Northern Pipelines - On Hold

Low gas prices can't support Arctic gas pipelines:

First the Mackenzie Pipeline (Calgary Herald link) and quote:

CALGARY - Partners in the proposed Mackenzie Valley pipeline have put the $16.2-billion project on hold, slashing budgets and eliminating staff in response to continued poor price outlooks and lack of commercial support.
Imperial Oil, the lead producer in the project with a 34 per cent interest, will close offices in Norman Wells and Fort Simpson, Northwest Territories, this year, and has reduced the size of its office in Inuvik, N.W.T., spokesman Jon Harding said Thursday.
Cheap shale gas that pulled down prices, and cost escalations played into the partners' decision to cut capital on the pipeline project, he said

Back in Alaska pipeline company TransCanada has asked permission to curtail work on the eastern part of the Alaska Gas Pipeline (LINK) and quote:

TransCanada has asked the commissioners of Natural Resources and Revenue to allow it to "curtail" its work on a line that would run from Alaska's North Slope into Alberta, Canada, to focus on a liquefied natural gas project, said Tony Palmer, the company's vice president for major projects development. TransCanada's piece of that project would be the pipeline.

So now there is one project with two probable phases. Alaska LNG pipeline Phase 1 (condensate to TAPS and gas Prudhoe Bay) then Phase 2 (Gas to tidewater + LNG plant).  Lots of permutations and iterations along the way, but many options are now off the table.  Expect LNG for Japan, Korea and China in about a decade.

Reaction to Point Thomson Settlement

Maybe it's a case of what was said doesn't equal what people heard.  Fairbanks News Miner columnist Dermot Cole heard the part about no commitments (LINK).  The Anchorage Daily News heard (correctly) that Alaska has a deal to develop Point Thomson Gas (LINK) . The Wall Street Journal heard that "Alaska, Gas Firms Clear Way For Pipeline" And many media outletS proclaimed that Alaska and Exxon have agreed to build an LNG plant "Exxon seals deal with Alaska to develop $26b LNG plant".

If you want to know that facts I suggest you look at the documents on the Alaska DNR website (LINK).

What you will find is that one of three alternative or combinations of alternatives will play out over time:

Alternative A - Major Gas Sale : Gas to a pipeline and liquids to TAPS.  The clock is ticking to get this alternative sanctioned by 2016.  The window closes in 2019 when the producers must choose Alternative B or Alternative C.

Alternative B: Increase cycling and produce more liquids for TAPS.  Producers must do this or start losing leases.

Alternative C: Gas to Prudhoe Bay, Condensate to TAPS.   The gas flow to TAPS "Significantly increases TAPS throughput" This alternative also provides gas for in-state use.

None of these options involve a guarantee from the producers. The stated goal of the agreement is "A primary goal of this settlement is to incentivize commercialization of North Slope gas/Major Gas Sale (MGS)"

Looking at these options you can see it's a bit over the top to claim a LNG plant is in the works anytime soon. Possible - maybe, probable no. On the other hand the State and the Producers have covered all the bases, and they have done so in away that allows development of Point Thomson in a way that can boost Prudhoe Bay production in the short term and develop a gas export solution later (i.e. Alternative C first followed by Alternative A).  Alternative B looks like the worst case scenario unless you count Alternative "D" Point Thomson abandoned.

Those are the facts, but what about perceptions?  The markets are focused on the potential of Alaskan LNG entering the global mix.  Alaska's competitors will need to pencil that volume into the mix.  Alaska's potential customers can now step up and start negotiating deals.

Any of these outcomes equal revenue and jobs - Good things for Alaska.

Point Thomsom Settlement Agreement

The full text of the Settlement Agreement is at the DNR website (LINK).  Notice the EOR role of Point Thomson gas.  That seems to be the one of the sure things of the agreement.   EOR helps fill TAPS which is always a good thing.  The agreement also leads to commercialization of gas for sale or a large scale cycling project - either way Point Thomson starts cranking out revenue.  I'm still reading the whole thing, but so far it looks like Alaska is on the road to some large projects.

Here are some key parts:


1.6 This Agreement sets forth the WIOs’ commitment to produce natural gas condensate liquids (“condensate”) from the Point Thomson Reservoir for delivery into theTransAlaska Pipeline System (“TAPS”). The WIOs have committed to construct anInitial Production System (“IPS”) which is to be completed by the end of the 2015-2016 winter season. The IPS facility is being designed to produce and re-inject (cycle) 200 million cubic feet per day of gas and to produce approximately 10,000 barrels per day of condensate. In addition, a liquid hydrocarbon pipeline is being designed that can transport approximately 70,000 barrels per day from Point Thomson to an existing pipeline interconnection at the Badami field, which will provide for final delivery of Point Thomson liquid hydrocarbons into TAPS. Operation and production from the IPS will provide data and information to assist in evaluation of additional development plans, including potential increased gas and condensate production from Point Thomson, and plans for the delivery of Point Thomson gas into a Major Gas Sale pipeline project.

