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Enbridge proposes smaller line for North Slope gas
Larry Persily Petroleum News Government Affairs Editor
Enbridge says the best way to get a pipeline built for moving Alaska North Slope gas to market is for a consortium of companies to work together on a smaller line.
Spreading the financial risks between several players, and reducing the volume of gas, is the smart way to go, the company said in its April 30 application to the state of Alaska for a fiscal contract governing payments in lieu of taxes on the proposed project.
Instead of digging trench for a 48-inch-diameter pipeline carrying 4.5 billion cubic feet per day, Calgary-based Enbridge proposed in its application using 36-inch pipe to move 2.6 bcf per day to market, possibly later doubling the capacity to more than 5 bcf as exploration and market demand require more pipe.
“It’s bringing capacity up as needed … rather than (building) overcapacity up front,” Enbridge spokesman Ian LaCouvee said May 4. “We believe the phased approach might be more sensible and prudent.”
Moving 4.5 bcf per day into North America markets could result in a temporary oversupply, pushing down prices noticeably for two or three years, according to several reports in the past year. Proponents of a 4.5 bcf line, however, said the larger pipe would provide a lower per-unit tariff. Company says project to take nine years Enbridge said gas could start flowing nine years after putting together the partnership to build the line, including North Slope producers and downstream buyers; winning congressional approval of tax incentives and permitting provisions for the project; and obtaining the required corporate decisions to spend billions on construction.
“It will take a lot of players to find the right mix,” LaCouvee said.
The company called nine years “a reasonable expectation,” with construction to start five years after planning begins.
A nine-year design, permitting and construction timetable closely matches the North Slope producers’ estimate in their own application for a fiscal contract under Alaska’s Stranded Gas Development Act. The state has been negotiating with the producers since they filed their application in late January. Talks with Enbridge will start soon.
Alaska Gov. Frank Murkowski said May 4 he is “optimistic” his administration can have fiscal contracts ready for public comment and subsequent legislative approval by the end of the year. The state could approve more than one contract, which is not a commitment to build the line but rather a deal for state and municipal payments if the project is built. Consortium for Canadian portion too Enbridge proposed in its application to build more than 700 miles of gas line from the North Slope to the Alaska/Yukon border, where the pipe would connect to another new line for moving the gas more than 1,000 miles to existing distribution lines at Gordondale in northwest Alberta. Enbridge would likely try putting together a consortium for the Canada portion of the line too, LaCouvee said.
The company would look to North Slope producers to build the gas treatment plant needed on the slope to prepare the gas for pipeline shipment, he said.
A big difference from other project proposals is Enbridge’s plan to use conventional-sized 36-inch pipe instead of 48-inch or 52-inch pipe for a larger-capacity line. A key advantage of building a smaller line is that North American steel mills could more readily supply the pipe, creating competition and possibly lower prices, Enbridge said in its application.
Enbridge estimates the Alaska portion of the line at $3.3 billion in 2004 dollars, or $6 billion if the project is later doubled to more than 5 bcf per day.
Enbridge’s up-front approach to putting together a group of companies to share the project — and the risks — is different from the North Slope producers’ Stranded Gas Act application that proposes the three companies themselves build the line all the way to Alberta, although the companies have said they are willing to consider partners that could “add value” to the effort. The producers propose a line carrying 4.5 bcf per day. Enbridge, TransCanada disagree The Enbridge proposal also puts it at odds with pipeline competitor TransCanada Corp., which last month said it, too, would submit a Stranded Gas Act application to develop the Alaska pipeline.
TransCanada, which believes it holds exclusive rights to an Alaska gas line, would be willing to take in a partner for the Alaska portion of the line but only if that company would acknowledge TransCanada’s rights to the entire project, company spokeswoman Hejdi Feick said May 5.
Enbridge does not believe that TransCanada holds exclusive rights to an Alaska gas line, LaCouvee said.
TransCanada believes it holds rights to the project under Canada’s Northern Pipeline Act of 1978, the U.S. Alaska Natural Gas Transportation Act of 1976, and regulatory permits in both countries. The Calgary-based company and its wholly owned subsidiary Foothills Pipe Lines Ltd. were original participants in the Alaska Northwest Natural Gas Transportation Co., selected by the two nations to build an Alaska line.That almost 30-year-old selection process applies to a specific project along a specific route from the North Slope to Alberta, and Enbridge believes the certificates do not block another company or group of companies from seeking U.S. and Canadian permits for a different project.
“We don’t give much significance to the NPA (Northern Pipeline Act),” LaCouvee said. “We don’t believe anybody has exclusive access to the project.” Enbridge would need own permits By stepping around TransCanada’s existing permits, Enbridge would need to apply to the U.S. Federal Energy Regulatory Commission and Canada’s National Energy Board for regulatory approval of the pipeline.
“There are no simple answers to many of the legal questions,” said a 2001 FERC staff report on the Alaska Natural Gas Transportation Act. “This is in great measure because applicants and the commission will be dealing with circumstances that were likely not contemplated (in 1976) … most notably the fact that … the pipeline project for which ANGTA provided expedited treatment has not been built.”
“We are relatively clear that the ANGTA would not bar this commission from considering (separate applications),” FERC Chairman Pat Wood said in testimony May 5 before the U.S. House Committee on Energy and Commerce.
Enbridge and TransCanada share at least one thing in common — both look ahead to declining natural gas production from Western Canada and see the need for fresh supplies from Alaska helping to fill their lines coming out of Alberta.
TransCanada Corp. spokesman Kurt Kadatz in March said Alaska gas is key to keeping the company’s lines full. Enbridge lines could help move gas Almost two-thirds of Enbridge’s revenue last year came from natural gas sales, with most of the rest from pipeline operations. It holds a 50 percent interest in the Alliance gas pipeline that runs nonstop from Alberta to Chicago and can move 1.3 bcf per day, and a 60 percent interest in the Vector pipeline that carries about 1 bcf per day from Chicago through Indiana and Michigan and into eastern Canada.
In total, the company owns and operates more than 9,000 miles of natural gas gathering and transmission pipelines in the Midcontinent and U.S. Gulf Coast areas. It also owns a gas distribution company serving eastern Canada and upstate New York.
Enbridge also owns and operates lines carrying more than 2 million barrels per day of crude oil and other liquids.
Its 2003 annual report lists among potential growth opportunities for its natural gas business participating in the Alaska line and joining in efforts to bring new supplies of liquefied natural gas to North America.
“Enbridge intends to be at the forefront of development and planning for an Alaska gas pipeline,” Patrick Daniel, chief executive officer, said in announcing the company’s application to the state. “The magnitude of capital investment and risk required by this project will necessitate a partnership of producers, pipeline companies and other potential participants.”
Though the company doesn’t operate any pipelines in Alaska, it has some arctic experience. It runs a line that moves an average 25,000 barrels a day of light crude 540 miles from Norman Wells, Northwest Territories — about as far north as Fairbanks — to northern Alberta. It also owns a 33 percent interest in Inuvik Gas Ltd., the gas pipeline and distribution system for the Mackenzie River delta community of Inuvik in the Northwest Territories.
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