Alaska natural gas faces growing shale supply in continental US

* Dueling consortiums eye Alaska natural gas pipeline

* Massive shale gas investment in lower 48 U.S. states

By Yereth Rosen

ANCHORAGE, Alaska, Sept 28 (Reuters) - Companies promoting dueling Alaska natural gas pipeline projects now find themselves competing with continental U.S. shale gas as well, an executive said Tuesday at an industry conference in Anchorage.

The two projects would ship 4.5 billion cubic feet per day down a yet-to-be-built 1,700-mile pipeline from Prudhoe Bay on Alaska's North Slope to a hub in Alberta, Canada.

Competing for customers and, ultimately, government permits are TransCanada Corp. (TRP.TO), which has partnered with Exxon Mobil (XOM.N), and Denali, a joint venture formed by BP (BP.L) and ConocoPhillips (COP.N).

But Denali President Bud Fackrell said the proliferation of new shale gas sources in the so-called lower 48 U.S. states has shifted the fundamental economics of the massive Alaska project, which his company estimates would cost $35 billion to build.

"This is real. There are billions of dollars being invested in shale gas right now. That's a game changer," Fackrell said in a speech to the Alaska Oil and Gas Congress.

Even if the project succeeds in aligning key government and corporate stakeholders and winning government permits, there is no guarantee that it will be built because other gas sources might meet market demands, making an Alaska project uncompetitive, he said.

"No one out there is waiting for Alaska gas," he said.

Fackrell's comments came as ConocoPhillips chief executive Jim Mulva told the Financial Times that his company will re-assess plans for an Alaska natural gas pipeline.

The glut of natural gas in the market, much of it coming from shale and other unconventional sources in the lower 48 states, has cast economic doubts on the ambitious Alaska project, Mulva told the newspaper. [ID:nN28176718]

Denali on Monday will close its 90-day open season, a period in which it is soliciting potential bidders TransCanada, which has a project officially endorsed by the state of Alaska, and partner Exxon are currently negotiating with companies that submitted bids in a 90-day open season that ended July 30.

Until there are some agreements, TransCanada and Exxon will not be able to reveal the identities of the bidders or the details about their proposals to ship natural gas down the pipeline that the two companies would build, said Tony Palmer, TransCanada vice president for Alaska development.

"We're in the midst of those negotiations. They are complex," Palmer said at the conference. "Give us another few months. We can turn bids into contracts - that's our goal."

With a state license granted under the Alaska Gasline Inducement Act, TransCanada and Exxon are entitled to up $500 million in state subsidies to plan the project. The companies estimate their project will cost $32 billion to $41 billion to build.

But, in a message similar to that delivered by Fackrell, Palmer said there is no guarantee that a project will be viable. Alaska gas must still be competitive in the market if it is to be shipped to Alberta, he said.

Only one of the competing projects - if any - could be successful, and success will be determined by the market, Fackrell said in his speech.

"There's not enough gas for two projects. If Alaska gas is going to happen, it's going to be one project," he said.

Alaska officials have sought for three decades to persuade companies to build a pipeline to ship the abundant North Slope natural gas reserves to North American markets.

But even though oil has been flowing since 1977 from the North Slope through the Trans Alaska Pipeline System, no company has yet found it economic to build a similar pipeline to ship natural gas from the North Slope, where known reserves total about 35 trillion cubic feet. (Editing by Ed Lane)