Blog: Dermot Cole
Economic slowdown adds to pipeline's fiscal uncertainty
Published Saturday, January 24, 2009
The economic slowdown is leading to more pessimistic comments about the prospects for the gas pipeline that Alaskans have talked about for nearly 40 years.
We've seen all this a time or two before.
A BP executive told an Anchorage group Friday that the drop in oil and gas prices and the increase in Lower 48 supplies are also bad signs for a pipeline costing tens of billions that would carry natural gas from Alaska through Canada, the Reuters News Service and the Anchorage Daily News reported.
The pipeline firms won't come right out and say that the market conditions are going to slow planning, but one industry analyst was quoted as saying that leaner times for the industry mean the Alaska project is certainly not on the "urgent" list.
The Palin administration and the Legislature should be addressing the topic this year, instead of waiting for a year or two to see what happens with TransCanada and the proposed Denali project by BP and ConocoPhillips.
The big question for the state is whether actions are needed on taxes and other issues to make the project more attractive to the oil industry and whether such actions are in Alaska's best interest.
Meanwhile, a Fairbanks group is pushing ahead with an analysis that points to the strong and the weak points in proposals for in-state gas use.
For more on this read my column at http://newsminer.com/news/dermotcole
Dermot, thanks for mentioning this issue in your blog. The Anchorage Daily News thought this story was important enough that it was their lead story on page A-1. Why is this important? Alaska's economy will go off the proverbial cliff if we do not get this project right.
The key point in your blog is "...and the increase in Lower 48 supplies are also bad signs for a pipeline costing tens of billions that would carry natural gas from Alaska through Canada..." Note that the Palin administration was warned about the massive (shale gas) supplies in the Lower 48 last year, not by the consultants that cost us 13 million dollars and completely missed the shale gas issue- but by other concerned Alaskans who did not want the Governor to make what is now an obvious error. (Hint- there is a story there).
While the industry will always try to leverage more favorable tax treatment the key issue in this discussion is about what the markets require. Why would anyone build a multi-billion dollar pipeline to a market that is saturated with gas? It would almost make more sense to build a gasline to carry gas from the Lower 48 up to Alaska. Why? Because the Lower 48 has so much more gas than we do. They have thousands of trillions of feet of reserves, and we only have a few hundred trillion.
Alaska's markets are the premium world markets where we can sell our gas for the highest possible price; and at the same time- take advantage of our geo-strategic location on the planet. Go to Google Earth. Look at Alaska from over the Pacific ocean. What do you see? Ocean below, Russia to the North, Alaska to the far right, and Asia to the left. Not even visible is the Lower 48.
The real question these new reports require us, and legislators, to ask- is why should Alaskans pay the Canadians $500,000,000.00 to try and advance a project that makes no economic sense???
Why is the Palin administration so biased towards the Canadians? Why do they believe- as they have stated- that it is preferential to use Alaska's gas in Canada- over Alaska?
Why are they standing behind a project that is contrary to what Palin promised when she was running for Governor? The Governor needs to have a full, and frank, reassessment of her pipeline plans from people who have not gotten her into this mess.
No Mike, the question of what the markets require is not a meaningless point. Go try and build a 40 to 50 billion dollar gasline. How do you pay for that line? By the gas you can sell.
With me so far?
OK, so the amortization of a 40 to 50 billion dollar gasline requires prices above what gas prices are today. Care to share with us who is willing to finance this uneconomic project? Specifics, please.
But that is only one concern. Do you have any idea how many compressor stations along the pipeline are required to move gas all the way to Chicago? (Moving the gas through up to 2,700 miles of gasline isn't free). Dozens of compressor stations are required to not only chill, but compress the gas. Where do those compressors get the gas? From the gas in the line. One engineer calculated that a significant percentage of the gas moving through the hypothetical gasline to Chicago would be used just by the compressor stations.
The bottom line? All of the cost of spinning compressors detracts from the economic value of the project- besides the obvious fact that the Lower 48 is saturated with gas.
In the complicated analysis of gas markets such issues as population growth, new gas usage (like CNG vehicles that you correctly point out) are taken into consideration.
