Predictable Palin Promotes TransCanada

"May 22, 2008, Anchorage, Alaska – Governor Sarah Palin, Department of Natural Resources Commissioner Tom Irwin and Department of Revenue Commissioner Patrick Galvin today released the AGIA Findings and Determination of the natural gas pipeline project as proposed by TransCanada Alaska Company, LLC and Foothills Pipelines Ltd. (TC Alaska) to the State of Alaska.

The commissioners’ conclusion and analysis of the natural gas pipeline project proposed by TC Alaska is that it merits issuance of the AGIA license because it maximizes the benefits to Alaskans."

In addition to promoting the TransCanada project, the Governor says the TransCanada pipeline makes a "Y" line or spur line possible for a future Liquefied Natural Gas (LNG) project.

The Governor also made a point to downgrade the ConocoPhillips/BP Denali gas pipeline.

Next stop - The legislature has 60 days to pass a bill approving the issuance of the license.

We'll see how this next step goes. It will take some time to digest the press release.

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.

AGIA Dead or New Life for LNG?

The AGIA process failed to produce any real competition. The All Alaska Pipeline, an LNG option didn't make it past the first round of completion.

The State was left with the TransCanada proposal that is burdened by numerous conditions.

Things are looking dim as the Alaska Daily News reports this week that the mood in Juneau is growing openly hostile.

Folks in Fairbanks are finding their voice and airing concerns about the high cost of fuel oil for home heating. Talk of a bullet line is gaining traction as the probable failure of AGIA takes hold.

But is the glass half full?

The Alaska Journal reports some cryptic remarks from Alaska Department of Natural Resources Commissioner Tom Irwin: "If the TransCanada proposal doesn't go to the Legislature the state will stay within the AGIA process and work on LNG, or liquid natural gas, options".

It's not clear how the AGIA goes into overtime, but it's good to hear that the State is not 100% joined at the hip to TransCanada. For now let's hope the glass is half full and that reason prevails.