It's easy to get discouraged about prospects for a North Slope natural gas pipeline. Lower 48 gas prices have plummeted, as new supplies from unconventional sources flood the market.
But let's not be so quick to write the project's obituary.
The state's licensing arrangement with TransCanada is designed to keep the project moving through an uncertain patch like this.
The state is paying half of TransCanada's cost of on-going work, which right now focuses on design issues and preparing a cost estimate. That work is essential for recruiting potential shippers in next year's open season.
TransCanada is obligated, by contract with the state, to continue its work to that open season and even beyond -- unlike the competing Denali project. Denali can drastically curtail its work if Conoco and BP decide their money is better spent elsewhere.
In selecting TransCanada, the state picked a tightwad operation that knows how to control costs. It doesn't go around town bragging about how much money it plans to spend on the project. It just quietly and methodically moves ahead with its work.
Exxon, a company that knows how to play a winning hand on a multi-billion dollar project, was impressed enough to sign on to TransCanada's effort.
As for those discouraging natural gas prices, they are an aberration, by historic standards.
Normally, gas prices tend to track oil prices. For many years, the rule of thumb was that the price for a million cubic feet of gas would be about one-tenth the price for a barrel of oil, according to an analysis by the Federal Reserve Bank of Dallas. Today's price of $72 a barrel for oil would mean a natural gas price of about $7.20 in a Lower 48 wholesale market.
Today, the price of gas is about $3.30 -- less than half what you'd normally expect with that historic price ratio.
When gas is that cheap, big industrial users will start shifting over from coal or oil and soak up excess supplies on the market.
TransCanada's Tony Palmer notes that futures markets are setting gas prices for 2010 and beyond that are in the range needed to make the project go. If the futures markets are right, the price of natural gas will double by the end of next year and stay in that range through 2012.
In other words, there's a lot of room for gas prices to move up. Natural gas is an attractive option because it is clean, with relatively low emissions of troublesome greenhouse gases.
As Gov. Parnell's natural gas czar Harry Noah told the Daily News, last year's Lower 48 natural gas prices were "unrealistically high," and now today's prices are "unrealistically low."
While those prices go up and down, Alaska is working with a partner who keeps moving forward, seeking the cheapest possible version of this hugely expensive project. That won't guarantee Alaska gets a gas line, but it does improve the odds of success as Lower 48 natural gas prices continue to fluctuate.
BOTTOM LINE: Today's low natural gas prices aren't necessarily a death knell for an Alaska pipeline.
Copyright (c) 2009, Anchorage Daily News, Alaska. Distributed by McClatchy-Tribune Information Services.