1.7 In parallel with the work on the IPS, Parties and/or their affiliates to this Agreement will, upon execution of this Agreement, undertake work for commercialization of North Slope gas. This work will build on ongoing gas commercialization efforts. If a Major Gas Sale is Sanctioned prior to year-end 2016, the WIOs will begin work on a Point Thomson project associated with that Major Gas Sale. However, if a Major Gas Sale has not been Sanctioned by June of 2016, the WIOs have committed to begin engineering of a Point Thomson Expansion Project. An expanded cycling project would result in additional condensate production, totaling approximately 20,000 to 30,000 barrels per day into TAPS, depending on the level of expansion. Alternatively, a project to deliver Point Thomson gas to Prudhoe Bay for injection would significantly increase the rate of condensate production at Point Thomson, serve as a pre-investment for a Major Gas Sale project, and essentially complete installation of the Point Thomson wells and facilities required for a Major Gas Sale. In addition, this option would materially increase production at Prudhoe Bay, and result in enhanced recovery at Prudhoe Bay.

1.8 The Agreement further establishes terms and conditions to facilitate development and provide benefits to the State of Alaska. Certain acreage within the Point Thomson Unit is secured when specified work activities are completed (e.g., the IPS is completed and producing) and key commitments or decisions are made (e.g., a Major Gas Sale is Sanctioned or WIOs Commit to a Point Thomson gas development / Prudhoe Bay enhanced oil recovery project or an IPS gas cycling expansion project). Likewise, the Agreement provides for the automatic release of certain acreage to the State if the IPS is not completed or if certain key commitments or decisions are not made (e.g., a Major Gas Sale is not Sanctioned or WIOs do not Commit to a Point Thomson gas development / Prudhoe Bay enhanced oil recovery project or an IPS gas cycling
expansion project). Depending upon the work activities that occur, the Point Thomson Unit will remain in effect or may terminate.

2.13 “Initial Production System” or “IPS” means the gas cycling facilities designed with capacity to produce and re-inject (cycle) 200 million cubic feet of gas per day utilizing reciprocal compression and with the objective of a minimum of 10,000 barrels per day of condensate for delivery into the TransAlaska Pipeline System (“TAPS”).

2.16 “Major Gas Sale” or “MGS” means a large-scale pipeline project having a design throughput of more than 500 million cubic feet of gas per day that results in delivery of gas off the North Slope of Alaska.

2.21 “Point Thomson Gas Development / Prudhoe Bay Enhanced Recovery Project” means a project to deliver Point Thomson gas to Prudhoe Bay for injection that would significantly increase the rate of condensate production at Point Thomson into TAPS, serve as a pre-investment for a Major Gas Sale, essentially complete installation of the Point Thomson wells and facilities required for a Major Gas Sale, and allow for continued efforts towards, and positions Point Thomson gas for, a Major Gas Sale. In addition, this project would materially increase oil production at Prudhoe Bay into TAPS and result in substantial enhanced recovery at Prudhoe Bay. A Point Thomson Gas Development / Prudhoe Bay Enhanced Recovery Project would result in
production and recovery of liquids from Point Thomson and Prudhoe Bay that would be greater than production and recovery of liquids from Point Thomson from an IPS Gas Cycling Expansion Project of a minimum of an additional 20,000 barrels per day. Before Project Start-up required approvals from the Alaska Oil and Gas Conservation Commission must be obtained.
The project would consist of:
(i) a newly constructed gas pipeline from Point Thomson to Prudhoe Bay with the capacity to transport significant volumes of Point Thomson gas in an amount that would position Point Thomson gas for a Major Gas Sale, for injection for:
(a) use in repressuring, stimulation of production, and increasing ultimate
recovery of Prudhoe Bay oil; and (b) for ultimate availability for a Major Gas Sale; and
(ii) additional wells and facilities at Point Thomson to produce and process significant condensate production for delivery into TAPS through existing liquid hydrocarbon pipelines and pipelines constructed as part of the IPS Project. These facilities would also be used for a Major Gas Sale

New Focus On LNG "We Have Aligned"

Nothing to bank on but it sounds like the gas line project is morphing into an All Alaska line that will feed a tidewater LNG plant.  The first element of the plan is the Point Thomson settlement (LINK), and quote:

(Reuters) - The U.S. state of Alaska has reached a settlement with Exxon Mobil Corp and its partners to develop a huge, long-fallow oil and gas field, possibly paving the way for a $26 billion pipeline and an export plant for liquefied natural gas.
The settlement, which resolves a long-running lease dispute over the Point Thomson field about 60 miles (95 km) east of Prudhoe Bay, could allow for exports of liquefied natural gas via tanker to Asia and may boost Alaskan oil production after decades of decline.
In exchange for continued lease control, operator Exxon and partners BP and ConocoPhillips have agreed to build a pipeline from the field to deliver 70,000 barrels per day of liquids into the Trans Alaska Pipeline System.
The settlement also calls for the companies to produce 10,000 barrels per day of natural-gas condensates by the winter of 2015-16, state officials said.

