2011 - Year of the Yawn

I had greater expectations for the Alaska Gas Pipeline in 2011. To recap -

1. The open season process was expected to yield announcements of precedent agreements for long term commitments to ship gas.  The agreements may or may not have been reached, but no public announcement was forthcoming.  Chances are any agreements reached are so heavily conditioned that they represent no commitment to do anything in the here and now. 
2. In 2011 I expected a viable shipper for a 7 MMTPA Valdez LNG plant to step forward.  What actually happened was that Governor Parnell voiced support for a tidewater LNG project. The Governor's comments had the unintended consequences of delaying submission of resource reports by the Alaska Pipeline Project (TransCanada and ExxonMobil).
3. 2011 Started with two Alaska Gas Pipeline projects - The APP (TransCanada & Exxon Mobil) working to the scope as defined by the Alaska Gas Inducement Act (AGIA) and The Denali Project (ConocoPhillips & BP).  I had an expectation that the projects would merge in 2011.  Instead Denali folded in May citing "open season efforts have not resulted in the customer commitments necessary to continue work on its Alaska North Slope gas pipeline project".  

What's next? - for starters spot Henry Hub gas closed the year at $2.97/MMBTU (see chart for 2011 natural gas prices).   That's astonishing and sobering to any proponent of an Alaskan Gas Pipeline.  Gas that cheap in December is partially due to a mild lower 48 winter but mainly a function of  the glut of shale gas. The 200 day average price is right at $4/MMBTU - essentially the low profit range to drill and produce a shale gas well.

In 2012 the North American gas markets will have little appetite for Alaskan Gas.  Billions will be spent to build Gulf of Mexico LNG export capacity and preliminary studies will be launched to look into the viability of at least one lower 48 Gas to Liquids (GTL) plant.  Anti-fracking stories will continue with little effect on the continued development of lower 48 shale gas resources. The annual average price of 2012 gas may fall within the $3.50 - $5.00/MMBTU range. No new nuclear power will come on line in 2012, but a few gas fired plants will come on line to replace aging coal plants.

Throughout 2012 Alaskans will come to grips with the increasing unattractiveness of Alaskan Gas.  The best comment this year came from Steve Kirchhoff, Vice President – Americas, ExxonMobil Gas and Power Marketing Company in a presentation to the Resource Development Council of Alaska in this video. In this presentation Kirchoff states that "You can't dabble at LNG"

Denali PowerPoint and Time Lines

Check out the latest from the Denali Pipeline. (LINK)

The time lines grabbed my attention - Is there any way to move those milestones to the left by a few years?



Seriously 2020?

Open Season - It's a Go!

Today marks a significant milestone in the process to build the Alaska Gas Pipeline. TransCanada and ExxonMobil (Alaska Pipeline Project - APP) have announced (LINK) the beginning of the open season.

Two options are on the APP menu - Pipeline to Alberta, or Pipeline to Valdez for a future LNG plant.

Later this year the Denali Pipeline (LINK) will get cracking with their open season for a competing pipeline to Canada.

The score so far for those playing the game at home:

TransCanadaExxonMobil (APP) Using other peoples money (AGIA) +1, First Open Season +1, Multiple Options including an All Alaska option +1 (Subtotal +3). Denali Pipeline: Still in the game +1, Second out of the chute -1, no all Alaska option -1 (Subtotal -1). Both projects get a -1 for failing to join up and push for one project.

Side note - An 18 month stretch of mega overtime (OT) is coming to an end for me, so I have more time to devote to fishing, and attending to this blog. I've been in the constant OT game for over a decade and I'm look forward to some 3 day weekends. On the other hand - I'd like to see a pipeline project slide into gear. With a bit of luck that might just happen. Your thoughts are always appreciated- Thanks.

This Weeks Pipeline Stories

While some may credit the AGIA and Alaska's Governor with moving the Alaska Gas Pipeline forward I suggest that you take a look at the chart and link to the left - It shows the price of natural gas more than doubled in the past year. Following the motto of "Lead, Follow or Get out of the Way" it looks like commodity pricing is leading, the producers (Denali Project) are following, perhaps the Governor should stay out of the way.

Links and news of interest:

Andrew Halcro has good summary of the rough and tumble world of lawmakers and the gas pipeline.

In case anyone thinks an Arctic gas pipeline project is easy take a look at this story by Ed Struzik of the Edmonton Journal. The article describes the trials and tribulations of the failing Mackenzie Delta gas line project.

This week Petroleum News carried a couple of stories worth passing on:

"Galvin on Mediation" -McGuire wants mediation; Revenue chief says Alaska first has to have position - Kristen Nelson, Petroleum News

"Definition, not mediation, please" Kristen Nelson, Petroleum News.