But what is also taken into consideration is the fact that the Gulf Coast has significantly underutilized LNG regasification facilities that stand ready to receive significant imports of LNG gas from Qatar. Those regas facilities are connected to existing distribution gaslines that require ZERO capital outlay.
Bottom line, the economics- and the markets- will determine where Alaska's gas goes.
And Mike- for the record- you might try following the News-Miner user policy, that reads in part, "Users who engage in the behavior of continually trying to guess other users’ private information may be banned and their account and contributions removed."
Looks like Big Mike is going to need another new username soon! How many has it been?
It is so typical of the oil industry to drag their feet, watching the scoreboard instead of playing the game. With energy prices jumping all over the map every year or two it is beyond ridiculous to plan a 10 year massive pipeline project by what the prices are currently running when 6 short months ago it was through the roof. Funny, remember when Denali was announced with all the fanfare and that the oil companies were finally serious about getting the gasline done? What happened? Another smoke and mirrors BS story? They almost never seem mean what they say.. Ah but Palin said that she goterdone at the RNC!
That's probably why there aren't conservatives left, Mike. All that are left are Republicans.
/There's a BIG difference...
"It's not easy being a conservative in our new crazy liberal world...."
Yeah Mike, I can only imagine how hard that must be. After Bush II the conservatives have been like rats jumping from a sinking ship blaming everyone but themselves as they splash down! Crazy new world was handed to us by the Republicans. Swim Mike swim!
If we towed a big dredge up the Yukon+Tanana..
and dredged a channel from the south end of the FBX-airport runway all the way to Fort Greedy..
then used the dredge spoils to build a flood control levee on the north side of the Tanana..
and put the RR-tracks on top of the levee..
and made the barge channel look like a lake in the middle of the river with a 500' long cryo-dam iceplug made with a heatpump..
..I'd bet that we'll find enough gold to build the RR-project and have enough gold left over to build a polypipe gasline from P2F, and set up a FLNG in Valdez, and build a polyolefin plant in Tyonek, and connect P2F2V2K2B
http://s281.photobucket.com/albums/kk209...
Just make a direct withdrawal from The River Bank of Alaska !!
I charted a ROW for the RR to Ft.Greedy and a dredge plan, with bridges too
[it does the same thing as the other plan, but it will begin to pay for itself before we dredge past NPole]
and it doesn't cross anybodys private property..
and it actually reclaims valuable land back from the river..
and it increases stream flow in Salchaket Slough slightly
Sierra Club???
..their law firm will be notified that this is the only way to safely remove that dead-leaking S-100 nuclear reactor out of Ft.Greedy to Hanford..
on a 400' barge down the Yukon and up the Columbia following federal guidelines.
Yeah, I gotta Sierra Club sticker on my hardhat.
Hopefully the bad economy will humiliate everybody who needs to be humiliated ??
Good luck on borrowing the 40 billion dollars plus that the pipeline will take to build . Maybe the state could donate another couple of billion to pay the thinkers for a while !!! Might get the money from Citibank , seems that they have a good money flow from the feds . They are used to big risks and losses .
All of the necessary agreements to run a pipeline down the Transalaska pipeline right of way have been in place and kicking around for years. We already have an LNG market in Japan and supply I/8 th of their natural gas. We have markets right here in Alaska. A longterm reasonable priced gas supply equals huge ability to add value right here in Alaska. There is a whole world of opportunities out there beyond just gutting resources and selling em' off to smarter operators than we are. We are be tail wagged by our coal industry and by an old mindset
that keeps us in a colony phase. Between the Koch's, the Brits, the Canadians, the Texans, and the Usibelli's we are locked in to it. It is not necessarily a bad thing but it can be a lot better.
Is this the only thing Big Mike reads online all night?
10 to 1 Big Mike was the playground bully in school! Maybe he still is?
So Alaska in the 1950s and 1960s was a big national park?
Things will change when the oil industry is gone, sure. The economy will need to shift, drastically, away from a resource-extraction base to a manufacturing, service, or similar base; but that's happened everywhere else, so it can surely happen here.
Mike, I have to agree with DeShawn. Why do Alaskans need a $40B+ pipeline that will ship our gas straight through our state to a market that is flooded with it? Why don't we build a smaller, shorter pipeline designed to both fuel Alaska and allow us to export it out of Valdez to markets that aren't so saturated?
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