That's a lot of condensate, I'm not sure where that flow will go but I'm looking forward to the project awards and jobs that will flow from this settlement.

The second element of this good news story is the possibility of an LNG export terminal (CEOs Letter to Gov. Sean Parnell). Quote from the letter:

Serious discussions between our  companies have taken place over  the past several months,
along wi th the Alaska Pipeline Project (APP) parties who are supporting the AGIA License.  We have aligned on a structured, stewardable and transparent approach wi th the aim to
commercialize Nor th Slope natural gas resources within an AGIA framework.  As a result of  the rapidly evolving global market, large-scale liquefied natural gas (LNG) exports f rom southcentral Alaska will be assessed as an alternative to gas line exports through Alberta.  In addition to broadening market access, a south-central Alaska LNG approach could more closely align wi th in-state energy demand and needs.  We are now working together on the gas commercialization project concept selection, which would include an associated timeline and an assessment of  major  project  components including in-state pipeline routes and capacities, global LNG trends, and LNG tidewater  site locations, among others. 

This isn't the slam dunk project sanction announcement, but it's close to the Kumbaya moment many of us have looked for.  The language is parsed, but you would like to think that the CEOs of the North Slope producers are at least 80% certain of a project before they signed up to "assess" an Alaskan LNG project.

The current trend in lower 48 shale gas prices lead me to believe that Alaskan LNG export is the last hope of developing Alaska's natural gas.  Full development of Point Thomson makes little sense without a viable outlet for the gas.

One certain take away is that all three producers are on Team AGIA now with the "We have aligned" statement.  Nice job Governor, don't stop now.

Additional LINKS

(Washington Post/Bloomberg Link)
(Gov. Parnell Website Press Release - Pt. Thomson Resolved, Aligment on Gasline)
(Alaska DNR Point Thomson website)

Plethora of options

Tons of ideas out there, but still no buyers for Alaska gas. Here's links to pipeline related presentations submitted to the Senate Resources Committee this week :



Larry Persily, Federal Coordinator (LINK)

TransCanada (LINK)

Bill "Valdez LNG" Walker (LINK)

Malcolm Roberts (LINK)

Harold Heinze ANGDA (LINK)

David Gottstein (LINK)

AGDC, answers to 54 Wielechowski questions (LINK)

DNR Dan Sullivan, Gasline Update (LINK)

Dan "ASAP" Fauske (LINK)

FERC Notice of Intent for EIS

The Federal Energy Regulatory Commission (FERC) has issued a Notice of Intent to proceed with preparation of the Environmental Impact Statement (EIS). It's difficult to link to the FERC document, but it's available on FERC.GOV, search Docket Number PF09-11-000 or accession number 20110801-3001. I'll send you a copy by email upon request - just leave a comment.

Quote from the Notice of Intent:

Summary of the Planned Project

The APP would involve construction and operation of a new pipeline system to transport up to 4.5 billion cubic feet of natural gas per day (Bcfd). Specifically, the planned project includes the following major components in Alaska:

· About 58 miles of 32 inch diameter pipeline and associated aboveground facilities (the Point Thomson Pipeline) from the processing plant at the Point Thomson Field to a planned gas treatment plant (GTP) near Prudhoe Bay, Alaska;

· A new GTP near Prudhoe Bay capable of producing up to 4.5 Bcfd of pipeline-quality gas;

· About 745 miles of 48 inch diameter pipeline and associated aboveground

ancillary and auxiliary facilities (the Alaska Mainline) from the GTP to the Alaska-Yukon border. The Alaska Mainline would have a maximum allowable operating pressure of 2,500 pounds per square inch;

· Construction of at least five delivery points, eight compressor stations, two meter stations, various mainline block valves, and pig launching/receiving facilities; and

· Associated infrastructure such as access roads, helipads, construction camps, pipe storage areas, contractor yards, borrow sites, and dock modifications and dredging at Prudhoe Bay.

The planned Alaska Mainline would start at the GTP and generally follow the existing Trans-Alaska Pipeline System crude oil pipeline (TAPS) and adjacent highways southeast to Delta Junction, Alaska. From Delta Junction, the mainline would diverge from TAPS and generally follow the Alaska Highway southeast to the Alaska-Yukon border. At the Alaska-Yukon border, the pipeline would interconnect to a new pipeline in Canada to deliver gas to North American markets through the Alberta Hub or other facilities with existing off-take capacity at or near the British Columbia/Alberta border.

One item of special interest for proponents of the Valdez LNG option:

The project proponent is also considering an alternative proposal to build a natural gas pipeline to Valdez, Alaska for delivery into a liquefied natural gas (LNG) plant for liquefaction and export to global LNG markets. Because the Commission has received very little information on the LNG plant and the associated pipeline, the Valdez proposal is not sufficiently developed for the FERC to include in the environmental review at this time

Ouch! That indicates that nothing permit-able has transpired on the LNG option.

Is FERC going through the motions or is this real progress for the project. As always there's too little information and no indication of pending commitments.

EIS Flowchart from the Notice of Intent: