Despite the hype about cheap gas, pipeline constraints are creating new risks. New England’s wholesale power prices ran three times as high this past February compared to the same month in 2012....
41 cents/Mcf for gas treatment services. (The project would likely feature a gas conditioning plant on the North Slope to remove corrosive carbon dioxide and other impurities, to raise the gas to "pipeline quality.")
By way of comparison, the TAPS oil pipeline is only 48 inches in diameter.
According to reports sponsored by Anadarko Petroleum Corp., the proven 35 Tcf could fill a 4.5-Bcf/day pipe for the equivalent of 19 years (in reality, production would decline gradually, with at least some throughput stretching out for 30 years or so. But most observers expect that other, as-yet unproven Alaskan gas reserves would come into production during that period, encouraging any number of phased-in expansions.
A likely scenario, outlined by the Legislative Budget and Audit Committee of the Alaskan state legislature, and corroborated by other observers, predicts an initial expansion to about 6 Bcf/day by adding relatively inexpensive compression capability. Further expansion to 7 Bcf/day would require relatively expensive looping. At that point, more compression could again add some additional level of capacity. At the end of the day (20 to 30 years or so down the road), the pipeline might be carrying 10 Bcf/day.
In fact, even without such expansion, the Big 3 concede that they would remain dependent on some of this new production coming on line. If you assume a minimum 30-year useful life for the initial pipeline, the sponsors would need 50 Tcf to keep it fully utilized, or about 15 Tcf in new production. That 15 Tcf represents about 2.5 billion in equivalent barrels of oil (BOE). So if you assume gas-finding costs of about $1.00 BOE, developers will need to invest about $2.5 billion to keep the initial pipeline at full bore over its 30-year design life, even without expansion. The Big 3, which offered this analysis, says it would take 15 years to find this 15 Tcf of gas, given current spending rates of $150 million/year on exploration and development.
Local State Needs
"I cannot stress enough," said Tom Irwin, Alaska state revenue commissioner, speaking at a technical conference held in Anchorage in December (with all four FERC commissioners in attendance), "that while Prudhoe Bay and Point Thompson will anchor the project, they are only the tip of the iceberg.
"I firmly believe," he added, "we will see gas production from the Brooks Range, the foothills, NPRA [National Petroleum Reserve in Alaska], the central North Slope and ANWR. Kuparuk River exceeds 100 Bcf."
Irwin's comments underlie the sense in Alaska that any pipeline project that gets built should not be designed only to help the Big 3 export their proven gas holdings. Rather it should help provide a financial incentive to encourage the state and smaller private energy firms to compete against the Big 3 by exploring, confirming and developing other gas reserves that could be ten times as great. But that exploration and development won't come about if fears persist that newfound gas won't find enough pipeline capacity available to get to market when it comes under production.
As Robert Loeffler put it (private counsel for