some comes off in-state. All interstate gas lines are regulated by FERC, as are pipeline tariffs and gas price at the valve.

• As a common carrier, pipeline owners cannot discriminate against any shipper.

• FERC does not see a conflict with gas owners owning the pipeline.

• If a discovery is made after the line is built, it is up to the pipeline owners and the new customer to get together and decide if there is an economic opportunity for line expansion.

• FERC does not regulate hubs.

• There is a possibility that during pipeline construction RCA can order owners to build off-take facilities or valves, such as a hub. However, the state would have to pay for it. RCA is checking to see if it would have the authority to say who can plug into an Alaska hub.