The global economic crisis has dashed demand for natural gas, dimming chances for an Alaska gas pipeline, a top market analyst said Friday.
"It's certainly going to be taken off the urgent list," said Ed Kelly, a Houston-based vice president with the global energy consulting firm Wood Mackenzie.
Kelly and a BP gas sales executive each delivered a grim overview of gas markets during Friday's Alaska Support Industry Alliance conference at the Sheraton hotel in Anchorage.
The Alliance represents drillers, builders, haulers and other contractors who make a living off the state's oil fields.
The recession and credit crunch have hammered industries that use natural gas, depressing demand and prices, said Kelly and Brian Frank, president of BP's gas marketing company.
"It's not a pretty story right now in terms of North American gas markets," said Frank, noting how gas customers are regularly filing for bankruptcy.
The speakers also outlined some looming competitive challenges to an Alaska gas line, including an expected surge in imports of liquefied natural gas or LNG, production of huge gas discoveries in Lower 48 shale deposits and a rise in renewable energy such as wind power.
In questioning after his speech, Frank stopped short of saying the gas line is in jeopardy of further delay or even shelving because of poor market conditions.
Instead, he said these conditions highlight the staggering risk of investing in a pipeline that could cost more than $30 billion to build. And he repeated a familiar refrain from BP and other oil companies controlling the huge North Slope gas reserves -- that steps are needed, in their view, to "mitigate project risk and uncertainty."
That's generally taken in Alaska to mean a long-term deal between the state and the oil companies on how the Slope's 35 trillion cubic feet of gas would be taxed if produced.
Such a deal has been politically untenable so far, and top officials in Gov. Sarah Palin's administration have argued no such pact is necessary to achieve a profitable pipeline, even during times of low gas prices.
Several leading state legislators were in the audience Friday, including Sen. Charlie Huggins, a Wasilla Republican and member of the Senate Resources Committee.
He said the tough market outlook for gas means state officials must keep looking at the tax question. He also said officials should start looking at alternate ways of selling Slope gas -- and making it available for local use -- rather than just hope a blockbuster pipeline somehow will come together.
"We have to be flexible enough mentally to plan for other courses of action," Huggins said.
One idea he likes is beefing up the output of the small LNG export operation at Nikiski so large volumes of Alaska gas could be shipped to Asia, the Lower 48 or wherever it would fetch the best price.
The trio of oil companies holding most of the North Slope gas -- BP, Conoco Phillips and Exxon Mobil -- have said an overland pipe is more economically viable than an LNG project.
Two competing pipeline proposals are now in the planning stages. Each would stretch about 1,700 miles from the North Slope to an existing pipeline network in Alberta, Canada.
One project belongs to Calgary-based TransCanada Corp., which last year won an exclusive state license that includes up to $500 million in state incentive money.
BP and Conoco are teaming up on the other pipeline proposal, a joint venture called Denali. The companies didn't apply for the license that TransCanada received.
The gas line is one of the state's top economic development dreams, a project that could generate thousands of jobs and billions of dollars in tax revenue for the state.
But the high cost of the pipeline, combined with periods of low gas prices, have combined to delay the project for decades.
Kelly, of Wood Mackenzie, said his firm's long-term gas supply forecast includes an assumption that an Alaska gas pipeline will be built and working by 2021. But Alaska gas is not regarded as a firm part of the supply mix, he said.
One positive coming from the recession might be a decline in construction costs for a pipeline, Kelly said.
Drue Pearce, a former state senator and now federal coordinator for Alaska natural gas transportation projects in Washington, D.C., said steel prices have fallen sharply, and that's good for pipeline builders.
TransCanada and Denali are focused more on developing pipeline cost estimates and less on current gas markets, which could strengthen in the years it will take to arrange financing and regulatory approval of a project, Pearce said.
Copyright (c) 2009, Anchorage Daily News, Alaska. Distributed by McClatchy-Tribune Information Services.
