ANCHORAGE, Alaska, Jan 23 (Reuters) Prospects for a pipeline to ship abundant North Slope natural gas reserves to U.S. markets are dim due to free-falling energy prices, the overall economic collapse and the surprising emergence of unconventional energy alternatives such as shale gas, a senior BP (BP.L) official told an industry audience Friday.
“It’s not a pretty story right now in terms of North American natural gas markets,” Brian Frank, president of BP Energy Co and BP’s North America Gas and Power, said at the annual conference held by the Alaska Support Industry Alliance.
Since the 1970s, government and industry officials have pursued a North Slope natural gas pipeline that would accompany the Trans Alaska Pipeline System that has been delivering crude oil from Prudhoe Bay and neighboring fields since 1977. Economic challenges have to date kept the dream on the drawing board, but two groups are now pursuing new plans.
BP, in partnership with ConocoPhillips (COP.N), has launched a company that proposes to build an approximately 1,700-mile pipeline from the North Slope to an existing pipeline hub in Alberta. That proposal, called Denali, unites two of the three major North Slope oil producers.
The Denali plan is competing with a similar proposal by TransCanada Corp TRP.T, which envisions a gas pipeline operated independently of the producers.
The Calgary-based company was granted an exclusive license for the project from the state of Alaska in December, part of a competitive-bidding process pushed by Gov. Sarah Palin.
TransCanada has estimated the project would cost $26 billion; Frank said Friday the cost is likely in the $30 billion to $40 billion range.
BP is pinning long-term hopes on success of one of those pipeline plans so that it can monetize its abundant North Slope natural gas reserves, Frank said.
But the current challenges are daunting, he said.
Financial woes make capital scarce and give little reason for investors to justify putting large sums of money into a project, he said. “It’s very difficult to find the financing and funding for projects and infrastructure,” he said.
Economic conditions are so grim that major customers for BP’s natural gas are filing for bankruptcy weekly, and several have been put on prepayment plans “because they are not credit worthy,” he said.
At the same time, there are long-term alternatives to Alaska natural gas, such as shale gas in the Rocky Mountain and Midwest states, and liquefied natural gas, he said. There is an unused capacity for the U.S. market to import liquefied natural gas in volumes nearly three times that which would be provided by an Alaska pipeline, he said.
“The Alaska gas project and Alaska gas will have to compete at the margin with unconventional supplies,” he said.
Frank said he remains a believer in the Alaska natural gas project. But it can be successful only if there is a “stakeholder alignment,” he said. “Without it, it’s difficult to visualize the project going forward,” he said.
Such alignment includes regulatory and fiscal “reliability” from the state of Alaska, Frank told reporters after his speech. “How do you know the economics for your project if you don’t know what you’re going to pay in taxes?” he said.
Despite Frank’s grim assessment, the federal official in charge of managing the dueling gas pipeline applications said she believes long-term prospects are good.
Both the TransCanada and Denali proposals would seek a license from the Federal Regulatory Energy Commission in 2014, and would seek financing only after that, providing plenty of time for economies and financial systems to recover, said Drue Pearce, federal coordinator for the Alaska natural gas pipeline project.
“That’s a lifetime in terms of the financial markets,” said Pearce, who was attending Friday’s conference. (Editing by Christian Wiessner)