The Need for Alaskan Gas & The Case for a ConocoPhillips Natural Gas Pipeline

Production of a barrel of Canadian Tar Sand synthetic crude oil consumes about 1,200 cubic feet of natural gas.

This means that 4.5 BCFD of Alaskan Natural Gas could process Canadian Tar Sands and yield 3.75 MMBPD of synthetic crude oil.

One of the best examples of the link between Alaskan natural gas and Canadian Tar Sands is ConocoPhillips.

ConocoPhillips can produce about 1/2 of the Alaskan Natural gas or about 2 BCFD.

The ConocoPhillips - Encana joint venture seeks to produce about 0.4 to 0.6 MMBPD of tar sand product depending which story you read. That would consume about 16% of the Alaskan natural gas production.

Heavy oil from Canada can replace heavy oil from Venezuela in ConocoPhillips Lower 48 refineries.

The heavy oil from Canada will reach ConocoPhillips refineries by way of the Keystone Pipeline, a joint venture with TransCanada.

The business case for a ConocoPhillips led Alaska Gas Pipeline is compelling. For ConocoPhillips and their partners the project is a Win-Win-Win-Win.

Win #1 Monetization of stranded Alaskan Natural Gas Resources.
Win #2 Natural Gas feedstock for Tar Sand Oil production provided at cost.
Win #3 Secure heavy oil feedstock for existing refineries.
Win #4 Sell Alaskan natural gas to other Tar Sand Oil Producers at a profit.

I'm presenting my interpretation of ConocoPhillips business case for an Alaskan Natural Gas Pipeline to show the contrast to the TransCanada business case.

TransCanada wants a lot of government support (including a $500,000,000 inducement from Alaska) to build a pipeline and receive a fixed, predictable profits for transporting Alaskan Gas to Alberta. The other 49 U.S. States will be asked to chip in and buy gas to fill the pipeline when the U.S. Government becomes the "Bridge Shipper"

It's a sweet deal for TransCanada if they can pull it off.

Here's the economics lesson for Alaskans - There's a fixed amount of income that will come from producing Alaskan Natural Gas - Whatever cost are paid to Canadians reduces the amount that should go to Alaskans (Americans) as jobs, profits, reinvestment in oil & gas development, and tax revenue.

No matter how much folks enjoy badmouthing the Producers - High profits for TransCanada is not the optimum business case for the producers, Alaskans, or the Lower 48.

Photos from: Dirty Oil , Technology Review By Katherine Bourzac. Pipe Photo from Grand Forks Herald

25% Rate of Return?

According to the Anchorage Daily News: Steve Porter, the state's deputy revenue commissioner, said the proposed 14 percent return on investment for TransCanada could rise to 25 percent.

That's a lot of loonies!

It's may be a good time for ConocoPhillips to step up and explain what sort of rate of return they are looking for. The whole idea of the Alaska Gas Inducement Act (AGIA) was to promote openness transparency.

Speaking of transparency - isn't about time for the administration of Governor Sarah Palin to step up and define the tax structure for the North Slope Producers?

There's still a few pieces missing from this pipeline project puzzle.

Link to the Fairbanks News Miner story on this topic.

Absence of Consensus

The Alaska Gasline Inducement Act (AGIA) was intended to create a gas pipeline project in an orderly step by step manner. The State of Alaska would offer a $500 Million inducement, bidder would submit proposals, proposals that meet the States list of "must" have would undergo legislative review, and a license would be granted to the winner.

With one week to go in the public comment phase of the AGIA it's safe to say that the process is not solidifying behind the qualifying bidder TransCanada. The public cover the entire spectrum, here's what people are saying:

Ted Stevens, in an address to the Alaska Legislator said "The right climate for this investment in our State must exist. Originally considered a $20 billion project, recent financial analysts’ comments indicate the cost will be $40 billion. No entity will commit that kind of money – whether $20 or $40 billion – without certainty in the financial aspects of the project’s economics.

In other public comments Stevens stated "that Congress will not provide additional federal money for TransCanada's proposal".

This comment was directed at the TransCanada notion that the US Government should act as a "bridge shipper" of Alaskan gas if the North Slope producers fail to commit sufficient gas during the first open season.

Governor Palin disagrees with and defended the AGIA process and progress. The rift between the senior Republican leads seems to be growing.


The other camp of political leaders in Alaska, the State Legislator evaluating the Port Authority LNG option.

Upcoming Events:

February 27th - Supreme Court will hear arguments in the Exxon Valdez case. A decision for Exxon will send emotional and political shock waves through the Alaska Gas Pipeline debate.

March 6th - AGIA public comment period ends

ConocoPhillips Proposal in the Spotlight

The rejected ConocoPhillips Alaska Gas Pipeline proposal is under close review by the Alaska Senate Resources Committee.

In addition to the 3-page letter of January 9th, 2008 the committee is review additional documents from the Governor's office.

It's not clear were this is leading ConocoPhillips but in testimony Wednesday ConocoPhillips raised concerns about a potential $9 Billion liability of TransCananda.

ConocoPhillips referred to the TransCanada liability as a "Stumbling Block".

Conoco's persistence will probably pay off - at the moment they have 0% participation in Alaska Gas Pipeline, a good proposal, and the ear of the lawmakers.

Their partnership with TransCanada on the Keystone Pipeline indicates that they can and will partner with TransCanada to achieve their goal.

Alaska Gas Pipeline

This Blog tracks the progress of the Alaska Gas Pipeline project. It's a continuation of the ak-gas-pipeline blog I started back in November when the State of Alaska accepted proposals under the Alaska Gas Inducement Act (AGIA).

The AGIA yielded five AGIA bidders and a non-AGIA bid from ConocoPhillips.

From the stack of five AGIA bids, Alaska's Governor, Sarah Palin recently announced that only TransCanada met the Statutory Requirements.

The Governor rejected the ConocoPhillips proposal, and decline further comment on the other proposals from the Alaska Gasline Port Authority, AEnergia LLC, Sinopec ZPEB and
Alaska Natural Gasline Development Authority (Spur Lines only).

The politics is heating up as Alaskan Lawmakers want to take a closer look at the ConocoPhillips proposal and the Alaska Gasline Port Authority proposal.

The next few months should be full of more news and surprises. Stay tuned.