Alaska Gas & Canadian Tar Sands - Do the Math

After weeks and months of somewhat slow paced news on the AGIA gasline we finally got some real news when ConocoPhillips and BP announced plans for the "Denali" Gas Pipeline project.

The Governor continues to consider giving a $500,000,000 incentive to TransCanada to build the pipeline.

The Anchorage Daily News and the Fairbanks News-Miner are good sources for all the reaction to this historic announcement.

As this period of evaluation, estimation and engineering move forward here's some perspective on why the ConocoPhillips / BP Denali pipeline make good economic sense to these companies and their potential partners.

Production of Canadian Tar Sands requires 1,200 SCF (standard cubic feet) of natural gas per barrel. The 4.5 BCFD of Alaskan gas can be used to support 3.75 MMBPD of tar sand oil production. If oil is selling for $125/BBL when the gas starts flowing the Alaskan Gas will support gross revenues of $169 Billion annually.

Obviously there are lots of other cost associated with tar sand production, but this analysis show just how important Alaskan Gas is to North American oil production.

Here's how the projected Tar Sand projects stack up: ConocoPhillips is partnered with Encana, BP with Husky and ExxonMobil with Imperial - Collectively the North Slope producers can use 1,080 MMSCFD of their own gas captively to produce tar sand oil in Canada. The remaining 3,420 MMSCFD can be sold at a profit to other tar sands producers.

Even at this rate of North Slope Gas production the new projects will demand 1,000 MMSCFD more. This volume of gas could come from the Mackenzie Pipeline Project (1,200 MMSCFD).

Here's a summary of planned Tar Sands projects - You can see that the projects don't exceed the availability of North Slope gas plus Mackenzie Delta Gas.



After running these numbers the Denali Gas Pipeline announcement makes more sense.

By comparison TransCanada earns revenue by moving gas into the tar sands projects and by moving tar sand oil to the Lower 48 via projects like the Keystone Pipeline.

The TransCanada business model makes sense - But the North Slope Producers business model makes more sense. Which is why the State of Alaska and the Governor need to work with, not against the producers.

Tar Sand Projects Link and data source.